On 18 June 2024, the Grand Chamber of the Court of Justice (C-551/22P) issued its ruling on an appeal filed by the European Commission, challenging a decision of the General Court. The General Court, in its judgment of the 1^st June 2022 (T-481/17), had dismissed an application by two former shareholders of Banco Popular seeking annulment of the resolution scheme of Banco Popular adopted by the Single Resolution Board (SRB) on 7 June 2017. The General Court decided that the application was admissible but unfounded after having examined in detail the legality of the resolution scheme in each of its mechanism regarding fundamental rights (e.g. access to a fair trial and property right). The Court of Justice, however, rules that the action for annulment of the resolution scheme is inadmissible because the action should be directed at the Commission’s endorsement of the resolution scheme and not at the resolution scheme adopted by the SRB.

On 7 June 2017, two administrative decisions have been adopted in a very short timeframe. At 5:13 in the morning, the resolution scheme adopted for Banco Popular by the SRB had been transmitted to the Commission. At 6:30 during the same morning, the Commission endorsed the SRB resolution scheme, agreeing with the reasons provided by the SRB of why resolution was necessary in the public interest. The short period of time needed by the Commission to endorse the SRB’s resolution scheme is explained in practice by the fact that the Commission was closely informed of the situation of Banco Popular and the preparation of the resolution scheme by the SRB (the Commission is informed of any action taken by the SRB in that respect (Article 30(1) and (2) of the Single Resolution Mechanism Regulation (EU) No 806/2014 (SRMR)) and is entitled to participate in the meetings of executive sessions and plenary sessions of the SRB as a permanent observer – Article 43(3) of the SRMR).

Banco Popular, a major eurozone listed bank, became the first institution where the sale-of-business resolution tool under Article 22(2)(a) SRMR was applied after writing down – under the authority granted by Article 21 SRMR – more than EUR 4 billion of own funds in Banco Popular. Specifically, the nominal value of Banco Popular’s share capital of EUR 2,098,429,046 was written down to zero, effectively cancelling 100% of the existing share capital. Additionally, the entire principal amount of Additional Tier 1 instruments, with a nominal value of EUR 1,346,542,000, was converted into newly issued shares before writing down their nominal value to zero and subsequently cancelling them. Furthermore, all Tier 2 instruments, with a nominal value of EUR 685,315,828, were converted into newly issued shares at par value, thereby allowing each EUR 1 of outstanding Tier 2 instruments to be exchanged for EUR 1 in nominal value of new shares. Finally, under the authority granted by Article 24(1)(a) SRMR, the transfer of these newly issued shares to Banco Santander was ordered at a price of EUR 1 (Decision of the Single Resolution Board of 7 June 2017, SRB/EES/2017/08, 20-22, see all the published SRB decisions and accompanying documents by clicking here).

The Banco Popular resolution sparked considerable uncertainty over whether an action for annulment under Article 263 TFEU should be directed at the SRB, the European Commission, or both. Nearly 100 cases were filed with the General Court, with some targeting the SRB, others the Commission, and a few naming both (J. Timmermans, ‘Judicial Review of EU-level Resolution of a Systemically Significant Eurozone Bank by an EU Agency in the SRM – Concluding remarks to the blog series on the Banco Popular case’ (REAlaw.blog, 11 November 2022). Broadly speaking, the emerging case law of the General Court stated that actions must be brought against the SRB decision alone, as the decision “intends to produce legal effects” (See for example para 114, 117, 120, and 149 of the Judgment of 1 June 2022,T-481/17, as discussed in J. Timmermans, ‘Judicial Review of EU-level Resolution of a Systemically Significant Eurozone Bank by an EU Agency in the SRM – Concluding remarks to the blog series on the Banco Popular case’ (REAlaw.blog, 11 November 2022)).

The Court of Justice concludes that the General Court erred by concluding that the resolution scheme adopted by the SRB was independently challengeable. The Court of Justice sets aside the General Court’s ruling, holding that the resolution scheme adopted by the SRB was “an act adopted during the preparatory stages leading to the adoption of the definitive act” which is not a challengeable act under Article 263 TFEU (C 551/22 P, para 93). Consequently, the action for annulment (based on article 263 TFEU) should be directed at the Commission’s endorsement of the scheme, rather than the adoption of the scheme by the SRB.

