Bank restructuring. Only banks and not their shareholders, who were not direct victims, could appeal before the Court

GRAND CHAMBER JUDGMENT

Albert and others v. Hungary 07.07.2020 (no. 5294/14)

see here

SUMMARY

The applicant shareholders essentially complained that the new legislation had restricted their right
to influence the operation of the banks in which they held shares.

The Court found in particular that the acts complained of by the applicants had principally concerned
the savings banks, and had not directly affected the applicants’ shareholder rights as such. It further
found that there were no exceptional circumstances, such as the shareholders and banks being so
closely identified that it would be artificial to distinguish between them or pressure on the banks to
join the State control scheme, to justify disregarding legal personality or the lifting of the corporate
veil in the case.

The complaints should therefore have been brought by the two savings banks and not the
applicants, who, as shareholders, could not claim to have been a victim of any violation of their
rights under the European Convention of Human Rights.

The Court also decided, unanimously, to strike the application out of its list of cases in so far as it
concerned the remaining four shareholders, who had decided to no longer pursue their cases

PROVISION 

Article 1 of the First Additional Protocol

PRINCIPAL FACTS

The applicants are 237 shareholders in two savings banks, namely Kinizsi Bank Zrt. and Mohácsi
Takarék Bank Zrt. They are all Hungarian nationals.

At the time their application was lodged in 2014, the applicant shareholders collectively held the
majority of the shares in the savings banks, namely 98.28% of shares in Kinizsi Bank and 87.65% of
shares in Mohácsi Bank. Among those who applied to the Court, an average shareholder in Kinizsi
Bank owned around 0.015% of shares, while an average shareholder in Mohácsi Bank owned around
0.016%.

The applicants’ complaints focused on the legislation introducing the mandatory integration of their
two banks into a state control scheme.

The legislation, Act no. CXXXV of 2013 on the Integration of Cooperative Credit Institutions and the
Amendment of Certain Laws Regarding Economic Matters (“the Integration Act”), entered into force
in 2013. It effectively integrated the applicants’ banks into a scheme aimed at improving the credit
institutions sector in Hungary.

The mandatory integration was headed by two central bodies, the newly created Integration
Organisation of Cooperative Credit Institutions, and the Savings Bank, which are indirectly controlled
or owned by the State.

Under the reform, legal compulsion to become members of the Integration Organisation was
combined with heavy financial and formal conditions and time constraints. Non-compliance with the
requirements of the Integration Act could lead to sanctions, such as exclusion of the members and
withdrawal of licences.

As a result of the new legislation, the applicants’ banks had to choose between either remaining
members of the Integration Organisation or leaving it. Leaving implied re-applying for a new banking
licence and, among other things, having to raise the banks’ own capital. The choice to remain had to
be made by the competent bodies of the banks, namely, the general meeting of their shareholders,
which included most of the applicants, and the banks’ management. Both banks ultimately agreed to
remain members of the integration scheme.

Some of the shareholders challenged in court the banks’ adoption of the articles of association in
line with the model provided by the Integration Organisation. There is no information on the
outcome of those legal proceedings.

THE DECISION OF THE COURT…

The Court first reiterated that the applicants could not complain about a violation of the Convention
in the abstract. An individual had to be able to show that he or she had been “directly affected” by
the measure complained of.

In the present case, it was crucial from the outset to draw a distinction between complaints about
measures affecting the applicants’ rights as shareholders and those about acts affecting companies,
in which they held shares.

The Court acknowledged that the reform had had a considerable impact at company level. The
relevant provisions of the new legislation were clearly coercive and involuntary, and directly affected
the governing structures of the two banks, which had lost a significant degree of their management
power to the Integration Organisation and the Savings Bank.

However, the reform’s bearing on the situation of the individual shareholders had been incidental
and indirect. There was nothing to indicate that the applicants’ rights as individual shareholders had
as such been aimed at or adversely affected by the measures, which essentially related to corporate
matters.

Firstly, the Integration Act and its Amendments had not regulated directly any of the specific legal
rights that the applicants as shareholders had held under the applicable domestic law, or directly
interfered with the exercise of those rights. Nor had the legislation apparently had an adverse
impact on the business of the two banks.

Furthermore, the examples of restrictions on the applicants’ rights to influence the conduct and
policy of their banks had in fact been powers which, under the applicable domestic law, belonged to
and been exercised exclusively by the companies’ statutory bodies.

Indeed, the influence of a single shareholder over other shareholders was on the whole weak, given
the number of shareholders that each of the two banks had, the number of shares owned by an
average shareholder and the lack of any indication that at the time the applicants as a group had
been bound by a shareholder agreement or other means of consolidating their fragmented influence
at general meetings of the two banks.

The Court thus found that the acts complained of by the applicants had concerned principally Kinizsi
Bank and Mohácsi Bank, and had not directly affected the applicants’ shareholder rights as such.
It also rejected the applicants’ request to pierce the corporate veil and recognise their standing to
complain on behalf of the banks because they owned almost 100% of the shares. The banks had not
been family-run or owned or otherwise closely-held entities, but had been public companies with
limited liability, numerous shareholders and a fully delegated management. The banks and their
shareholders had not therefore been so closely identified with each other that it would be artificial
to distinguish between them.

Nor did the Court find that there were exceptional circumstances, such as a high degree of State
involvement in the integration scheme, preventing the banks from bringing cases to the Court in
their own name.

Although future member institutions had been put under a certain amount of pressure to join the
scheme, there was no evidence that the applicants’ banks had been prevented from challenging the reform. On the contrary, the domestic legal system provided access to court to contest the reform in general as well as specific decisions of the Integration Organisation. Such remedies had in fact been used with success in 2014 when some savings cooperatives had challenged the entirety of the
legislation before the Constitutional Court, which had intervened and modified its provisions.

In any event, the applicants, who held considerable voting majorities in the general meetings of the
two banks, could have directed the banks, which remained operational with their regular
management in place, to bring legal proceedings on their behalf.

The Court concluded that, in the circumstances, the complaints about the Integration Act and the
Amendments should have been brought by the two banks and that the applicants could not claim to
be victims of any violation of the European Convention. It was therefore unable to take cognisance
of the merits of the applicants’ complaint.

The Court’s findings were moreover in line with fairly intrusive measures being accepted for banks in
many Council of Europe member States, which considered that insufficient regulation of the sector
could lead to serious risks for their economies.

The Court thus held that that part of the application had to be declared inadmissible, in accordance
with Article 35 § 3 (a) and 4 (admissibility criteria).

Separate opinion

Judge Dedov expressed a concurring opinion, which is annexed to the judgment.


ECHRCaseLaw

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