The High Court will a seek preliminary ruling from the European Court of Justice on a challenge by Permanent TSB shareholders to the constitutionality of laws which permitted the bank's €4 billion recapitalisation by the State.
Judge Iseult O’Malley said that the High 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.
Piotr Skoczylas, his company Scotchstone Capital Fund, Gerard Dowling and Padraig McManus have challenged the 2011 direction of the Minister to inject €2.7 billion into the former Irish Life & Permanent, which is now Permanent TSB.
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.
The €2.7 billion injection was then made followed by another €1.3 billion in March 2012. In March 2011, Mr Skoczylas and the other shareholders initiated proceedings to challenge the earlier €2.7 billion injection and the fall in the value of their shareholdings.
Following Judge O’Malley’s ruling today, she made findings of law and fact for the purpose of the referral to the European Court of Justice.
She said that from 2008 onwards ILP along with other Irish banks became increasingly reliant upon State and EU financial support. By late 2010 it was apparent that there was a serious threat to the financial stability of the State due to the State’s commitments to the banks.
By then the State's guarantees in respect of ILP amounted to €26 billion. In 2011 the Governor of the Central Bank directed ILP to raise regulatory capital of €4 billion which could not have been raised from private investors or existing shareholders and failure to recapitalise ahead of an EU deadline would have led to a failure of the bank and a complete loss of value to the shareholders.
"The failure of ILP would, as a matter of probability, have had extreme adverse consequences for the Irish State," Judge O'Malley said. "The adverse consequences for the state would probably have worsened the threat to the financial stability of other Member States and of the European Union. "
She said the decision by the State to invest in the recapitalisation had been made in fulfilment of its legal obligations and in the interests of the State’s financial systems, the citizens of the State and the citizens of the European Union.
Judge O’Malley said the Minister acquired 99.2 per cent of the company. The share price had been falling and again fell dramatically from 33 cent per share to one cent. Part of the plan for the recapitalisation of the bank involved the sale of its asset Irish Life which belonged to ILP and not to the shareholders of ILPGH.
She said Irish Life’s value could not, accordingly, be attributed to those shareholders any more than the liabilities of ILP could have been attributed to them. To attribute the value of Irish Life to the shareholders would have been to make an unlawful return of capital to them.
“The Liability Management Exercise resulted in a significant loss to the subordinated debt holders and contributed significantly to the recapitalisation,” Judge O’Malley said.
The Minister’s proposal had been supported, albeit reluctantly, by the board of ILP but an EGM had voted against it which led to the Minister deciding to make a Proposed Direction Order pursuant to the provisions of the Credit Institutions (Stabilisation) Act.
An application to the High Court for a direction order had been made and granted.
The matter will now await the decision of the European Court of Justice on the preliminary issues.
In a statement today, the Department of Finance said Minister Michael Noonan noted the decision of the High Court
“The Minister for Finance is confident of a successful outcome when the proceedings on those distinct matters of European law come before the Court of Justice of the European Union.”
“The Minister will also continue to vigorously defend all proceedings relating to the recapitalisation of the Permanent TSB Group.”
