In this case the High Court had to consider the mutual recognition provision in the EU Bank Recovery and Resolution Directive ("BRRD") and the Winding Up Directive for Banks (WUD) which provide for how the insolvency of EEA banks should be managed by member states.

This case highlights the different tensions that arise in the aftermath of the collapse of Banco Espirito Santo ("BES") between how creditors are treated under the BRRD and WUD and the flexibility given to central banks to restructure good and bad debts when a bank fails.

Background to the decision

The Claimants (which included Goldman Sachs International ("Goldman Sachs") and a number of other assignees to whom part of the loan had been assigned referred to as the "NZ Claimants") in this matter were seeking repayment of a loan and interest under a Facility Agreement originally made between Oak Finance Luxembourg SA ("Oak Loan") and BES made on 30 June 2014 . BES agreed to lend USD 835 million to Oak.

Goldman Sachs and the NZ Claimants made the claims as successors to Oak's rights under the Oak Loan. Before the collapse of BES, the First Claimant, Goldman Sachs had also acquired approximately 2% of BES's share capital.

On 3 July 2014 BES drew down on the Oak Loan. The Facility Agreement contained English Law and English Jurisdiction clauses.

Within weeks of the drawdown, in early August 2014, BES collapsed and the Bank of Portugal (Portugal's central bank) then had to bail out BES and manage the aftermath in accordance with the BRRD and WUD.

Following the collapse the Bank of Portugal restructured the liabilities of BES and transferred all liabilities other than those defined as "excluded liabilities" to Bank Nova Bank ("NB"). NB was a new bank that had been created to carry the surviving liabilities of BES.

Following the collapse in August 2014 it had been assumed that the Bank of Portugal had issued a final decision in relation to the liabilities of BES in which it had sought to restructure BES' s liabilities. The Claimants and Oak had thought that the Bank of Portugal had indicated that the Oak Loan would be one of the "good debts" passing to NB, in other words that it was supposed to be an "excluded liability". This was important because the Oak Loan had a greater chance of being paid if the liability vested in NB. This decision was referred to as the "August decision".

However, in December 2015 the Bank of Portugal issued a "ruling" that the Oak Loan had not been transferred to NB in August 2014 and that the Oak Loan remained a liability of BES, the failed bank. The "ruling" was based upon the fact that Goldman Sachs had been a 2% shareholder at the time the facility had been agreed and that Oak had been acting on behalf of Goldman Sachs at the time of the Oak Loan being executed. This ruling was referred to as the "December decision".

The first instalment under the Oak Loan fell due on 29 December 2014 and was not paid by NB or BES. The December decision was later affirmed in February by the Bank of Portugal and shortly afterwards. It was also at this time that Oak's rights under the Oak Loan were assigned to the Claimants.

Following the assignment, the Claimants then issued proceedings in the English High Court for repayment of the entire principal sum loaned plus interest against NB.

The Application before the High Court

In response, the new Bank NB applied to set aside the proceedings in the High Court on the basis that the Court had no jurisdiction to determine the claims and alternatively to have the proceedings stayed. NB submitted that the December decision was a "reorganisation measure" that applied Article 66 of the BRRD and that the English Court had no jurisdiction.

The High Court had to consider whether the December decision had an effect under English Law and in particular (i) whether the August decision had any effect under English Law, (ii) whether NB in effect had become a party to the Oak Loan in August 2014 and therefore subject to the jurisdiction clause in the Oak Loan and (iii) whether NB had ceased to be a party to the Oak Loan.


The Court noted that it was common ground that the August decision was valid and effective and that NB did not seek to make submissions about the correctness of the December decision.

The Court also noted that Goldman Sachs was challenging the December decision in Portugal and that this could take a number of years.

As a result, on the evidence before it, the High Court concluded that the Claimants had the better of the argument on jurisdiction. The Court found that the December decision did not include the exercise of any power under the BRRD and therefore the provisions for mutual recognition were not engaged.

The Judge found that the December decision differed from the August decision and that the December decision had no formal status under the BRRD. The application was refused.

As a result the creditors were able to continue proceedings against NB under English Law against NB. This also had the advantage for the Claimants of becoming involved in insolvency proceedings in Portugal or having to wait until the challenges being pursued in Portugal had been heard and a final decision made about the meaning and effect of the August decision and December decision under Portuguese law.


The case illustrates the complex problems that arise when a large bank fails and how decisions of central banks impact on other member states and creditors who wish to pursue claims to recover outstanding loans. The Judge stressed that he was deciding the issues on a balance of probabilities as to which party had the better argument.

The WUD enables member states to give competence to their local supervisory insolvency authorities and regulates the scope of mutual recognition of decisions made by such supervising authorities between home and host member states.

However the High Court has made it clear that the demarcation between what decisions should be mutually recognised is far more limited than NB had submitted. The Judge held that the December decision did not acquire a formal status under the BRRD which fell under the scope of the mutual recognition provisions of the EU legislation.

The narrow approach taken to deciding whether a Portuguese Central Bank decision came within the auspices of the BRRD and WUD will be of interest to those in the financial sector.

In future central banks may want to be more cautious in how they decide upon assigning debts from failing banks to new structures and to consider the interplay of choice of law and jurisdiction clauses under the contract with the decisions they make under the BRRD.