OPINION OF ADVOCATE GENERAL
RICHARD DE LA TOUR
delivered on 2 December 2021 (1)
Case C‑410/20
Banco Santander SA
v
J.A.C.,
M.C.P.R.
(Request for a preliminary ruling from the Audiencia Provincial de A Coruña (Provincial Court, A Coruña, Spain))
(Reference for a preliminary ruling – Directive 2014/59/EU – Recovery and resolution of credit institutions – Acquisition of shares – Resolution procedure – Directive 2003/71/EC – Incorrect information in the share issue prospectus – Action for a declaration of nullity of a share purchase contract – Error of consent – Application made against the universal successor of the credit institution)
I. Introduction
1. In response to the collapse of the Lehman Brothers bank in 2008 and to the financial crisis which followed, the European Union set itself the objective of achieving the orderly management of banking crises. It introduced two instruments in parallel: first, a common resolution framework for all its Member States (2) and, secondly, a specific and integrated single resolution mechanism for the euro area, in the context of the banking union. (3)
2. The objectives pursued by the banking resolution are common to the two instruments (4) and seek to:
– ensure the continuity of critical functions;
– avoid a significant adverse effect on the financial system, in particular by preventing contagion, including to market infrastructures, and by maintaining market discipline;
– protect public funds by minimising reliance on extraordinary public financial support;
– protect depositors covered by Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes (5) and investors covered by Directive 97/9/EC of the European Parliament and of the Council of 3 March 1997 on investor-compensation schemes (6); and
– protect client funds and client assets.
3. In order to achieve those objectives, a number of principles are laid down, foremost amongst which is the fact that the shareholders of the institution under resolution bear first losses, (7) but also the principle that no creditor is to incur greater losses than would have been incurred if the institution had been wound up under normal insolvency proceedings. (8)
4. In the case brought before the Court, a bank has been subject to resolution, over the course of which a number of write-downs and successive capital instrument conversions occurred, which were immediately followed by the sale of the business to another bank, which ultimately absorbed the first bank.
5. In that context, do the rules applicable to that resolution (losses borne by shareholders, bail-in and write-down and conversion of capital instruments) preclude the right to compensation of shareholders who subscribed to a capital increase offered to the public the year before the bank’s resolution if the related prospectus was defective, a right derived from 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? (9)
6. In addition, does the legislation applicable to the resolution preclude the consequences (restitution of the equivalent value of the subscribed shares, plus interest) of the judicial finding, made further to legal proceedings brought after that resolution, that the share purchase contract is null and void as a result of the deception or the error to which the shareholders fell victim on account of the defective prospectus?
7. Those are, in essence, the two questions put to the Court and which I will propose be answered in the affirmative.
8. I would point out that, given the connection between Regulation No 806/2014 and Directive 2014/59 and in view of the reference made by the former to the latter in Article 5 of that regulation, the interpretation of that directive will likewise apply in relation to the similar provisions of the regulation.
II. Legal context
A. European Union law
1. Directive 2003/71
9. Directive 2003/71 is applicable ratione temporis to the dispute in the main proceedings. (10)
10. Article 2(1) of that directive provides:
‘For the purposes of this Directive, the following definitions shall apply:
…
(d) “offer of securities to the public” means a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe to these securities. This definition shall also be applicable to the placing of securities through financial intermediaries;
…
(h) “issuer” means a legal entity which issues or proposes to issue securities;
…’
11. Article 6 of Directive 2003/71, which is entitled ‘Responsibility attaching to the prospectus’, provides:
‘1. Member States shall ensure that responsibility for the information given in a prospectus attaches at least to the issuer or its administrative, management or supervisory bodies, the offeror, the person asking for the admission to trading on a regulated market or the guarantor, as the case may be. The persons responsible shall be clearly identified in the prospectus by their names and functions or, in the case of legal persons, their names and registered offices, as well as declarations by them that, to the best of their knowledge, the information contained in the prospectus is in accordance with the facts and that the prospectus makes no omission likely to affect its import.
2. Member States shall ensure that their laws, regulation and administrative provisions on civil liability apply to those persons responsible for the information given in a prospectus.
…’
2. Directive 2014/59
12. Recitals 13, 49 to 51 and 120 of Directive 2014/59 state:
‘(13) The use of resolution tools and powers provided for in this Directive may disrupt the rights of shareholders and creditors. In particular, the power of the authorities to transfer the shares or all or part of the assets of an institution to a private purchaser without the consent of shareholders affects the property rights of shareholders. In addition, the power to decide which liabilities to transfer out of a failing institution based upon the objectives of ensuring the continuity of services and avoiding adverse effects on financial stability may affect the equal treatment of creditors. Accordingly, resolution action should be taken only where necessary in the public interest and any interference with rights of shareholders and creditors which results from resolution action should be compatible with the Charter of Fundamental Rights of the European Union [(“the Charter”)]. In particular, where creditors within the same class are treated differently in the context of resolution action, such distinctions should be justified in the public interest and proportionate to the risks being addressed and should be neither directly nor indirectly discriminatory on the grounds of nationality.
…
(49) The limitations on the rights of shareholders and creditors should be in accordance with Article 52 of the Charter. The resolution tools should therefore be applied only to those institutions that are failing or likely to fail, and only when it is necessary to pursue the objective of financial stability in the general interest. … In addition, when applying resolutions tools and exercising resolution powers, the principle of proportionality and the particularities of the legal form of an institution should be taken into account.
