Case T‑304/20
Laura Molina Fernández
v
Single Resolution Board
Judgment of the General Court (Third Chamber, Extended Composition) of 22 November 2023
(Economic and monetary union – Banking union – Single resolution mechanism for credit institutions and certain investment firms (SRM) – Resolution of Banco Popular Español – Decision of the SRB refusing to grant compensation to the shareholders and creditors affected by the resolution actions – Valuation of difference in treatment – Independence of the valuer)
1. Economic and monetary policy – Economic policy – Single resolution mechanism for credit institutions and certain investment firms – Adoption of a resolution scheme – Discretion of the Single Resolution Board (SRB) – Scope – Claim for compensation made by shareholders and creditors – Assessment of highly complex scientific and technical facts – Complex economic assessments – Broad discretion – Judicial review – Limits – Manifest error of assessment – Burden of proof
(Charter of Fundamental Rights of the European Union, Art. 41(2)(a))
(see paragraphs 32-38)
2. Economic and monetary policy – Economic policy – Single resolution mechanism for credit institutions and certain investment firms – Adoption of a resolution scheme – Mechanism to compensate shareholders and creditors – Methodology for valuation of the treatment of shareholders and creditors under normal insolvency proceedings – Normal insolvency proceedings – Definition – Liquidation of the entity – Included – Composition agreement with creditors – Not included – Going concern scenario – Not included
(European Parliament and Council Regulation No 806/2014, Art. 20(16) to (18))
(see paragraphs 48, 50, 56, 58)
Résumé
In Joined Cases T‑302/20, T‑303/20 and T‑307/20 and in Case T‑304/20, the applicants are natural and legal persons who were shareholders in Banco Popular Español, SA (‘Banco Popular’) before the adoption of a resolution scheme in respect of Banco Popular. In Case T‑330/20, on the other hand, the applicants are investment funds which, before the adoption of that scheme, owned capital instruments, with the exception of one of the applicants, which was the successor to the rights of an entity holding Banco Popular bonds.
On 7 June 2017, the Executive Session of the Single Resolution Board (SRB) adopted, on the basis of Regulation No 806/2014, (1) a resolution scheme in respect of Banco Popular, (2) which was endorsed on the same day by the European Commission. (3)
Prior to the adoption of that scheme, the SRB had engaged Deloitte Reviseurs d’Entreprises as valuer (‘the Valuer’) in order to carry out a valuation of Banco Popular, in preparation for a potential resolution, and a valuation of the difference in treatment, after a potential resolution. On 6 June 2017, the Valuer submitted to the SRB a valuation (‘Valuation 2’), the purpose of which was to estimate the value of Banco Popular’s assets and liabilities, to provide an evaluation of the treatment that shareholders and creditors would have received if Banco Popular had entered into normal insolvency proceedings, and to inform the decision to be taken on the shares and instruments of ownership to be transferred and the SRB’s understanding of what constitutes commercial terms for the purposes of the sale of business tool. According to the resolution scheme, given that the necessary conditions (4) had been met, the SRB decided to place Banco Popular under resolution. Following an open and transparent sale process conducted by the Spanish resolution authority, the Fund for Orderly Bank Restructuring (FROB), Banco Popular’s new shares were transferred to Banco Santander SA.
After the adoption of the resolution scheme, the Valuer submitted to the SRB the valuation of the difference in treatment (5) (‘Valuation 3’), seeking to determine whether the affected shareholders and creditors would have received better treatment if Banco Popular had entered into normal insolvency proceedings than that which they received as a result of the resolution. That valuation was carried out in the context of a liquidation scenario, in accordance with Spanish law, at the time the resolution scheme was adopted. The Valuer maintained that the opening of normal insolvency proceedings would have resulted in an unplanned liquidation. It concluded that no recovery would have been expected under such proceedings and that there was therefore no difference in treatment by comparison with the treatment resulting from the resolution action.
Subsequently, in order to be able to take a final decision on whether the affected shareholders and creditors should be granted compensation from the Single Resolution Fund, (6) the SRB invited them to express their interest in exercising their right to be heard with respect to the preliminary decision in that regard, (7) in which it concluded that, in the light of Valuation 3, it was not required to pay them compensation. The right to be heard process was conducted in two successive phases, namely the registration phase, in which the affected shareholders and creditors were invited to express their interest in exercising their right to be heard, and then the consultation phase, during which the affected persons were able to submit their comments on the preliminary decision, to which the non-confidential version of Valuation 3 was annexed.
At the end of the consultation phase, the SRB examined the relevant comments and received from the Valuer a clarification document in which the latter confirmed that the strategy and various hypothetical liquidation scenarios detailed in Valuation 3, as well as the methodologies followed and analyses used, remained valid.
