ILP shareholders lose appeal over recapitalisation

Four shareholders were challenging validity of mechanisms used to inject public funds into bank

Photograph: Bryan O’Brien

Four shareholders of Irish Life and Permanent have lost an appeal over the validity of mechanisms used to recapitalise IL&P following the financial collapse 10 years ago.

Piotr Skoczylas, his company Scotchstone Capital Fund Ltd, Gerard Dowling and Padraig McManus had challenged the direction order obtained by then-finance minister Michael Noonan from the High Court under which he effectively nationalised IL&P and injected €4 billion of public funds into it.

Separate proceedings challenging the constitutionality of the Credit Institutions (Stabilisation) Act 2010 - under which the recapitalisation order was made - have yet to be determined by the High Court.

In July last year, the High Court ruled the four shareholders had failed to show the Minister for Finance’s opinion that the July 2011 recapitalisation order was necessary was unreasonable or vitiated by legal error.


The four appealed and on Tuesday, a three-judge Court of Appeal (CoA) unanimously dismissed the appeal.

Mr Justice Gerard Hogan, on behalf of the CoA, said the Irish court could not look behind the judgement of EU Court of Justice which had previously found that recapitalisation in the public interest of a failing institution on a compulsory basis did not contravene EU law.

As the four shareholders’ challenge centred on the manner in which recapitalisation was effected by the 2010 (Stabilisation) Act, it followed the proportionality and reasonableness of these measures were governed by domestic rather than EU law, he said.

The minister’s direction order must be regarded as amounting, in substance, to a compulsory take over of IL&P by the minister, although necessitated in the public interest. The four shareholders were, in principle, constitutionally entitled to receive something close to full value for their shareholdings. Given the nature of the direction order, it had clear implications for their constitutional rights, he said.

It cannot be said the failure to offer the shareholders pre-emption rights was unreasonable in the circumstances, he said. This would have required IL&P to prepare a prospectus for its 135,000 shareholders, a process which would have taken two month when “the reality was IL&P was but days away from disaster if the 31 July 2011 deadline was not met”, the judge said.

A pre-emptive offer would also have been disproportionately expensive and would have had to be underwritten by the State by €100m or more, when the value of the original shareholders’ interests was estimated to be around €19m in June 2011.

It could also not be said the failure to offer a “B shares” option was unreasonable. This would simply have meant the State would have covered the exposure of the liabilities of IL&P but with no right to share in any recovery of the market value of the company, he said.

He also rejected the argument that the Sate had somehow created a false market in IL&P shares or that the shareholders did not receive what, in substance, was fair value for their existing shareholding by reason of the State’s investment.

He was coerced to conclude the direction order satisfied the substance of the appellants constitutional rights, even if that order also provided for “a form of burden sharing by the shareholders”.