(50) Interference with property rights should not be disproportionate. Affected shareholders and creditors should not incur greater losses than those which they would have incurred if the institution had been wound up at the time that the resolution decision is taken. …
(51) For the purpose of protecting the right of shareholders and creditors, clear obligations should be laid down concerning the valuation of the assets and liabilities of the institution under resolution and, where required under this Directive, valuation of the treatment that shareholders and creditors would have received if the institution had been wound up under normal insolvency proceedings. … If it is determined that shareholders and creditors have received, in payment of, or compensation for, their claims, the equivalent of less than the amount that they would have received under normal insolvency proceedings, they should be entitled to the payment of the difference where required under this Directive. As opposed to the valuation prior to the resolution action, it should be possible to challenge that comparison separately from the resolution decision. Member States should be free to decide on the procedure as to how to pay any difference of treatment that has been determined to shareholders and creditors. That difference, if any, should be paid by the financial arrangements established in accordance with this Directive.
…
(120) Union company law directives contain mandatory rules for the protection of shareholders and creditors of institutions which fall within the scope of those directives. In a situation where resolution authorities need to act rapidly, those rules may hinder effective action and use of resolution tools and powers by resolution authorities and appropriate derogations should be included in this Directive. …’
13. Article 2(1) of Directive 2014/59 provides:
‘For the purposes of this Directive the following definitions apply:
…
(47) “normal insolvency proceedings” means collective insolvency proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator or an administrator normally applicable to institutions under national law and either specific to those institutions or generally applicable to any natural or legal person;
…
(57) “bail-in tool” means the mechanism for effecting the exercise by a resolution authority of the write-down and conversion powers in relation to liabilities of an institution under resolution in accordance with Article 43;
(58) “sale of business tool” means the mechanism for effecting a transfer by a resolution authority of shares or other instruments of ownership issued by an institution under resolution, or assets, rights or liabilities, of an institution under resolution to a purchaser that is not a bridge institution, in accordance with Article 38;
…
(61) “instruments of ownership” means shares, other instruments that confer ownership, instruments that are convertible into or give the right to acquire shares or other instruments of ownership, and instruments representing interests in shares or other instruments of ownership;
(62) “shareholders” means shareholders or holders of other instruments of ownership;
…
(66) “write-down and conversion powers” means the powers referred to in Article 59(2) and in points (e) to (i) of Article 63(1);
…’
14. Article 34 of Directive 2014/59, which is entitled ‘General principles governing resolution’, provides, in paragraph 1 thereof:
‘Member States shall ensure that, when applying the resolution tools and exercising the resolution powers, resolution authorities take all appropriate measures to ensure that the resolution action is taken in accordance with the following principles:
(a) the shareholders of the institution under resolution bear first losses;
…
(e) natural and legal persons are made liable, subject to Member State law, under civil or criminal law for their responsibility for the failure of the institution;
(f) except where otherwise provided in this Directive, creditors of the same class are treated in an equitable manner;
(g) no creditor shall incur greater losses than would have been incurred if the institution … had been wound up under normal insolvency proceedings in accordance with the safeguards in Articles 73 to 75;
…’
15. Article 53 of Directive 2014/59, which is entitled ‘Effect of bail-in’, provides, in paragraphs 1 and 3 thereof:
‘1. Member States shall ensure that where a resolution authority exercises a power referred to in Article 59(2) and in points (e) to (i) of Article 63(1), the reduction of principal or outstanding amount due, conversion or cancellation takes effect and is immediately binding on the institution under resolution and affected creditors and shareholders.
…
3. Where a resolution authority reduces to zero the principal amount of, or outstanding amount payable in respect of, a liability by means of the power referred to in point (e) of Article 63(1), that liability and any obligations or claims arising in relation to it that are not accrued at the time when the power is exercised shall be treated as discharged for all purposes, and shall not be provable in any subsequent proceedings in relation to the institution under resolution or any successor entity in any subsequent winding up.’
16. Article 59 of that directive, which is entitled ‘Requirement to write down or convert capital instruments’, provides:
‘…
2. Member States shall ensure that the resolution authorities have the power to write down or convert relevant capital instruments into shares or other instruments of ownership of institutions …
…
10. Before exercising the power to write down or convert capital instruments, resolution authorities shall ensure that a valuation of the assets and liabilities of the institution … is carried out in accordance with Article 36. That valuation shall form the basis of the calculation of the write down to be applied to the relevant capital instruments in order to absorb losses and the level of conversion to be applied to relevant capital instruments in order to recapitalise the institution …’
17. Article 60 of the directive, which is entitled ‘Provisions governing the write down or conversion of capital instruments’, reads as follows:
‘…
2. Where the principal amount of a relevant capital instrument is written down:
(a) the reduction of that principal amount shall be permanent, subject to any write up in accordance with the reimbursement mechanism in Article 46(3);
(b) no liability to the holder of the relevant capital instrument shall 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;
(c) no compensation is paid to any holder of the relevant capital instruments other than in accordance with paragraph 3.
…’
18. Article 63(1)(h) of Directive 2014/59 provides:
‘Member States shall ensure that the resolution authorities have all the powers necessary to apply the resolution tools to institutions … that meet the applicable conditions for resolution. In particular, the resolution authorities shall have the following resolution powers …:
…
(h) the power to reduce, including to reduce to zero, the nominal amount of shares or other instruments of ownership of an institution under resolution and to cancel such shares or other instruments of ownership.’
19. Article 75 of that directive provides:
‘Member States shall ensure that if the valuation carried out under Article 74 determines that any shareholder or creditor referred to in Article 73, or the deposit guarantee scheme in accordance with Article 109(1), has incurred greater losses than it would have incurred in a winding up under normal insolvency proceedings, it is entitled to the payment of the difference from the resolution financing arrangements.’