On 17 March 2020, the SRB adopted Decision SRB/EES/2020/52 determining whether compensation needed to be granted to the shareholders and creditors in respect of which the resolution actions concerning Banco Popular had been effected (‘the contested decision’), in which it considered that the Valuer was independent and that Valuation 3 was in line with the applicable legal framework and was sufficiently reasoned and comprehensive. It also presented the comments submitted by the affected shareholders and creditors and their assessment, and concluded that there was no difference between the actual treatment of the affected shareholders and creditors and the treatment that they would have received if Banco Popular had been subject to normal insolvency proceedings at the resolution date.
By its judgments, in which it dismisses the three actions based on Article 263 TFEU, the General Court rules for the first time on an application for annulment of a decision of the SRB on whether compensation should be granted to the affected shareholders and creditors following a bank resolution. In that regard, the General Court examines a number of novel issues raised in the three actions, in particular concerning the assessment of the situation of the affected shareholders and creditors in the event that Banco Popular had entered into normal insolvency proceedings, the independence of the Valuer, the right to be heard during the proceedings, the right to an effective remedy and the right to property.
Findings of the Court
In the first place, the Court rejects the complaints that the contested decision is unlawful as regards the examination of whether Banco Popular’s former shareholders would have received better treatment under normal insolvency proceedings.
First, the Court observes that it is clear from the provisions of Regulation No 806/2014 that the reference (8) to the treatment which the entity’s shareholders and creditors would have received if that entity had entered into normal insolvency proceedings refers to their hypothetical treatment in the event of the winding up of that entity. It also observes that the methodology for valuation of that treatment defined in Delegated Regulation 2018/344 (9) consists of the realisation of the institution’s assets, and therefore a winding up, as defined in Article 3(1)(42) of Regulation No 806/2014.
Secondly, in order to establish the difference in treatment, the comparison to be made is between the actual treatment of the shareholders and creditors affected as a result of the resolution and the assessment of the situation they would have been in if the resolution action had not been effected, namely in the event of liquidation of the entity.
Thirdly, the Court finds that, in the context of the assessment of difference in treatment following a resolution decided by the FROB, Spanish law provides that the counterfactual scenario is to be based on the entity’s liquidation scenario, taking into account the provisions of Spanish law on liquidation. It concludes that the determination of difference in treatment must be based on a liquidation scenario, and therefore may not be based on a going concern scenario or a scenario in which a composition agreement has been concluded with the creditors.
Fourthly, the Court points out that the counterfactual liquidation scenario envisaged in Valuation 3 had to be defined in the light of Banco Popular’s situation at the resolution date. On that date, Banco Popular was unable to continue as a going concern on account of its liquidity position, of the assessment that it was failing or likely to fail and of the possible revocation of its banking licence, and for that reason, neither a composition agreement nor an insolvency scenario based on the going concern assumption was conceivable.
Similarly, the Court rejects the argument that the Valuer’s valuation of Banco Popular should have taken into account the sale of the institution as a whole or divided into business units, since that implies a continuation of the undertaking’s activities. The Valuer did not therefore make an error by using a methodology based on a liquidation scenario and the sale of individual assets or asset portfolios.
Fifthly, the contested decision is not vitiated by any manifest errors of assessment either as regards the taking into account of a maximum liquidation scenario of seven years – having regard, in particular, to the objective of carrying out a liquidation within a reasonable time and to the uncertainties caused by a prolonged liquidation period – or as regards the valuation of the performing and non-performing loans portfolios, Banco Popular’s real estate subsidiaries and the legal contingencies.
In the second place, the Court rejects the plea alleging that the Valuer was not independent.
First, the Court notes that the circumstances of the case, on the one hand, do not establish that, in carrying out Valuation 3, the Valuer was influenced by the fact that it had carried out Valuation 2 and, on the other, contradict the argument that the Valuer could reasonably appear not to be objective or impartial.
In Valuation 3, the assessment of difference in treatment is based on the actual treatment of the shareholders and creditors affected as a result of the resolution. The valuation of Banco Popular’s assets and liabilities in the first part of Valuation 2 was not taken into account in Valuation 3 and could not therefore influence the Valuer when it carried out Valuation 3.
In addition, Valuation 2 contained several reservations as to the reliability of the liquidation scenario simulation. Accordingly, the Court rejects the complaint that, in an effort to protect its professional reputation, the Valuer considered itself bound by the findings of Valuation 2 when it carried out Valuation 3.
