English Law Routes Exhausted For Banco Espirito Santo Creditors: English Law Challenges To EU Bank Restructurings Firmly Closed Off By U.K. Supreme Court

Summary - Decision of U.K. Supreme Court

The U.K. Supreme Court has closed off a challenge to the restructuring of Banco Espirito Santo (BES) under English law. Through an emergency liquidity facility creditors had previously found success in the High Court (read our summary here). Now the U.K. Supreme Court1 have confirmed the automatic pan-European effect, under the EBRRD, of actions effective under the domestic laws of Portugal that were taken by the Portuguese authorities following their initial 'Reorganisation Measure'. Aggrieved creditors will need to challenge European bank restructurings under the administrative law of the bank's resolution authority or before the European Court in Luxembourg rather than the jurisdiction pertaining to the governing law of the loan or other debt instrument.

Takeaways for EU bank creditors

Going forward, creditors of EU banks should be mindful that:

All measures taken under the law of the home state that affect a reorganisation measure previously made will themselves be given automatic effect under the EBRRD; it is irrelevant whether those subsequent measures themselves are 'reorganisation measures' provided they have effect under the domestic law of the home state. Challenges to resolution authority measures are to be pursued under the administrative law of the bank's resolution authority. Challenges against the Single Resolution Board may be brought before European courts. Act promptly if you are aggrieved by reorganisation measures taken under the EBRRD. There are extremely tight limitation periods within which to bring administrative law challenges in most jurisdictions (e.g. within two months for challenges to decisions of EU bodies). Recap of facts

As it applied to the emergency liquidity loan ("Oak Loan"), the BES restructuring involved decisions taken by the resolution authority for BES, Banco de Portugal, in August 2014 ("August Decision") and December 2014 ("December Decision"). The August Decision involved Banco de Portugal exercising the bridge institution tool under the European Bank Resolution and Recovery Directive ("EBRRD"), thereby transferring assets and liabilities of BES to Novo Banco. The December Decision (couched as clarificatory) provided that the Oak Loan was never transferred to Novo Banco in August. As a matter of domestic Portuguese law, the December Decision was effective.

The Oak Loan lenders' primary case was that, while the August Decision was a reorganisation measure...