3. Decision of the Single Resolution Board (SRB)
20. By Decision SRB/EES/2017/08 of 7 June 2017, based on Article 18 of Regulation No 806/2014, the SRB adopted a resolution scheme in respect of Banco Popular Español SA (‘Banco Popular’). That scheme was endorsed by Commission Decision (EU) 2017/1246 of 7 June 2017. (11)
B. Spanish law
1. Royal Legislative Decree 4/2015
21. Directive 2003/71 was transposed in Spain by the recast of Ley 24/1988 del Mercado de Valores (Law 24/1988 on the Securities Market) (12) of 28 July 1988, now replaced by Real Decreto Legislativo 4/2015 por el que se aprueba el texto refundido de la Ley del Mercado de Valores (Royal Legislative Decree 4/2015 approving the recast of the Law on the Securities Market) (13) of 23 October 2015.
22. Article 6 of Directive 2003/71 gave rise to Article 38 of that royal legislative decree, which governs the responsibility attaching to the prospectus in essentially identical terms.
2. The Civil Code
23. Article 1300 of the Código Civil (Civil Code) provides:
‘Contracts satisfying the conditions laid down in Article 1261 may be annulled, even if the contracting parties have not suffered any harm, where they are vitiated by one of the defects which invalidate them under the law.’
24. Article 1303 of the Civil Code reads as follows:
‘When an obligation has been declared void, the contracting parties must restore to one another those things that formed the subject matter of the contract, together with the profits derived therefrom and the price together with interest, without prejudice to the following articles.’
25. Article 1307 of the Civil Code states:
‘When the contracting party required to effect restoration of something pursuant to a finding of nullity is incapable of so doing because that thing has been lost, it must restore the profits received and the value of the thing at the time it was lost, plus interest from the same date.’
3. Law 11/2015
26. Ley 11/2015 de recuperación y resolución de entidades de crédito y empresas de servicios de inversión (Law 11/2015 on the recovery and resolution of credit institutions and investment firms) (14) of 18 June 2015 transposes Directive 2014/59.
4. Decision of the Fund for Orderly Bank Restructuring
27. Decision SRB/EES/2017/08 of the SRB was implemented by the decision of the Fondo de Reestructuración Ordenada Bancaria (Fund for Orderly Bank Restructuring, Spain; ‘the FROB’) (15) of 7 June 2017, the third legal basis of which states inter alia:
‘As for the scope of the write-down measure adopted pursuant to this Decision, in accordance with Article 39(2) of Law [11/2015], the write-down in question is permanent, and compensation shall not be paid to the holders [of the written-down shares] … No liability to the holder of the written-down shares shall remain, except for any liability already accrued, or liability for damages that may arise as a result of an appeal challenging the legality of the exercise of the write-down power.’
28. The operative part of that decision reads as follows:
‘First
Reduction of the current share capital of [Banco Popular] from two thousand and ninety-eight million four hundred and twenty-nine thousand and forty-six euro (EUR 2 098 429 046) to zero euro (EUR 0) by the write-down of all shares currently in circulation …, in order to create an unavailable free reserve, in accordance with Article 35(1) and Article 64(1)(d) of Law [11/2015].
Secondly
Simultaneous capital increase, together with removal of preferential subscription rights, with a view to the conversion of all additional Class 1 capital instruments …
Thirdly
Reduction of the share capital to zero euro (EUR 0) by the write-down of the shares resulting from the conversion of the Class 1 capital instruments laid down in the previous point, in order to create an unavailable free reserve …
Fourthly
Simultaneous capital increase, together with removal of preferential subscription rights, with a view to the conversion of all Class 2 capital instruments into newly issued Banco Popular shares …
Fifthly
Designation of [Banco Popular] as agent for the performance of all the transactions necessary for the conversion and write-down of the capital instruments described in the previous points.
Sixthly
Transfer to the institution Banco Santander SA of all [Banco Popular] shares issued further to the conversion of the Class 2 capital instruments mentioned in the third legal basis of this Decision …’
III. Facts of the dispute in the main proceedings and questions referred for a preliminary ruling
29. In June 2016, Mr J.A.C. and Ms M.C.P.R. purchased Banco Popular shares as part of a capital increase that was the subject of a public offer to subscribe.
30. In the last quarter of 2016, after making significant adjustments to the value of its assets resulting in a loss of EUR 3 485 million for the 2016 financial year, on 3 April 2017 Banco Popular informed the Comisión Nacional del Mercado de Valores (National Securities Market Commission, Spain) that there were certain irregularities in the 2016 annual accounts but that, in its view, those irregularities did not have a significant impact on the accounts for that year.
31. On 7 June 2017, the SRB decided that Banco Popular would be resolved and all shares (in circulation on that date and issued from the conversion of the additional Class 1 capital instruments) were written down without consideration. Banco Santander acquired all the new Banco Popular shares (issued from the conversion of the Class 2 capital instruments) and carried out a merger by acquisition in 2018 that saw Banco Popular’s legal personality extinguished.
32. Having lost the entirety of their investment, in March 2018 Mr J.A.C. and Ms M.C.P.R. brought an action against Banco Popular seeking a declaration of the invalidity of the share purchase contract by reason of an error that invalidated their consent, by virtue of the incomplete or inaccurate prospectus published prior to the share issue, or by reason of deception on account of deliberately falsified or concealed information about the company’s financial position.
33. Banco Santander, having assumed the position of defendant from the proceedings at first instance, appealed against the ruling made at first instance to uphold the action for a declaration of nullity by reason of error and to order the reimbursement of the purchase price of the shares, plus statutory interest.
34. The Audiencia Provincial de A Coruña (Provincial Court, A Coruña, Spain) explains that Spanish case-law recognises the possibility, in the case of an incorrect or incomplete prospectus published in connection with a public offer to subscribe, of an action for damages or for a declaration of nullity being brought, with retroactive effect, vis-à-vis the share purchase contract by reason of deception or error. In its view, the two actions (for damages or for a declaration of nullity) have equivalent effects in terms of compensation, with the exception of the retroactive effect of a decision of nullity which extends back to the date of subscription of the purchase contract, which pre-dates the bank’s resolution. It adds that the impossibility of restoring the shares is not in itself an obstacle to an action for a declaration of nullity.
