62022CJ0775_RES
Joined Cases C‑775/22, C‑779/22 and C‑794/22
M.S.G.andN.G.S.andA.G.S.andM.C.S.andFSC
v
Banco Santander SA
(Request for a preliminary ruling from the Tribunal Supremo)
Judgment of the Court (First Chamber) of 5 September 2024
(Reference for a preliminary ruling – Directive 2014/59/EU – Resolution of credit institutions and investment firms – General principles – Article 34(1)(a) and (b) – Bail-in – Write down of capital instruments – Conversion of subordinated obligations into shares and mandatory transfer for no consideration – Effects – Article 38(13) – Article 53(1) and (3) – Article 60(2), first subparagraph, points (b) and (c) – Articles 73 to 75 – Protection of the rights of shareholders and creditors – Purchase of capital instruments – Flawed and incorrect information provided in the prospectus – Action for damages – Action for a declaration of nullity in respect of the agreement for the purchase of capital instruments – Actions brought against the universal successor of the credit institution subject to a resolution decision)
Economic and monetary policy – Economic policy – Recovery and resolution of credit institutions – Directive 2014/59 – Effect of bail-in – Write down or conversion of capital instruments – Prospectus to be published when securities are offered to the public or admitted to trading – Incorrect information – Credit institution subject to a resolution decision or its successor entity – Conversion of capital instruments into shares prior to the resolution procedure – Action for damages brought after the resolution decision – Action for a declaration of nullity in respect of the agreement for the purchase of shares brought after the resolution decision – Not permissible
(European Parliament and Council Directive 2003/71, Art. 6; European Parliament and Council Directive 2014/59, recital 49 and Arts 2(1), 34(1)(a) and (b), 53(1) and (3) and 60(2), first subpara., points (b) and (c), and (3))
(see paragraphs 51, 52, 54, 57-62, operative part 1)
Economic and monetary policy – Economic policy – Recovery and resolution of credit institutions – Directive 2014/59 – Effect of bail-in – Write down or conversion of capital instruments – Prospectus to be published when securities are offered to the public or admitted to trading – Incorrect information – Credit institution subject to a resolution decision or its successor entity – Conversion of capital instruments into shares, subsequently transferred to another credit institution, in the context of a resolution procedure – Action for damages brought after the resolution decision – Action for a declaration of nullity in respect of the agreement for the purchase of shares brought against the universal successor of the credit institution subject to a resolution decision – Not permissible
(European Parliament and Council Directive 2014/59, Arts 34(1)(a) and (b), 37(3)(a) and (d) and (4), 38, 53(1) and (3), 60(2), first subpara., points (b) and (c), and 73(b))
(see paragraphs 66-70, 74-77, 83-85, operative part 2)
Résumé
Hearing a reference for a preliminary ruling from the Tribunal Supremo (Supreme Court, Spain,), on the interpretation of provisions of Directive 2014/59, (
1
) the Court of Justice rules, again, on whether persons who have purchased capital instruments of a credit institution under resolution can, after the total write down of the shares in the capital stock of that institution, bring an action for a declaration of nullity in respect of the subscription agreement relating to those instruments and/or an action for damages, on the basis of flawed and incorrect information provided in the issue prospectus. (
2
) The question has been raised in proceedings brought by persons whose capital instruments were converted into shares in that credit institution, either before the procedure to adopt resolution measures or in the context of that procedure.
The present judgment of the Court comes in response to the judgment of 5 May 2022, Banco Santander, (
3
) in which the Court held that, after a total write down of the shares in the capital stock of a credit institution or of an investment firm subject to a resolution procedure, persons having acquired shares before the opening of that procedure cannot bring such actions for damages or for a declaration of nullity.
The applicants in the main proceedings had, in 2010 and 2011, purchased various capital instruments issued by Banco Popular, a Spanish credit institution, or by a subsidiary of Banco Popular. In 2012 and 2014, some of those instruments were converted into shares in Banco Popular. On 7 June 2017, the Single Resolution Board (SRB) adopted a resolution scheme in respect of Banco Popular, which was endorsed by the European Commission and implemented by the Fondo de Reestructuración Ordenada Bancaria (Fund for Orderly Bank Restructuring, Spain; ‘the FROB’) by a decision adopted the same day. (
4
) By that decision, the FROB, inter alia, reduced Banco Popular’s share capital to zero by means of the write down of all the outstanding shares. That write down had the effect that certain applicants ceased to be the holders of shares in Banco Popular resulting from the conversion of their capital instruments in 2012 and 2014. In addition, the FROB decided to convert the subordinated obligations (Tier 2 capital instruments) into new shares and to transfer those new shares to Banco Santander without the consent of the former holders of those instruments. That operation led to other applicants ceasing to be the holders of the subordinated obligations purchased in 2010 and 2011 that were converted into shares and, subsequently, transferred to Banco Santander, without receiving any consideration.
