The Portuguese Regulation on which the resolution of Banco Espírito Santo (BES) in August 2014 was based is compatible with the right to property, the Court of Justice of the European Union ruled on Thursday 5 May (Case C-83/20).
Two companies holding subordinated bonds issued by BES and shareholdings in the Portuguese bank are challenging in the Portuguese courts the compatibility of the Portuguese Regulation on the resolution of credit institutions with EU law and the provisions of the EU Charter of Fundamental Rights on property rights. At the time of BES’s resolution in August 2014, a series of provisions of the ‘BRRD’ Directive (2014/59) on banking resolution, applicable since December 2014, had not been transposed.
In its judgment, the Court finds that the Portuguese Regulation at issue is compatible with the property rights provisions of the Charter (Article 17).
On this point, the European Court is of the opinion that the Charter is applicable to restrictions on the right of ownership of shares or bonds negotiable on capital markets such as those in the present case. Nevertheless, it considers that the BES resolution - which led to the creation of the bridge bank - Novo Banco SA to which certain assets, liabilities, extra-patrimonial items managed by BES were transferred (see EUROPE 11138/15) - did not entail a deprivation of property insofar as it did not provide for dispossession or formal expropriation of the shares or bonds concerned.
It is true that the resolution of BES has led to a regulation of the use of assets that may affect the property rights of BES shareholders, whose economic position is affected, and of bondholders whose debt instruments have not been transferred to the bridge bank.
Nevertheless, the Court held that, with regard to the margin of appreciation available to Member States when adopting economic decisions, the property rights provisions of the Charter do not preclude national legislation which does not contain an express provision guaranteeing that shareholders do not suffer greater losses than they would have done if a failing bank had gone into liquidation at the date on which the bank resolution was pronounced (the ‘no creditor worse off’ principle).
Furthermore, the Court wondered whether the partial transposition by a Member State of the BRRD into national legislation on the resolution of credit institutions before the expiry of the deadline for transposition could seriously compromise the achievement of the result prescribed by the Directive, within the meaning of the European case law (Cases C-246/06 and C-439/16).
The answer to this question is no. According to the Court, Portugal cannot be criticised for not having transposed, in August 2014, all the provisions of the Directive, which have been applicable since December 2014. However, during the transposition period, a Member State must refrain from adopting general measures which would seriously compromise the achievement of the result prescribed by the Directive.
The Portuguese Court will have to assess whether the national provisions at issue are such as to seriously compromise the result prescribed by the BRRD. However, the Court considers that the correct but partial transposition of a Directive by a Member State before the expiry of the transposition period is not likely to produce such a negative effect.
See the press release: https://aeur.eu/f/1iu (Original version in French by Mathieu Bion)