35. The referring court points to an initial difficulty, namely whether, in the event of a bank’s resolution, the principle of bail-in by means of a total write-down of shares and capital instruments frustrates the protection guaranteed for shareholders by EU law by means of an action for damages based on an incorrect or incomplete prospectus (or via an action for a declaration of nullity having equivalent effect) and the guarantee that the share capital is intangible.
36. If an action for a declaration of nullity could be brought by injured shareholders, the referring court asks about the scope of the exception relating to any ‘liability already accrued’, (16) under which, in principle, where capital instruments are written down, no liability to the holder of such instruments is to remain. In its view, the retroactive effect of the nullity of the purchase contract moves the right to restitution to before the date of resolution and, on the date of resolution, assigns the injured shareholders the status of creditors of the bank and not shareholders.
37. In those circumstances, the Audiencia Provincial de A Coruña (Provincial Court, A Coruña) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:
‘(1) Where, in the course of a procedure for the resolution of a financial institution, all of the shares into which the share capital was divided have been redeemed, must Articles 34(1)(a), 53(1) and (3) and 60(2)(b) and (c) of Directive [2014/59] be interpreted as meaning that they preclude persons having acquired their shares a number of months prior to the start of the resolution procedure, on the occasion of a capital increase with a public offer to subscribe, from bringing claims for compensation or claims having equivalent effect which are based on defective information in the issue prospectus against the issuing institution or against the institution emerging from a subsequent merger by acquisition?
(2) In the same situation as that referred to in the previous question, do Articles 34(1)(a), 53(3) and 60(2)(b) of Directive [2014/59] preclude the courts from imposing on the issuing institution or on the institution that succeeds to it universally any obligations to reimburse the equivalent value of the shares subscribed and to pay interest as a result of the retroactively effective (ex tunc) declaration as to the nullity of the share subscription contract, pursuant to claims brought after the institution has been resolved?’
38. Mr J.A.C. and Ms M.C.P.R., Banco Santander, the Spanish, Italian and Portuguese Governments and the European Commission have submitted written observations.
IV. Analysis
39. I will propose that the two questions submitted to the Court be answered in the order chosen by the referring court. I will supplement my reasoning with more general observations on the right to an effective remedy.
A. The first question
40. By its first question referred for a preliminary ruling, the referring court seeks to ascertain whether Article 34(1)(a), Article 53(1) and (3) and Article 60(2)(b) and (c) of Directive 2014/59 are to be interpreted as meaning that, where, in the course of a procedure for the resolution of a financial institution, all the shares into which the share capital was divided have been written down, they preclude persons who acquired shares a number of months before the resolution procedure started, on the occasion of a capital increase with a public offer to subscribe, from bringing claims for compensation or claims having equivalent effect which are based on defective information provided in the issue prospectus against the issuing institution or the institution emerging from a subsequent merger by acquisition.
41. That question concerns the relationship between the provisions of Directive 2014/59 on the resolution of banks and those of Directive 2003/71 on the prospectus published. To what extent can a shareholder the value of whose shares has been reduced to zero, in the context of the resolution of a bank by means of a bail-in including a write-down followed by the sale of the business, (17) obtain compensation by relying on the inaccuracies in the prospectus published at the time of the public offering of those shares, one year before the bank’s resolution?
42. Although both directives seek to bring accountability into the world of business, whether through increased financial transparency when issuing instruments offered to the public, subject to effective, dissuasive and proportional penalties, and by fighting white-collar crime (recitals 41 and 43 of Directive 2003/71) or by reducing the moral hazard (recital 45 of Directive 2014/59), their scope is not the same and they do not seek to protect the same interests.
43. Whilst it was the clear goal of Directive 2003/71 to protect investors who acquire securities offered to the public by allowing them to bring an action for damages should the prospectus be misleading or inaccurate, the aim of Directive 2014/59 is to prevent, by means of a rapid response, the potential collapse of a financial system in the wake of the failure of a bank. Thus, investors, who have become shareholders, are the first to contribute to the losses in the event of their bank’s failure pursuant to Article 34(1)(a) of the latter directive; that contribution may, as in the present case, mean that their investment is lost entirely.
44. In the present case, the SRB, and subsequently the FROB, opted for the following resolution tools: a bail-in by means of a write-down, inter alia of the original shares which were cancelled, (18) followed by the sale of the business.
45. The Court has already acknowledged that the objectives of ensuring the stability of the banking and financial system and preventing a systemic risk are objectives of public interest pursued by the European Union. (19)
46. It added, in a case which concerned the subordination of State aid in the banking sector to a burden-sharing measure between shareholders and subordinated creditors, that that measure was an exceptional measure that can be adopted only in a context in which the economy of a Member State is seriously disturbed and with the objective of preventing a systemic risk and ensuring the stability of the financial system. (20)
47. The Court has also already ruled on the balance to be struck between two public interests: the protection of investors and the safeguarding of the financial system. It has done so in two cases which concerned the safeguards owed to shareholders under the company law directives, (21) finding that, although there is a clear public interest in ensuring throughout the European Union a 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. (22)
48. Although the two cases that gave rise to the judgments cited in footnote 22 of this Opinion concerned the rights of shareholders stricto sensu, the form of words used by the Court, ‘strong and consistent protection of investors’, (23) is entirely transposable to the present case since the protection afforded on the basis of Directive 2003/71, which seeks to ensure the best possible transparency when investing in a company, is a relevant factor for investors who become shareholders by subscribing to the public offer to subscribe to shares accompanied by a prospectus.