Findings of the Court
In the first place, the Court rules on the action for damages for flawed or incorrect information in the issue prospectus (
5
) and on the actions for a declaration of nullity in respect of the subscription agreement relating to capital instruments in a credit institution, brought by persons having purchased such instruments that were converted into shares in that institution before the adoption of resolution measures against it.
At a first stage, it points out that, under Directive 2014/59, (
6
) where a resolution authority reduces to zero the principal amount of, or outstanding amount payable in respect of, a liability, that liability and any obligations or claims arising in relation to it that are not accrued at the time of the resolution are to be treated as discharged for all purposes, and are not to be provable vis-à-vis the credit institution or the investment firm under a resolution measure or any successor entity. Furthermore, the directive states that no liability to the holder of the capital instruments written down, under the resolution decision, is to remain under or in connection with that amount of the instrument, which has been written down, except for any liability already accrued, and any liability for damages that may arise as a result of an appeal challenging the legality of the exercise of the write-down power. (
7
)
As regards the concepts of ‘accrued obligations’ or ‘accrued claims’, the Court notes that, as it held previously in the judgment of 5 May 2022, Banco Santander, the rights arising from an action for damages due to the information given in the prospectus for the sale of securities (
8
) and an action for a declaration of nullity in respect of a share subscription agreement cannot be regarded as falling within the category of ‘accrued’ obligations or claims (
9
) where those actions are brought against the credit institution or investment firm issuing the prospectus or the successor entity after the adoption of the resolution decision.
At a second stage, the Court holds that it is also necessary to understand those concepts in that way where the rights arise from an action for damages or for a declaration of nullity in respect of the purchase of capital instruments which have subsequently been converted into shares in the light of the context of those concepts and the objectives pursued by Directive 2014/59.
First, Directive 2014/59 establishes the principle whereby it is the shareholders, followed by the creditors, of a credit institution or investment firm under resolution that are required to bear the first losses incurred as a result of the application of that procedure. In the context of a bail-in, the write-down and conversion of capital instruments contributes directly to the achievement of the objectives of the resolution procedure. Accordingly, to allow persons who have purchased capital instruments prior to the resolution to bring actions, after that resolution, for damages or for a declaration of nullity for the purposes of seeking damages or reimbursement in the amount of the funds paid for that purchase would entail precisely the risk that the amount of the capital instruments subject to a bail-in would be retroactively reduced, which could call into question whether the objectives pursued by the resolution action were being achieved.
From that perspective, Directive 2014/59 provides (
10
) that no compensation is to be paid to the holders of the relevant capital instruments, other than the cases where such instruments are converted, (
11
) and that, in those cases, compensation is to take the form of an issuance of capital instruments to those holders. By doing so, the directive has the effect of preventing that compensation from being able retroactively to reduce the amount of capital used for the purposes of resolution.
Second, in relation to the objectives pursued by Directive 2014/59, the Court notes that Directive 2014/59 provides for the use, in an exceptional economic context, of a procedure that may affect in particular the rights of shareholders and creditors of a credit institution or investment firm, in order to preserve the financial stability of the Member States, by creating an insolvency regime derogating from the ordinary law governing insolvency proceedings, which may only be applied in exceptional circumstances and must be justified by an overriding public interest.
The Court points out that, as is apparent from the judgment of 5 May 2022, Banco Santander, Directive 2003/71 is one of the ‘Union company law directives’ from which Directive 2014/59 makes it possible to derogate, in so far as the application of those provisions could hinder the implementation of a resolution procedure or deprive it of practical effect. Both actions for damages and actions for a declaration of nullity, which essentially require that the credit institution or investment firm under resolution, or the successor of those entities, compensate shareholders for the losses incurred as a consequence of the exercise by a resolution authority of the write-down and conversion powers, would call into question the entire valuation upon which the resolution decision is based because the breakdown of the capital forms part of the objective data for that valuation, and, consequently, would be capable of causing the resolution procedure itself as well as the objectives pursued by Directive 2014/59 to be frustrated. Accordingly, in the same judgment, the Court held that the application of Article 34(1)(a), Article 53(1) and (3) and points (b) and (c) of the first subparagraph of Article 60(2) of Directive 2014/59 excludes the possibility of an action for damages under Article 6 of Directive 2003/71 or an action for a declaration of nullity in respect of the share subscription agreement, under Spanish law, being brought against the credit institution or investment firm issuing the prospectus or the successor entity, after a resolution decision has been adopted on the basis of those provisions.
In the present case, it notes that, although the applicants in the main proceedings initially purchased capital instruments other than shares in Banco Popular, those instruments had already been converted into shares in Banco Popular prior to the resolution of that bank and that, in the context of the resolution of that bank, the shares resulting from that conversion were subject to a write-down and conversion measure for the purposes of the bail-in of that bank.
The Court holds that the provisions of Directive 2014/59 referred to above preclude, after the total write down of the shares in a credit institution under resolution, persons who have purchased capital instruments that have been converted into shares in that credit institution before the adoption of resolution measures against it, from bringing, against that institution or against its successor entity, an action for damages on the basis of flawed and incorrect information provided in the issue prospectus or an action for a declaration of nullity in respect of the agreement by which they subscribed for those capital instruments under national law, which, in the light of its retroactive effect, would lead to the reimbursement of the price paid for those capital instruments that were initially purchased and were then converted into shares, plus interest from the date on which that agreement was concluded.
