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Banco Popular Resolution: denial of the right of the affected shareholders and creditors to compensation from the Single Resolution Fund: Judgments of the EU General Court of 22 november 2023

The study (see final reference) comments on the four Judgments of the General Court of the EU of 22 November 2023 dismissing the respective appeals of shareholders and creditors against the SRB Decision of 17 March 2020 on the Resolution of Banco Popular. Specifically, in these decisions, the General Court of the EU decided that the affected shareholders and creditors were not entitled to compensation from the Single Resolution Fund because they would not have received better treatment in the event of liquidation of the bank than that resulting from its resolution.

The study concludes as follows:

1. In its four Judgments of 22 November 2023, EU General Court decided that the shareholders and creditors shareholders and creditors of Banco Popular affected by the SRB Decision of 17 March 2020 were not entitled to compensation from the Single Resolution Fund because they would not have received better treatment in the event of liquidation of the bank than that resulting from its resolution.

2. All of them have the following common denominators:

(a) First, the appeals are brought by shareholders and creditors of Banco Popular against the SRB Decision of March 17, 2020 on the Resolution of said Bank which agreed that the affected shareholders and creditors were not entitled to compensation from the Single Resolution Fund because they would not have received better treatment in the event of liquidation of the bank than that resulting from its resolution.

(b) Second, they deal with the Single Resolution Mechanism for credit institutions and certain investment services companies (SRM) and, specifically, with the resolution of Banco Popular, the right to property, the right to a hearing and the right to effective judicial protection in relation to the assessment of the difference in treatment and the independence of the appraiser.

(c) Third, appeals are dismissed because the GCEU considers that the SRB’s Decision of 17 March 2020 complied with the criteria set out in Regulation No. 806/2014 and, therefore, decided that the appellant shareholders and affected creditors were not entitled to compensation from the Single Resolution Fund because they would not have received better treatment in the event of liquidation of the bank than that resulting from its resolution.

3. In the contested Decision, the SRB agreed:

(a) First, that assessment of the difference in treatment in the event of resolution to determine the potential granting of compensation to Banco Popular’s shareholders and creditors was accommodated in accordance with Article 20.16 of Regulation No. 806/2014.

(b) Second, shareholders and creditors of Banco Popular on which the resolution measures were adopted shall not be entitled to compensation from the Single Resolution Fund pursuant to Article 76.1.e), of Regulation No. 806/2014; and third, that the addressee of the Decision was the FROB, as the national resolution authority within the meaning of Article 3.1.3 of Regulation No. 806/2014.

4. The judgments of the GCUE of November 22 dismissed the respective appeals applying the Counterfactual Differential Diagnosis (CDD) due to the requirements of the European and Spanish regulation of banking crises. This was because GCUE had to examine whether the decision of the SRB that the shareholders and creditors affected by the resolution of Banco Popular were not entitled to compensation from the Single Resolution Fund complied with those regulations because they would not have received better treatment in the event of the ordinary liquidation of the bank than that resulting from its bank resolution. This required the CDD to follow a particularly complex liquidation scenario because it had to take into consideration the Spanish Insolvency Law in force, which contemplated -and still contemplates- two possible solutions to the insolvency proceedings: the positive one of the arrangement and the negative one of the liquidation; opting for the latter hypothetical scenario.

5. The reasoning that supports the dismissal of the appeal by the GCUE is based on the assumption of the limits of the scope of judicial review of certain acts of the authorities of the European Union based on highly complex scientific, technical or economic factual assessments and their application to the case in question. We can explain this assumption in the form of a syllogism whose major premise is the general European case law on the limits of judicial review, the minor premise consists of the application of the European case law to the case in dispute and the conclusion consists of the limited scope of review of the decision of the SRB by the GCUE.

6. GCUE Judgments of 22 November 2023 consider that the Decision of the SRB of 17 March 2020 on the Resolution of Banco Popular complied with subjective and objective requirements:

(a) Subjective requirements of valuation both for assessing the functional compatibility of the valuator who carried out valuations 2 and 3 and the operational compatibility of the valuator in the light of his relations with Banco Santander.

(b) Objective requirements of valuation.

8. GCUE Rulings of November 22, 2023 reach the foregoing consideration by reasoning in two phases:

(a) In the first phase they verify that the SRB Decision of March 17, 2020 on the Resolution of Banco Popular was based on an adequate hypothesis for the valuation.

(b) In the second phase, the TGUE Judgments of November 22, 2023 considered that the SRB Decision of March 17, 2020 on the Resolution of Banco Popular was based on a proper valuation procedure.

10. GCUE Judgments of November 22, 2023 resolved – in addition to the economic aspects involved in the valuation of Banco Popular – other legal aspects by stating that the SRB Decision of March 17, 2020 on the Resolution of Banco Popular did not violate the rights to a hearing and to evidence, nor the rights to effective judicial protection and to property of the appellant shareholders and bondholders.

Reference: Tapia Hermida, A.J., Resolución de Banco Popular: denegación del derecho de los accionistas y acreedores afectados a una compensación del Fondo Único de Resolución sentencias del Tribunal General de la UE de 22 de noviembre de 2023, LA LEY Unión Europea, Nº 121, Enero 2024.