Antitrust

1 2 2 This may now provide a plausible route for creditors to attack State aid approvals of bank resolution, something that has been very difficult to date — despite the extraordinary damage that such decisions do to creditors. In August 2014, the Portuguese authorities put Banco Espírito Santo (BES) into resolution under the Portuguese national resolution framework — this was at a time before the Bank Recovery and Resolution Directive (BRRD) had come into force. In order to carry out an orderly resolution, the Portuguese authorities designed a number of support measures, including State aid, which involved the following: • the sound business activities of BES were transferred to a Bridge Bank called Novo Banco; • the other residual assets and liabilities remained with BES which would be wound-down within the next two years; • the Bridge Bank received State funds of €4.8 billion to provide it with initial share capital, before it was sold off in order to ensure that there is no distortion of competition; • the Portuguese authorities agreed that none of the claims of the shareholders and holders of subordinated debt or any hybrid instruments could be transferred to the Bridge Bank. Therefore, such claims were retained by BES; and • The European Commission (EC) approved these measures the same day they were notified in its August 2014 State aid decision (the EU State aid decision). The subordinated creditors stuck in BES appealed the State aid decision to the General Court and also appealed the national resolution proceedings in the Portuguese courts. Before the General Court, the creditors faced a challenge to establish standing. They argued that the State aid decision had caused them damage. In particular the resolution approved by the EC meant they went from holding bonds in a valuable (if undercapitalized) bank, to holding bonds in bank with no valuable assets, no ability to conduct new business and whose banking license was to be withdrawn after a short winding-up period. This meant that they had suffered substantial losses and their legal position was changed. The General Court held the creditors had no standing to appeal the State aid decision. In particular, it held that the proceedings before the national courts in Portugal had a different subject matter to the appeal of the EU State aid decision — which of course was inevitable given that an appeal against a State aid decision can only be brought in the General Court — and the annulment of the latter could not have an effect on the Portuguese court's interpretation of Portuguese laws that were the subject of the national court proceedings. The General Court therefore found that the creditors had no standing on the basis that annulment of the EC's State aid STATE AID 23 T H E E U R O P E A N C O M M I S S I O N A P P R O V E D T H E S E M E A S U R E S T H E S A M E D A Y T H E Y W E R E N O T I F I E D The European Courts Recognize Creditors' Interests in State Aid Decisions

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