European Union law does not preclude a member state from increasing a bank’s share capital, even without the general meeting’s consent, as envisaged by the Court of Justice of the European Union (CJEU) in the preliminary ruling of Gerard Dowling and Others vs Minister for Finance.
In this case, the CJEU said that the Second Council Directive 77/91/EEC (Directive) allows such an increase where two conditions are satisfied, namely that the economy and financial system of a member state must be in a state of crises, and that the objective of such increase is that of preventing a systematic risk and ensuring the financial stability of the European Union.
This case arose after the Irish Minister for finance obtained from the courts a Direction Order requiring company ILPGH (who owned the entire share capital of a credit institution operating in Ireland, ILP) to issue new shares to the Minister. Subsequently, the Minister obtained 99.2% of the shares of credit institution operating in Ireland, ILP, without any decision taken by the general meeting of ILPGH. He had done this as part of the restructuring and recapitalisation of the banking sector in Ireland after the 2008 economic crises, which led to serious repercussions on the financial stability of the country and of its banks.
After taking into consideration all the competing interests, the CJEU concluded that the Direction Order was the only way Ireland can ensure the recapitalisation of ILP, which was necessary to prevent the failure of that financial institution and obstruct a serious threat to the financial stability of the EU.
The CJEU concluded that although the protection of the shareholders and the creditors should be protected, this cannot prevail in all circumstances over the public interest, in ensuring the stability of the financial system established by the EU Treaties.