49. Since the interest of investors does not prevail in all circumstances over the interest related to the stability of the financial system, it is necessary to conduct a more detailed analysis of the relationship between Directives 2003/71 and 2014/59 in the scenario presented by the referring court of the resolution of a bank via a bail-in by means of a write-down, inter alia, of the original shares, followed by the sale of the business.
1. Literal interpretation
50. The wording of Article 34(1)(a) of Directive 2014/59 admits no debate: shareholders bear first losses. The shareholders in question are clearly those who were shareholders on the day on which the resolution is decided. In the event of a total write-down which sees shares cancelled, the value of those shares is reduced to zero and the holders of the securities lose their status as shareholders.
51. Where the principal amount of a liability (here: shares) is reduced to zero, Article 53(3) of that directive, which applies in the case of a bail-in, states that ‘that liability and any obligations or claims arising in relation to it that are not accrued at the time when the power is exercised shall be treated as discharged for all purposes, and shall not be provable in any subsequent proceedings in relation to the institution under resolution or any successor entity in any subsequent winding up’.
52. At this stage of my consideration, it appears that, where the prospectus is incorrect or incomplete, the action for damages provided for in Article 6 of Directive 2003/71 and the rules governing which are to be laid down by the Member States is directly linked to the status of shareholder of the person wishing to exercise it, contrary to the premiss of the reasoning put forward by the applicants in the main proceedings. For a right to bring an action for damages to exist, it is not enough that a prospectus was incomplete or incorrect; it must also have led the potential purchaser to subscribe to the public offer and, as a result, to become a shareholder. (24)
53. It follows from the foregoing that that action for damages falls within the category of obligations or claims that are treated as discharged for all purposes if they are not accrued on the day of the resolution, and cannot therefore be proven in subsequent proceedings in relation to the institution under resolution or to the successor entity. Thus, the action for damages cannot be brought after the date on which the bank was resolved via a bail-in against the institution or the successor entity.
54. A similar rule is set out in Article 60(2)(b) of Directive 2014/59 in the event of the write-down of capital instruments (here: shares), namely that ‘no liability to the holder … shall remain under or in connection with the amount of the [capital] instrument, which has been written down, except for any liability already accrued’, which can be interpreted in the same way: an action for damages on account of an incorrect prospectus cannot be initiated after the resolution decision which sees shares written down.
55. That same article provides for a further exception, alongside that relating to any liability already accrued: any liability for damages that may arise as a result of an appeal challenging the legality of the exercise of the write-down power. (25) It is clear that actions for damages based on an incorrect or inaccurate prospectus do not come under that category. In any event, the potential annulment of the resolution decision cannot, pursuant to the second subparagraph of Article 85(4) of Directive 2014/59, adversely affect the rights of third parties who have acquired in good faith securities in the institution under resolution, and compensation can be obtained only for the loss suffered as a result of that decision. (26)
56. Finally, Article 60(2)(c) of Directive 2014/59, which also applies in the case of a write-down, clearly states that no compensation is paid to any holder of the relevant capital instruments, which, prima facie, appears to doom any action for damages against the issuer of the shares the prospectus for which is criticised.
57. It is true that the applicants in the main proceedings, the Spanish Government and the Commission argue that Title X of Directive 2014/59 provides that a number of provisions of other directives and regulations do not apply in the case of a resolution procedure. Article 6 of Directive 2003/71 is not one of those provisions.
58. Those parties conclude from that fact, or at least assume, that an action for damages based on an incorrect prospectus cannot be excluded because of that lack of an explicit reference without the Charter being undermined.
59. Indeed, pursuant to Article 52 of the Charter, a limitation of the rights recognised by it (such as the right to property, equality before the law, consumer protection or the right to an effective remedy) must be provided for by law and respect the principle of proportionality.
60. However, although recital 120 of Directive 2014/59 provides that exceptions to company law must be precise and Title X of that directive clearly sets out those exceptions, it must be stated that they are all concerned with the procedural consequences of the resolution, the success of which depends on its speed. Thus, the implementation of the resolution decision must not be hindered by rights which are entirely justified in normal times (in particular, voting at shareholders’ meetings on capital increases or reductions, mergers or divisions, the protection of creditors in the event of a capital reduction, the requirement to launch a public takeover bid if a certain percentage of shares is acquired). Similarly, the exception to the obligation to publish a prospectus with a view to relisting in the case of a bail-in, as provided for in Article 53(2)(d) of Directive 2014/59, can be explained by the need for the speedy implementation of the resolution decision.
61. In any case, the Court has already held that the fact that Title X of Directive 2014/59 is silent did not permit the conclusion that other derogations from the company law directives were prohibited. (27)
62. Thus, the literal argument that an action based on an incorrect prospectus can be brought because reference is not made to Article 6 of Directive 2003/71 in Directive 2014/59 is insufficient to establish a conviction in that regard. On the contrary, the literal arguments favour such an action by shareholders being prohibited after resolution, in particular because the wording of Directive 2014/59 very clearly states that shareholders are to bear losses first, thus complying with the principle set out in Article 52 of the Charter that the limitation of the rights recognised by that charter must be provided for by law.
63. As for observance of the principle of proportionality required in Article 52 of the Charter, I have already referred, in points 45 to 47 of this Opinion, to the Court’s recognition of objectives of public interest which, in matters of resolution, allow interference with shareholders’ right to property. Similarly, the European Court of Human Rights has found that Member States enjoy a wide margin of appreciation in relation to the restructuring of banks in the same context of the global financial crisis, (28) which can go as far as the nationalisation of a bank without compensation for shareholders with the goal of protecting the United Kingdom’s financial sector. (29)
64. Contrary to the claim made by the applicants in the main proceedings, I do not believe that the protection of consumers guaranteed by Article 38 of the Charter is at issue here. Furthermore, if it were, it could not be treated differently from the protection of shareholders’ right to property, that is to say, it must yield to the protection of the stability of the financial system, which allows the interests of a far broader set of consumers to be protected.
