Judge to seek EU ruling on bank shareholders’ challenge

Judge Iseult O’Malley, who has been dealing with a Permanent TSB shareholders’ challenge to the constitutionality of laws which permitted the bank’s €4bn recapitalisation by the State, is to seek a preliminary ruling on the law from the European Court of Justice.

She said yesterday 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 used by the finance minister to “stabilise” the bank.

Piotr Skoczylas, his company Scotchstone Capital Fund Ltd, Gerard Dowling, and Padraig McManus have challenged the 2011 direction of the minister to inject €2.7bn into the former Irish Life and Permanent.

Although an EGM of Irish Life & Permanent& Group Holdings in July 2011 voted 60/40 against the minister’s intervention, the minister secured the direction order from the High Court on July 26 of that year.

The €2.7bn injection was then made, followed by another €1.3bn in March 2012.

In March 2011, Mr Skoczylas and the other shareholders initiated proceedings to challenge the earlier €2.7bn injection and the fall in the value of their shareholdings.

Judge O’Malley’s said that from 2008 onwards, Irish Life & Permanent& and the other Irish banks became increasingly reliant upon state and EU financial support. By late 2010 it was apparent there was a serious threat to the financial stability of the State due to the State’s commitments to the banks, she said.

By then the State’s guarantees in respect of Irish Life & Permanent& amounted to €26bn.

In 2011, the governor of the Central Bank directed & Irish Life & Permanent to raise regulatory capital of €4bn which could not have been raised from private investors or existing shareholders.

Failure to recapitalise ahead of an EU deadline would have led to a failure of the bank and a complete loss of value to shareholders.

“The failure of Irish Life & Permanent& 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 and the citizens of the State and of the EU.

The EGM vote led to the Government making a proposed direction order, duly granted by the High Court.

The judge said there had been no breach of duty to the court on the part of the minister or his legal representative in the making of the application, which resulted in the government taking a 99.2% stake in the company.

The Stabilisation Act permitted the action taken by the minister and the direction order could not be set aside or varied unless the court found that the minister’s opinion, that it was necessary, was unreasonable or vitiated by legal error.

The matter will now await the decision of the European Court of Justice on the preliminary issues.

The Department of Finance has expressed its confidence in a successful outcome when the proceedings come before the Court of Justice of the EU.

In a statement, the department said yesterday that Finance Minister Michael Noonan will also continue to vigorously defend all proceedings relating to the recapitalisation of the Permanent TSB Group.

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