In the second place, the Court addresses the question of whether the provisions of Directive 2014/59 (
12
) preclude, after the total write down of the shares in a credit institution under resolution, persons who have purchased capital instruments which, in the context of that procedure, have been converted into shares in that credit institution, which were then immediately transferred to another credit institution, from bringing an action against the latter for a declaration of nullity in respect of the subscription agreement relating to those capital instruments under national law, which, taking account of its retroactive effect, would lead to the reimbursement of the price paid for those capital instruments, together with interest from the date on which that agreement was concluded.
It states that, under Article 37(3)(a) and (d) and (4) of Directive 2014/59, resolution authorities may combine the bail-in tool with the sale of business tool. As is apparent from Article 2(57) and (58) of that directive, although the first of those tools includes write-down and conversion powers, the second consists of the transfer, inter alia, of shares or other instruments of ownership issued by an institution under resolution to a purchaser that is not a bridge institution. According to that directive, (
13
) in the context of that second tool, since ownership of shares or other instruments of ownership is transferred, with immediate legal effect, to the purchaser, the original owners lose not only the ownership, but also the status of ‘shareholder’ or ‘creditor’ of the credit institution under resolution. In that way, the former shareholders of the credit institution under resolution whose shares have been transferred in the context of the resolution are no longer shareholders, either of that credit institution or of its successor and lose any rights over or in relation to the assets, rights or liabilities transferred. The directive thereby precludes creditors and shareholders from being able, with retroactive effect, to frustrate the resolution procedure and the objectives pursued by that procedure, with all the more reason since such an action might enable creditors and shareholders retroactively to avoid the losses which they must bear first.
In respect of the argument raised by the applicants in the main proceedings invoking a limitation of their right to effective judicial protection as regards their right to bring an action for a declaration of nullity in respect of the agreement by which they subscribed for shares or capital instruments converted into shares, the Court points out that the right in question, enshrined in Article 47 of the Charter of Fundamental Rights of the European Union, is not absolute and its exercise may be subject to restrictions justified by objectives of general interest pursued by the European Union. Furthermore, although there is a clear public interest in ensuring, throughout the European Union, strong and consistent protection of investors, that interest cannot be held to prevail in all circumstances over the public interest in ensuring the stability of the financial system. By making shareholders the first to bear the losses suffered by a credit institution or investment firm, the directive is intended to ensure the stability of the financial system of the European Union, on the basis that, according to that directive, a resolution procedure should apply only in those exceptional and extremely urgent economic circumstances, where the credit institution or investment firm in question cannot be wound up under normal insolvency proceedings without destabilising the EU financial system. Although the provisions of the directive in that way prevent the bringing of such an action for a declaration of nullity, after the adoption of the resolution decision, the Court notes, inter alia, that the resolution action, as resulting from the Commission decision approving a resolution scheme, may be the subject of an action for annulment under the fourth paragraph of Article 263 TFEU. Such an action contributes to the effective judicial protection of shareholders and creditors, also in so far as the potential annulment of the resolution action would make it possible to bring an action for a declaration of nullity in respect of the agreement by which they subscribed for shares or capital instruments converted into shares.
The Court holds that the provisions of Directive 2014/59, in particular Article 34(1)(a) and (b) and Article 38 thereof, preclude, after the total write down of the shares in a credit institution under resolution, persons who have purchased capital instruments which, in the context of that procedure, have been converted into shares in that credit institution, which were then immediately transferred to another credit institution, from bringing an action against the latter for a declaration of nullity in respect of the agreement by which they subscribed for those capital instruments under national law.
(
1
)	Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (OJ 2014 L 173, p. 190).
(
2
)	Under Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC (OJ 2003 L 345, p. 64), which was repealed, with effect from 21 July 2019, by Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market and repealing Directive 2003/71/EC (OJ 2017 L 168, p. 12).
(
3
)	Judgment of 5 May 2022, Banco Santander (Resolution of Banco Popular), C‑410/20, EU:C:2022:351.
(
4
)	FROB Decision of 7 June 2017 (BOE No 155 of 30 June 2017, p. 55470).
(
5
)	As provided for in Article 6 of Directive 2003/71.
(
6
)	Article 53(3) of Directive 2014/59.
(
7
)	Article 60 of Directive 2014/59.
(
8
)	Under Article 6 of Directive 2003/71.
(
9
)	Within the meaning of Article 53(3) and Article 60(2)(b) of Directive 2014/59.
(
10
)	Article 60(2), first subparagraph, point (c), and (3) of Directive 2014/59.
(
11
)	Referred to in Article 60(3) of Directive 2014/59.
(
12
)	In particular, Article 34(1)(a) and (b) and Article 38 of Directive 2014/59.
(
13
)	Article 38(1), (4), (6), 9(a) and (13) of Directive 2014/59.