Opinion expected on PTSB challenge

The European Court of Justice will deliver its opinion this week on a challenge by shareholders of Permanent TSB against the constitutionality of legislation used by the Government to recapitalise the bank during the economic crisis.

The ECJ has been asked by the High Court in Dublin to determine if Finance Minister Michael Noonan breached any legislation when he obtained an order to allow the State to recapitalise the ailing bank.

The State assumed 99.29% control of the bank after it injected €2.7bn into the former Irish Life & Permanent (now Permanent TSB) in 2011.

Mr Noonan’s intervention came after the Central Bank had directed the bank to raise €4bn in capital.

The legal action against the minister for finance was taken in the Irish courts in the name of Permanent TSB shareholders Gerard Dowling, Padraig McManus, Piotr Skoczylas, a former director of PTSB and his London-based investment management company, Scotchstone Capital Fund Limited.

They believe the actions of the minister had the effect of wiping out most of the value of their shareholding.

An extraordinary general meeting of Irish Life & Permanent in July 2011 voted 60/40 against Mr Noonan’s intervention.

Under the Credit Institutions (Stabilisation) Act 2010, the minister secured a direction order from the High Court later that month allowing for the capital injection of €2.7bn in funds.

The shareholders claim Mr Noonan was legally precluded from forcibly increasing the capital holdings in the bank, against the decision taken at the EGM on July 20, 2011.

They also contend that the minister was required to issue shares at the then- market value of around 32 cents, instead of the 6c at which they were issued.

In her ruling in August 2014, Ms Justice Iseult O’Malley said the High Court was not in a position to say definitively if Mr Noonan had properly applied the Credit Institutions (Stabilisation) Act 2010 to secure a direction order for investing State capital into the bank.

The judge said from 2008 onwards Irish Life & Permanent, along with other banks, had become increasingly reliant upon State and EU financial aid and by 2010 it was apparent there was a serious threat to the financial stability of the State.

On Wednesday an advocate general of the ECJ will give an indication on whether the recapitalisation of the bank by the State was valid under EU law.

Although the ECJ is not bound to adhere to the opinion, it is seen as a reliable barometer of the final ruling in the vast majority of cases which come before the Luxembourg-based court.

Mr Noonan has stated he made the order providing for the investment of €2.7bn in Permanent TSB Group Holdings so that its banking subsidiary could meet its minimum capital requirements.

The minister has expressed confidence of a successful outcome, noting that the High Court had already made important findings of law and fact, including that on the balance of probabilities, the required capital could not have been raised from either private investors or existing shareholders.

The High Court accepted the failure to recapitalise Permanent TSB by a deadline would probably have led to the failure of the bank and severe consequences for the State, which had issued guarantees worth €26bn.