Algebris (UK) Ltd and Anchorage Capital Group LLC v Single Resolution Board.

• Jurisdiction: European Union
• ECLI: ECLI:EU:C:2021:1042
• Date: 21 December 2021
• Docket Number: C-934/19
• Celex Number: 62019CJ0934
• Court: Court of Justice (European Union)

JUDGMENT OF THE COURT (Third Chamber)

21 December 2021 (*)

(Appeal – Economic and monetary union – Banking union – Recovery and resolution of credit institutions and investment firms – Single resolution mechanism for credit institutions and certain investment firms (SRM) – Single Resolution Board (SRB) – Resolution procedure applicable where an entity is failing or is likely to fail – Adoption of a resolution scheme in respect of Banco Popular Español SA – Sale of business tool – Write-down and conversion of capital instruments – Regulation (EU) No 806/2014 – Article 20 – Concept of ‘definitive valuation’ – Consequences – Refusal or failure to proceed with an ex post definitive valuation – Remedies – Action for annulment)

In Case C‑934/19 P,

APPEAL under Article 56 of the Statute of the Court of Justice of the European Union, brought on 20 December 2019,

Algebris (UK) Ltd, established in London (United Kingdom),

Anchorage Capital Group LLC, established in New York (United States),

represented by T. Soames, avocat, R. East, Solicitor, N. Chesaites, advocaat, and D. Mackersie, Barrister,

appellants,

the other party to the proceedings being:

Single Resolution Board (SRB), represented by J. King, L. Pogarcic Mataija and E. Muratori, acting as Agents, H.-G. Kamann and L. Hesse, Rechstanwälte, and F. Louis, avocat,

defendant at first instance,

THE COURT (Third Chamber),

composed of A. Prechal, President of the Second Chamber, acting as President of the Third Chamber, J. Passer, F. Biltgen, L.S. Rossi and N. Wahl (Rapporteur), Judges,

Advocate General: J. Kokott,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after hearing the Opinion of the Advocate General at the sitting on 8 July 2021,

gives the following

Judgment

1 By their appeal, Algebris (UK) Ltd and Anchorage Capital Group LLC ask the Court of Justice to set aside the order of the General Court of the European Union of 10 October 2019, Algebris (UK) and Anchorage Capital Group v SRB (T‑2/19, not published, ‘the order under appeal’, EU:T:2019:741), by which the General Court dismissed as inadmissible their action for annulment of the alleged refusal of the Single Resolution Board (‘the SRB’ or ‘the Board’) to carry out an ex post definitive valuation of Banco Popular Español SA (‘Banco Popular’), of which they were allegedly informed by letter of 18 December 2018.

Legal context

2 Recital 64 of Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 (OJ 2014 L 225, p. 1) states:

‘It is important that losses be recognised upon failure of the entity. The valuation of assets and liabilities of failing entities should be based on fair, prudent and realistic assumptions at the moment when the resolution tools are applied. The value of liabilities should not, however, be affected in the valuation by the entity’s financial state. It should be possible, for reasons of urgency, that the Board makes a rapid valuation of the assets or the liabilities of a failing entity. That valuation should be provisional and should apply until an independent valuation is carried out.’

3 Article 20 of Regulation No 806/2014, headed ‘Valuation for the purposes of resolution’, provides:

‘1. Before deciding on resolution action or the exercise of the power to write down or convert relevant capital instruments, the Board shall ensure that a fair, prudent and realistic valuation of the assets and liabilities of an entity referred to in Article 2 is carried out by a person independent from any public authority, including the Board and the national resolution authority, and from the entity concerned.

2. Subject to paragraph 15, where all of the requirements laid down in paragraphs 1 and 4 to 9 are met, the valuation shall be considered to be definitive.

3. Where an independent valuation in accordance with paragraph 1 is not possible, the Board may carry out a provisional valuation of the assets and liabilities of the entity referred to in Article 2, in accordance with paragraph 10 of this Article.

4. The objective of the valuation shall be to assess the value of the assets and liabilities of an entity referred to in Article 2 that meets the conditions for resolution of Articles 16 and 18.