65. As for the alleged breach of equality, it cannot be accepted since, objectively, the shareholders who acquired their securities on the basis of an incorrect or inaccurate prospectus are not in the same situation if they obtained a judgment ordering payment of compensation before the resolution decision or if they initiate legal proceedings only after that decision.
66. With regard to the right to an effective remedy protected under Article 47 of the Charter, it is my view that that right is respected, even in the event that a shareholder who acquired shares on the basis of an incorrect or inaccurate prospectus could not obtain compensation on the basis of an action for damages after a decision to resolve a bank.
67. That shareholder has other legal remedies at his or her disposal.
68. In the first place, Article 25 of Directive 2003/71 states that, without prejudice to their right to impose criminal sanctions, Member States are to ensure that provision is made for administrative measures against the persons responsible for non-compliance with provisions of that directive. Thus, any lack of compensation has no bearing on the criminal sanctions or administrative measures, in the case of an incorrect or inaccurate prospectus, intended to reduce the moral hazard by means of their dissuasive effect.
69. In addition, from a damages perspective, Article 6 of that directive provides that Member States are to ensure that an action for damages, in the case of an incorrect or inaccurate prospectus, attaches at least to the issuer or its administrative, management or supervisory bodies, the offeror, the person asking for the admission to trading on a regulated market or the guarantor, as the case may be. Thus, EU law leaves open the possibility of claims for damages on that basis against persons other than just the issuer by which shareholders can be compensated.
70. In the second place, two actions with compensatory effect can be taken by shareholders as part of the resolution on the basis of Directive 2014/59.
71. First, they can seek the annulment of the resolution decision itself pursuant to Article 85 of that directive. However, if that decision is annulled, compensation can be awarded only in respect of the loss suffered as a result of the annulled decision. Such actions have indeed been brought and are currently pending before the General Court. (30)
72. Secondly, they can seek compensation from the resolution financing arrangements, (31) pursuant to Article 75 of that directive, if it appears that they have incurred greater losses than would have been incurred in a winding up under normal insolvency proceedings. In that situation, they are entitled to payment of the difference.
73. Thus, even though an action for damages against the issuer or its successor is not possible in the case of an incorrect or inaccurate prospectus, shareholders whose shares have been cancelled in the context of the resolution of a bank have other avenues at their disposal to obtain compensation or the imposition of a penalty. They cannot therefore rely on the absence of an effective judicial remedy.
2. Teleological interpretation
74. A teleological interpretation of the provisions at issue clearly argues in favour of prohibiting such an action for damages.
75. It is true that the objective of the resolution procedure is to prevent the collapse of the financial system whilst protecting public funds and deposits, unlike the mechanisms used up until that procedure was established, through the use of funds established by contributions payable by banks.
76. Thus, it follows from the foregoing, first, that, in the first instance, public funds may be used only after the contribution made by shareholders and certain holders of capital instruments that can be written down. In the second instance, a contribution from the resolution financing arrangement is possible if those shareholders and holders of capital instruments have made a contribution to the losses equating to at least 8% of the total liabilities. (32)
77. I would recall that the resolution financing arrangement is funded by contributions from the banks of the Member State concerned. (33) This therefore involves a mutualisation between the banks of the risks of one of them failing. That mutualisation is intended to reduce the moral hazard (34) that prevailed until the resolution mechanism was established, since the banks could expect a substantial intervention from the public authorities to prevent contagion from any failure by them across the rest of the financial system.
78. Secondly, again with a view to reducing the moral hazard, that mutualisation of the risks between the banks themselves is extended to the point of providing that the resolution financing arrangement is to compensate shareholders or creditors who have received worse treatment under the resolution than under traditional insolvency proceedings. (35)
79. Under Article 75 of Directive 2014/59, any shareholder or creditor who has incurred greater losses than if recourse had been had to normal insolvency proceedings, as established by a valuation made after the resolution, (36) is entitled to the payment of the difference from the resolution financing arrangements.
80. Thus, such dual mutualisation, based on the principles that shareholders are to bear first losses and only accrued liabilities can give rise to payment in the event of a bail-in or write-down, shows the extent to which the system set up is incompatible with the possibility of an action for damages based on Directive 2003/71 being brought after the resolution decision.
81. That action for damages would ultimately, in the first place, assign to the issuer or the transferee alone liability for which no provision is made in Directive 2014/59, even though, where liability is provided for, the compensation is borne by all banks that contribute to the resolution financing arrangements. Moreover, the transferee, if it were to be financially liable for the financial consequences of an incorrect or inaccurate prospectus, would be more severely impacted than if the resolution decision were annulled (37) or than if the shareholder incurred greater losses than under normal liquidation proceedings. (38) This would ultimately mean that the consequences of an incorrect or inaccurate prospectus would be borne by a person who did not contribute to its production, which is contrary to the concern to reduce the moral hazard. (39)
82. In the second place, the action for damages would actually call into question the balances struck in the resolution decision on the basis of the valuation made prior to that decision and which takes into account only the on balance sheet and off balance sheet liabilities. (40) Thus, the valuation which determined the use of one resolution tool or another and the conditions governing that use would no longer be sufficiently reliable to allow, for example, a potential purchaser to make a commitment. (41)
83. Finally, it is interesting to note, even though the Court is not asked about the interpretation of the article in question, that, in relation to the sale of the business (the resolution tool applied in the present case), Directive 2014/59 also provides for a mechanism intended to protect the person to whom the institution under resolution is transferred. Article 38(13) of that directive provides that ‘shareholders or creditors of the institution under resolution and other third parties whose assets, rights or liabilities are not transferred shall not have any rights over or in relation to the assets, rights or liabilities transferred’. By definition, cancelled shares are not transferred and their former holders cannot have rights over the assets transferred.
