Individual national authorities have the right to impose capital increases on banks in financial crisis, even against the wishes of shareholders. This was established by the Court of Justice of the European Union, rejecting the appeal presented by the shareholders of an Irish bank, Ilp, which was subjected to a procedure of this kind in 2010.
THE IRISH CASE
The Irish judiciary had concluded that ILP could not have increased its regulatory minimum capital by the required amount, so that failure to recapitalize within the prescribed period would have led to an insolvency which would have had serious consequences for Ireland and which would probably have exacerbated the imminent threat to the financial stability of other Member States and of the Union. The Irish "High Court" then asked the EU Court of Justice whether the European directive on the matter prevented the issuance of an injunction such as the one adopted in the case of ILP.
And the European judges agreed with Dublin, establishing that – after the decision of the extraordinary general meeting of the ILP to reject the recapitalization proposal put forward by the Irish minister – the injunction was the only way to avoid the insolvency of the institute thus prevent a serious threat to the financial stability of the Union.
THE REASONS OF THE EU COURT
Indeed, according to the European Court of Justice, the interests of shareholders and creditors – which must also be protected – cannot prevail in all circumstances over the public interest and the stability of the financial system.
The judges therefore note that the injunction constitutes an exceptional measure applicable in a situation of serious disturbance of the economy and the financial system of a Member State and which aims to remedy a systemic threat to the financial stability of the Union.