Moreover, the Court rejects the argument that the Valuer had an incentive to avoid any rectification or modification of the findings contained in Valuation 2, on the ground that that argument is contradicted by the circumstances in which Valuations 2 and 3 were carried out. Valuation 3 was performed on the basis of more granular information than the information available to the Valuer at the time of Valuation 2. Furthermore, as soon as it received Valuation 2, the SRB was informed of the fact that the Valuer would have to base Valuation 3 on new data, and therefore modify the assessment carried out in the liquidation scenario simulation. In Valuation 3, the Valuer did not merely confirm the outcome of the simulation set out in Valuation 2. Moreover, the mere fact that the Valuer reached the same conclusion is not sufficient to establish that it considered itself bound by its assessment in Valuation 2 when it carried out Valuation 3.
Lastly, the Court rejects the complaint that the SRB should have appointed another valuer to carry out a valuation using a different methodology, because the assessment of the treatment of the affected shareholders and creditors had to be carried out on the basis of a liquidation scenario. Similarly, no provision of Regulation No 806/2014 or Delegated Regulation 2016/1075 expressly precludes Valuations 2 and 3 from being carried out by the same valuer.
Secondly, the Court rejects the complaints that the Valuer was not independent on account of its alleged links with Banco Popular and Banco Santander.
In that regard, it observes that, on the date that the Valuer was appointed as independent valuer, the identity of the purchaser was unknown, so it was not possible to take into account the links between the Valuer and Banco Santander, and the Valuer was no longer providing auditing services to Banco Santander.
The Court emphasises that, throughout the procedure relating to the resolution of Banco Popular, the SRB ensured, as it was required to do, that the Valuer complied with the requirements of independence and, in particular, those relating to the absence of a conflict of interest laid down in Delegated Regulation 2016/1075. (10)
Thus, the SRB did not err in finding that the services provided by the Valuer both to Banco Popular and to Banco Santander could not influence the Valuer’s judgement in carrying out Valuation 3, and could not therefore establish that there were actual or potential material interests in common or in conflict with Banco Popular or Banco Santander.
Similarly, none of the arguments calls into question the SRB’s assessments relating to the absence of a link between, on the one hand, the auditing services and services relating to the integration of Banco Popular provided by the Valuer to Banco Santander and, on the other hand, the elements relevant to Valuation 3, which concerned only the valuation of Banco Popular and not that of Banco Santander.
Furthermore, the applicants do not explain how those services provided by the Valuer could have influenced or could have been reasonably perceived to influence the Valuer’s judgement in carrying out Valuation 3.
Moreover, the Court considers that in order to make a finding that the SRB should have taken into consideration an apparent lack of objectivity or impartiality on the part of the Valuer on account of its links with Banco Santander, it would need to be established that by submitting, in Valuation 3, that the affected shareholders and creditors would not have received better treatment under normal insolvency proceedings, the Valuer intended to favour Banco Santander. Furthermore, even if the Valuer had concluded, in Valuation 3, that the affected shareholders and creditors would have received better treatment in the event of Banco Popular’s liquidation, the compensation which might have resulted therefrom is paid by the Single Resolution Fund, and not by Banco Santander.
In addition, the Court holds that the outcome of Valuation 3 has no influence on the legality and legitimacy of the decision to place Banco Popular under resolution or on the outcome of that resolution, namely the sale of Banco Popular to Banco Santander, and that it cannot have the effect of granting the affected shareholders and creditors entitlement to compensation from Banco Santander.
The Court concludes that, in so far as Valuation 3, whatever its outcome, could not affect Banco Santander’s situation, the Valuer was not in a position to favour Banco Santander. Accordingly, the links between them cannot give rise to a legitimate doubt as to the existence of possible bias, or point to a lack of objectivity or impartiality on the part of the Valuer. Those links did not constitute a circumstance capable of calling into question the Valuer’s independence in carrying out Valuation 3 or its appointment by the SRB as an independent valuer.
In the third place, the Court rejects the plea alleging infringement of the right of the shareholders and creditors to be heard, in particular, in so far as the SRB required them to submit their comments on a form.
In that regard, first, it points out that respect for the right to be heard must be ensured even where there is no legislation which expressly provides for the exercise of that right, and that neither Regulation No 806/2014 nor the Charter of Fundamental Rights of the European Union (‘the Charter’) lays down a specific procedure for implementing the right to be heard. Thus, the SRB’s decision to use a form to collect the comments of the affected shareholders and creditors was within its margin of discretion in organising that procedure, in order to allow the affected shareholders and creditors to exercise their right to be heard, provided that they would be able to exercise their right effectively.