84. Thus, whether as a part of a bail-in or a total write-down, the possibilities of obtaining compensation are reduced to two scenarios: the person is the holder of a liability that is already accrued or has suffered loss as a result of the annulment of a resolution decision. As for the sale of business scenario, Directive 2014/59 does not allow a shareholder whose shares have been cancelled to rely on rights over the assets transferred against the transferee.
85. In conclusion, it appears that both a literal interpretation and a teleological interpretation of the provisions at issue lead to the same response in the affirmative to the first question submitted to the Court by the referring court: a shareholder cannot bring an action for damages based on Article 6 of Directive 2003/71 after a resolution decision that decided on a bail-in by means of a total write-down and the cancellation of shares, followed by the sale of the business.
86. Accordingly, Article 34(1)(a), Article 53(1) and (3) and Article 60(2)(b) and (c) of Directive 2014/59 are to be interpreted as meaning that, where, in the course of a procedure for the resolution of a financial institution, all the shares into which the share capital was divided have been written down, they preclude persons having acquired shares a number of months prior to the start of the resolution procedure, on the occasion of a capital increase with a public offer to subscribe, from bringing, after the resolution decision, claims for compensation or claims having equivalent effect which are based on defective information provided in the issue prospectus against the issuing institution or against the institution emerging from a subsequent merger by acquisition.
B. The second question
87. By its second question referred for a preliminary ruling, the referring court seeks to ascertain whether Article 34(1)(a), Article 53(3) and Article 60(2)(b) of Directive 2014/59 are to be interpreted as meaning that, where, in the course of a procedure for the resolution of a financial institution, all the shares into which the share capital was divided have been written down, they preclude the courts from imposing on the issuing institution or on the entity that succeeds to it universally any obligations to reimburse the equivalent value of the shares subscribed and to pay interest as a result of the retroactively effective declaration as to the nullity of the share purchase contract, pursuant to claims brought after the institution has been resolved.
88. The applicants in the main proceedings and the Spanish Government, supported by the majority of case-law in Spain, state that the solution adopted by the Court in the judgment of 19 December 2013, Hirmann, (42) could be extended to the present situation.
89. In that judgment, the Court ruled that Articles 12, 15, 16, 18, 19 and 42 of Second Directive 77/91 are to be interpreted as not precluding national legislation which, in the context of the transposition of Directives 2003/71, 2004/109/EC (43) and 2003/6/EC, (44) first, provides that a public limited liability company, as an issuer of shares, may have liability to a purchaser of shares in that company based on a breach of the information requirements laid down in those directives, and, secondly, imposes, under that liability, an obligation on the company concerned to repay to the purchaser a sum equivalent to the purchase price of the shares and to redeem those shares. (45)
90. Thus, the Court approved, having regard to the discretion afforded to Member States by Article 6 of Directive 2003/71, a liability mechanism that ultimately leads to the reimbursement of the shares at their purchase price and to their redemption by the issuing company.
91. The applicants in the main proceedings and the Spanish Government infer from that fact that, in the same way, an action for a declaration of nullity should be approved since the effects (reimbursement at the purchase price and redemption by the company) are identical to those allowed by the Court in the judgment of 19 December 2013, Hirmann. (46)
92. The applicants in the main proceedings add that the Civil Code allows an action for a declaration of nullity, even where the thing in question has been lost as a result of the other contracting party’s action. In their view, since those effects are also retroactive, the status of shareholder of the holders is deemed never to have existed, thus meaning that the effects of the total write-down and of the bail-in cannot be enforced against those persons.
93. That reasoning cannot be followed for the following reasons.
94. First, an applicant has standing to bring an action for a declaration of nullity only if he or she is still bound by the contract when he or she brings his or her action. Thus, as in relation to liability, a shareholder whose shares have been written down and cancelled can no longer bring legal proceedings because, after the resolution, he or she loses his or her status as a shareholder. He or she cannot rely on the retroactive effect of the declaration of nullity, which will take effect at the end of the legal proceedings, to address his or her loss of status as a shareholder when those proceedings are initiated. It cannot be inferred from the foregoing that, on the date of the resolution, his or her obligation is accrued, retroactively, within the meaning of Article 53(3) and Article 60(2)(b) of Directive 2014/59.
95. Secondly, if the status of shareholder no longer existed on the date of the resolution on account of the retroactive effect of the nullity ordered, the entire valuation upon which the resolution decision is based would be called into question because the breakdown of the capital forms part of the objective data for that valuation. The resolution procedure itself as well as the objectives pursued by Directive 2014/59 would thus be frustrated. I would recall that the compensation of shareholders is not one of the objectives of that directive: on the contrary even, they must be the first to bear losses.
96. Thirdly, the bank resolution rules constitute lex specialis as compared with Directive 2003/71 and the company law directives. (47) Those rules concern banks facing major financial difficulties and not all public limited companies. In addition, as the Italian Government observes, Directive 2014/59 was adopted before the contested prospectus was published: the write-down risk was therefore known to purchasers, as was the risk of loss associated with this type of investment. Therefore, case-law based solely on such secondary legislation relating to company law and to public procurement law cannot frustrate the objectives pursued by the resolution.
