Monday 20 November 2017

European court clears Government in €4bn IL&P recap case

Piotr Skoczylas
Piotr Skoczylas
John Mulligan

John Mulligan

The Government was entitled to initiate a €4bn recapitalisation in Irish Life & Permanent without shareholder approval as the country's banks faced meltdown in 2011, the European Court of Justice has ruled.

A group of shareholders - including a former non-executive director of the group, Piotr Skoczylas - had sought to prevent the 2011 recapitalisation of Irish Life & Permanent (IL&P), arguing that the Government did not have the power under emergency banking laws to freeze out shareholders.

Mr Skoczylas had insisted that Finance Minister Michael Noonan had breached EU law when he recapitalised IL&P and that the alleged breaches "cannot be legally justified".

But the European Court of Justice has ruled that a government of an EU state has a right to increase the share capital of a bank without the agreement of shareholders "where there is a serious disturbance of the economy and the financial system".

Yesterday's ruling confirms an opinion issued by one of the court's own lawyers.

The court added yesterday: "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."

Mr Skoczylas is the managing director of Malta-based Scotchstone Capital. In 2011, he was added to a High Court action taken by other IL&P shareholders, in an effort to reverse the first €2.7bn phase of a government recapitalisation. In 2012, Irish Life was sold to the State for €1.3bn, completing the €4bn recapitalisation.

The initial 2011 stage went ahead despite shareholders voting against it. It resulted in the State taking an almost 100pc stake.

In 2014, the High Court judge hearing the case to have the recapitalisation set aside, referred it to the European Court of Justice (ECJ).

Justice Iseult O'Malley said the High Court was not able to definitively say whether or not the ECJ would confirm the law used under the Credit Institutions Act to recapitalise IL&P, now Permanent TSB.

The ECJ said yesterday that the order issued by Mr Noonan IL&P, instructing IL&P to issue the new shares to him in return for the €2.3bn injection, was "necessary to prevent the failure of that financial institution and to forestall a serious threat to the financial stability of the EU".

The court acknowledged a "clear public interest" in ensuring protection of shareholders and creditors, but said it cannot "prevail in all circumstances.

Irish Independent

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