5. The purposes of the valuation shall be:

(a) to inform the determination of whether the conditions for resolution or the conditions for the write-down or conversion of capital instruments are met;

(b) if the conditions for resolution are met, to inform the decision on the appropriate resolution action to be taken in respect of an entity referred to in Article 2;

(c) when the power to write down or convert relevant capital instruments is applied, to inform the decision on the extent of the cancellation or dilution of instruments of ownership, and the extent of the write-down or conversion of relevant capital instruments;

…

(g) in all cases, to ensure that any losses on the assets of an entity referred to in Article 2 are fully recognised at the moment the resolution tools are applied or the power to write down or convert relevant capital instruments is exercised.

6. Without prejudice to the [European] Union State aid framework, where applicable, the valuation shall be based on prudent assumptions, including as to rates of default and severity of losses. The valuation shall not assume any potential future provision of any extraordinary public financial support, any central bank emergency liquidity assistance, or any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms to an entity referred to in Article 2 from the point at which resolution action is taken or the power to write down or convert relevant capital instruments is exercised. …

…

7. The valuation shall be supplemented by the following information as appearing in the accounting books and records of an entity referred to in Article 2:

(a) an updated balance sheet and a report on the financial position of an entity referred to in Article 2;

(b) an analysis and an estimate of the accounting value of the assets;

(c) the list of outstanding on-balance-sheet and off-balance-sheet liabilities shown in the books and records of an entity referred to in Article 2, with an indication of the respective credits and priority of claims referred to in Article 17.

…

9. The valuation shall indicate the subdivision of the creditors in classes in accordance with the priority of claims referred to in Article 17 and an estimate of the treatment that each class of shareholders and creditors would have been expected to receive, if an entity referred to in Article 2 were wound up under normal insolvency proceedings. That estimate shall not affect the application of the “no creditor worse off” principle referred to in Article 15(1)(g).

10. Where, due to urgency in the circumstances of the case, either it is not possible to comply with the requirements laid down in paragraphs 7 and 9, or paragraph 3 applies, a provisional valuation shall be carried out. The provisional valuation shall comply with the requirements laid down in paragraph 4 and, in so far as reasonably practicable in the circumstances, with the requirements laid down in paragraphs 1, 7 and 9.

The provisional valuation referred to in the first subparagraph shall include a buffer for additional losses, with appropriate justification.

11. A valuation that does not comply with all of the requirements laid down in paragraphs 1 and 4 to 9 shall be considered to be provisional until an independent person as referred to in paragraph 1 has carried out a valuation that is fully compliant with all of the requirements laid down in those paragraphs. That ex post definitive valuation shall be carried out as soon as practicable. It may be carried out either separately from the valuation referred to in paragraphs 16, 17 and 18, or simultaneously with and by the same independent person as that valuation, but shall be distinct from it.

The purposes of the ex post definitive valuation shall be:

(a) to ensure that any losses on the assets of an entity referred to in Article 2 are fully recognised in the books of accounts of that entity;

(b) to inform the decision to write back creditors’ claims or to increase the value of the consideration paid, in accordance with paragraph 12 of this Article.

12. In the event that the ex post definitive valuation’s estimate of the net asset value of an entity referred to in Article 2 is higher than the provisional valuation’s estimate of the net asset value of that entity, the Board may request the national resolution authority to:

(a) exercise its power to increase the value of the claims of creditors or owners of relevant capital instruments which have been written down under the bail-in tool;

(b) instruct a bridge institution or asset management vehicle to make a further payment of consideration in respect of the assets, rights or liabilities to an institution under resolution, or as the case may be, in respect of the instruments of ownership to the owners of those instruments of ownership.

13. Notwithstanding paragraph 1, a provisional valuation conducted in accordance with paragraphs 10 and 11 shall be a valid basis for the Board to decide on resolution actions, including instructing national resolution authorities to take control of a failing institution or on the exercise of the write-down or conversion power of relevant capital instruments.

14. The Board shall establish and maintain arrangements to ensure that the assessment for the application of the bail-in tool in accordance with Article 27 and the valuation referred to in paragraphs 1 to 15 of this Article are based on information about the assets and liabilities of...