97. Fourthly, drawing a distinction between shareholders who acquired their shares on the basis of an incorrect or inaccurate prospectus who, by virtue of that fact, would be entitled to compensation and other shareholders whose shares have been cancelled gives rise to a significant difference in treatment between them which cannot be justified by a public interest, (48) it being recalled that the Court has already held that the protection of investors could not prevail in all circumstances over the public interest in ensuring the stability of the financial system. (49)
98. For all those reasons, the second question referred for a preliminary ruling can only be answered in the affirmative, that is to say, that the resolution mechanisms involving a bail-in, a total write-down and the sale of the business preclude an action for a declaration of nullity of the share purchase contract after the date of the resolution decision.
99. Therefore, Article 34(1)(a), Article 53(3) and Article 60(2)(b) of Directive 2014/59 are to be interpreted as meaning that, where, in the course of a procedure for the resolution of a financial institution, all the shares into which the share capital was divided have been written down, they preclude the courts from imposing on the issuing institution or on the entity that succeeds to it universally any obligations to reimburse the equivalent value of the shares subscribed and to pay interest as a result of the retroactively effective declaration as to the nullity of the share purchase contract, pursuant to claims brought after the institution has been resolved.
C. Supplementary observations
100. Although, in the present case, the Court is asked only about provisions of Directive 2003/71 relating to the share issue prospectus, there are other provisions concerning financial transparency in respect of which Member States are required to provide for a liability mechanism.
101. For instance, Article 7 of Directive 2004/109 provides for a similar duty on the part of the Member States to that laid down in Article 6 of Directive 2003/71, namely to provide for an action for damages.
102. In my view, an action for damages based on the former provision should likewise be impossible in a case of resolution carried out in the same circumstances as those in the present case.
103. However, generally speaking, does not this case allow a broader statement to be made, namely that the only action for damages possible, regardless of its basis, after a bail-in effected by a total write-down of the securities at issue, is that provided for in Article 75 of Directive 2014/59, save where the resolution decision is annulled?
104. The principle that a creditor cannot receive worse treatment than if the institution in question were wound up does not have to be interpreted as meaning that it allows the same litigation as is possible where an institution is wound up under normal insolvency proceedings.
105. The wording of Article 75 of Directive 2014/59 is clear: it guarantees only payment of the difference between the losses incurred under the resolution and those which would have been incurred under a normal winding-up process.
106. The interpretation that follows from the valuation report produced by Deloitte in the context of the present resolution procedure, to the effect that compensation on account of an incorrect or inaccurate prospectus is possible both in the liquidation scenario and in the case of resolution, cannot be relied on as against the foregoing interpretation. (50) The interpretation of the EU legislation at issue as regards whether or not it is possible to bring proceedings on the basis of an incorrect prospectus after a resolution decision is a matter within the exclusive jurisdiction of the Court.
107. In addition, the existence of a procedural remedy cannot guarantee that any favourable decision could actually be enforced against the wound-up institution.
108. Thus, that interpretation of Article 75 allows merely for a comparison of the genuinely comparable effects, namely the losses incurred, and not the mere existence of avenues of litigation without considering their genuine compensatory effect.
109. However, if, under a normal winding-up procedure, a decision resulting from an action for damages or for a declaration of nullity could actually be enforced in favour of the injured shareholder, that shareholder could be compensated for the difference from the loss incurred under the resolution procedure.
110. Making that safeguard the only path to compensation after the resolution decision would mean ensuring that the objectives of the banking resolution are observed. Those objectives include, on the one hand, guaranteeing the mutualisation of the risks between the banks, since the costs of that compensation would be borne by the banking community liable to pay contributions, (51) and, on the other hand, ensuring the foreseeability of the valuation prior to the resolution decision, thus allowing the most appropriate resolution decision to the situation to be adopted.
111. I would also recall that the European Court of Human Rights, in a similar case in which shares were cancelled by a government decision following the restructuring of a bank, did indeed find there to have been a violation of the right to an effective remedy as protected by Article 6(1) of the Convention for the Protection of Human Rights and Fundamental Freedoms. (52) However, that violation was justified by the fact that it had not been possible for the shareholders to challenge before a court the assessment of the state of insolvency of the bank which had justified the restructuring measure. If, however, a court could have made that assessment, the conditions laid down in Article 6(1) of that convention would have been met. (53)
112. In addition, Directive 2014/59 explicitly states that a right of appeal exists against any decision to take resolution action, and also provides for the duty on the part of the court seised to use the complex economic assessments of the facts carried out by the resolution authority as a basis for its own assessment, whilst examining whether the evidence relied on by the resolution authority is factually accurate, reliable and consistent. (54)
113. If the Court were to agree to follow this reasoning, allowing as the only possibility of obtaining compensation after the resolution decision, save where the resolution decision is annulled, that provided for in Article 75 of Directive 2014/59, it would remain within the limits laid down in Articles 47 and 52 of the Charter.
V. Conclusion
114. In the light of the foregoing considerations, I propose that the Court answer the questions referred by the Audiencia Provincial de A Coruña (Provincial Court, A Coruña, Spain) for a preliminary ruling as follows:
Article 34(1)(a), Article 53(1) and (3) and Article 60(2)(b) and (c) of 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 are to be interpreted as meaning that, where, in the course of a procedure for the resolution of a financial institution, all the shares into which the share capital was divided have been written down, they preclude, first, persons having acquired shares a number of months prior to the start of the resolution procedure, on the occasion of a capital increase with a public offer to subscribe, from bringing, after the resolution decision, claims for compensation or claims having equivalent effect which are based on defective information provided in the issue prospectus against the issuing institution or against the institution emerging from a subsequent merger by acquisition and, secondly, the courts from imposing on the issuing institution or on the entity that succeeds to it universally any obligations to reimburse the equivalent value of the shares subscribed and to pay interest as a result of the retroactively effective declaration as to the nullity of the share purchase contract, pursuant to claims brought after the institution has been resolved.