Secondly, in the present case, the Court observes that the SRB examined all the comments received and that it explained, in the contested decision, why certain comments were not relevant for the purpose of adopting the contested decision. The Court rejects the argument alleging infringement of the right to be heard on the ground that the SRB dismissed irrelevant comments.
Thirdly, the Court finds that the questions on the form were drafted in a neutral manner, in the form of a brief presentation of the issue in question with a reference to the relevant parts of the preliminary decision or of Valuation 3, which was followed by an invitation to the affected shareholders and creditors to submit their comments or opinions on that issue.
Fourthly, the Court rejects the argument concerning the limitation of the length of the responses that could be entered on the form, on the ground that it is purely theoretical and does not establish to the requisite legal standard that, in the absence of such a limitation, the outcome of the procedure could have been different.
On the one hand, the comments submitted during the right to be heard process in response to the form were carefully examined in the contested decision and led the Valuer to adopt the clarification document. Thus, even though the length of the comments was limited, the SRB and the Valuer provided detailed responses to those comments.
On the other, the applicants do not indicate which comments, other than those which had been submitted and to which the SRB and the Valuer had responded, they had been prevented from making on account of the length of the form. They also fail to specify which documents they would have liked to be able to attach to the form.
In the fourth place, the Court rejects as ineffective the plea alleging that the basis of Valuation 3 on Banco Popular’s financial situation when it was put into resolution is incorrect.
It recalls that the assessment of difference in treatment had to be made at the time the resolution scheme was adopted. However, the Bank of Spain’s expert report of 8 April 2019, on which the applicants rely and whose production by way of a measure of inquiry had been requested, concerns events prior to the resolution of Banco Popular, which were not relevant for the purpose of carrying out Valuation 3.
In the fifth place, the Court rejects the plea alleging that the SRB improperly delegated to the Valuer the decision-making powers conferred on it by Regulation No 806/2014.
First, having found that the applicants do not raise a plea of illegality in respect of Regulation No 806/2014, nor claim that the SRB exercised a discretionary power or that its executive powers are not clearly defined in that regulation, or that the SRB infringed Regulation No 806/2014 by exceeding the powers conferred on it by that regulation, the Court holds that the arguments criticising the SRB for conferring a decision-making power on the Valuer cannot establish an infringement of the principles relating to the delegation of powers.
Secondly, the Court points out that the decision not to grant compensation to the affected shareholders and creditors was adopted by the SRB, not by the Valuer.
Furthermore, pursuant to Regulation No 806/2014, the economic and technical aspects of the valuation of the treatment which the affected shareholders and creditors would have received if Banco Popular had been subject to normal insolvency proceedings were to be assessed by an independent valuer and not by the SRB itself. Thus, the fact that the SRB entrusted the Valuer with carrying out Valuation 3 cannot be construed as a delegation of its power to adopt the decision.
Thirdly, as regards the provisions of Regulation No 806/2014, the fact that the SRB approved the conclusions of Valuation 3 cannot be interpreted as a failure by the SRB to monitor compliance with the requirements with which the independent valuer must comply when carrying out the valuation. Furthermore, it is clear from the content of the contested decision that the SRB did not merely summarise Valuation 3 and the clarification document, but examined whether they remained valid in the light of the comments made by the affected shareholders and creditors.
In the sixth place, the Court rejects the plea alleging infringement of the right to an effective remedy.
As regards the non-disclosure of certain information in the non-confidential version of Valuation 3 annexed to the preliminary decision, the Court observes that the SRB’s assessment, according to which the redacted information relating to provisions for legal contingencies set out in Valuation 3 was covered by professional secrecy and was confidential, is not disputed. Nor is it disputed that the SRB is under an obligation to protect confidential information. (11) Furthermore, the applicants do not indicate that the redacted information is required in order to understand the contested decision or to exercise their right to an effective judicial remedy.
In the seventh place, the Court rejects the plea alleging infringement of the right to property.
The Court points out that Regulation No 806/2014 establishes a mechanism to ensure fair compensation for the shareholders or creditors of the entity under resolution, in accordance with the requirements of Article 17(1) of the Charter.
In the present case, having failed to establish that the SRB had made a manifest error of assessment in concluding, on the basis of Valuation 3, that the affected Banco Popular shareholders and creditors would not have received better treatment under normal insolvency proceedings than in the resolution, the applicants have not shown that the contested decision infringes their right to property.
Moreover, it cannot validly be maintained that the SRB infringed Article 17 of the Charter, in so far as the amount of the compensation under the no-creditor-worse-off principle was calculated on the basis of the worst-case scenario for the shareholders, namely proceedings for the liquidation of Banco Popular. The application of a counterfactual liquidation scenario complies with the applicable provisions.