The Government had the right to nationalise Irish Life and Permanent (IL&P)even if it diluted the value of shareholders’ stakes in the financial services group, the European Court of Justice (ECJ) has ruled.
The decision, announced this morning, follows several months of deliberations and means that the Government didn’t break EU law when it nationalised the group in 2011. The €4 billion injection gave the State a 99.2 per cent shareholding in the bank and wiped out existing investors. The applicants – Gerard Dowling, Pádraig McManus, Piotr Skoczylas, and Malta-based firm Scotchstone Capital Fund Ltd – claimed Minister for Finance Michael Noonan breached EU company and that the State’s shareholding is illegal.
However the ECJ found that the exceptional circumstances meant that this was not the case.
“EU law doesn’t preclude an increase in the share capital of a bank without the agreement of the general meeting of the shareholders in a situation where there is a serious disturbance of the economy and the financial system of a member state,” the court said in a statement.
“The interests of shareholders and creditors cannot be held to prevail in all circumstances over the general interest of the stability of the financial system,” the statement added.
The statement from the ECJ follows the decision of the Irish High Court, back in 2014, to a seek preliminary ruling from the ECJ, on the grounds that the Court was not in a position to say definitively whether the Court of Justice would resile from, qualify or affirm the law as outlined on the Credit Institutions (Stabilisation) Act (CIS Act) used by the Minister for Finance to “stabilise” the bank.
The challenge from the investors first came in 2011, when Mr Skoczylas and the other shareholders initiated proceedings to challenge the initial € 2.7 billion injection into IL&P (the Government later injected a further €1.3bn) and the fall in the value of their shareholdings.
Although an EGM of IL&P Group Holdings, the holding company for IL&P, voted 60/40 in July 2011 against the Minister’s intervention, the Minister secured the direction order from the High Court on July 26th of that year.
In 2014 Mr Noonan said he would continue to “vigorously defend all proceedings relating to the recapitalisation of the Permanent TSB Group.”