According to the Court of Justice, it is settled case-law that, based on article 263 TFEU, any act or measure of EU institutions, bodies, offices and agencies which are intended to produce legal effects binding on and capable of affecting the interests of a natural or legal person by bringing about a distinct change in their legal position, can be subject to an annulment action. In this context, it is necessary to examine the substance of that act and to assess those effects in the light of objective criteria, such as the content of that act, considering, as appropriate, the context in which it was adopted and the powers of the institution, body, office or agency which adopted the act (C 551/22 P, para 65). The discussed judgment of the Court of Justice applies this test to the resolution scheme as adopted by the SRB, discussing the content of the resolution, the context in which it was adopted, and the powers of the SRB.

First, regarding the content of the resolution scheme at issue, the Court of Justice states that the SRB “decides” to place Banco Popular under resolution (Article 1 of the SRB decision SRB/EES/2017/08), determines resolution tools (Article 5 of the SRB decision), and assigns responsibilities to national authorities for execution (Articles 7, 8 and 9 of the SRB decision). The resolution scheme in question also states that it “shall enter into force” on 7 June 2017 (Article 12(1) of the SRB decision), and not, as the General Court incorrectly found, that it “entered into force” on that date. Furthermore, the scheme states that it is addressed to the Spanish Executive Resolution Authority (FROB) and is to be notified to it after being endorsed by the Commission or the Council (Article 13 of the SRB decision). At that point in time (5:13 in the morning) the resolution scheme adopted by the SRB was not yet endorsed. According to the Court, pending such endorsement (or alternatively before 24 hours as from that time in absence of reaction of the Commission and/or the Council, as provided by Article 18(7) subparagraph 4, SRMR), the scheme did not enter into force and, consequently, did not produce binding legal effects independently of such endorsement (C 551/22 P, para 66-68). The Court implicitly disqualifies as illegal Article 12(1) of the SRB decision which states that “the decision shall enter into force on 7 June 2017 (“Resolution Date”) at 6:30 CET, in accordance with the procedure laid down in Article 18(6) of the SRMR”, which wrongly suggests that the endorsement by the Commission in accordance with Article 18(7) of the SRMR would not be decisive in the enforcement of the resolution scheme.

Second, regarding the context in which the resolution scheme was adopted, the Court of Justice statesthat the exercise of the resolution powers falls within the resolution policy of the European Union, which only EU institutions may establish. There remains a wide margin of discretion in each specific resolution scheme and it is therefore considered necessary to provide for the adequate involvement of the Commission and, where relevant, the Council in order to respect the principles of delegation of powers to agencies identified in the judgment Meroni v High Authority and recalled in the ‘short-selling case’ (Judgment of 22 January 2014, United Kingdom v Parliament and Council (C 270/12, EU:C:2014:18)) (Judgment of 18 June 2024, C 551/22 P, para 69). In particular, the Court of Justice observes that the discretion is circumscribed by objective criteria and conditions delimiting the SRB’s scope of action and relating both to the resolution tools and conditions. In addition, the regulation provides for the participation of the Commission and of the Council in the procedure leading to the adoption of a resolution scheme, which, in order to enter into force, must be endorsed by the Commission and, where relevant, the Council (C 551/22 P, para 77). Where the Commission endorses such a scheme, the Commission assumes the responsibilities conferred on it by the Treaties (C 551/22 P, para 80). This has been confirmed in a judgment of the Court dated 4 October 2024 (García Fernández and Others v Commission and SRB (C-541/22 P, EU:C:2024:820), para 97-98).

Third, regarding the powers of the SRB, the Court of Justice notes that the interpretation adopted by the General Court, according to which a resolution scheme may produce binding legal effects irrespective of the Commission’s endorsement decision, disregards both the powers conferred on the SRB by the SRMR and the case-law resulting from the Meroni doctrine (C 551/22 P, para 82). It is only by the Commission’s endorsement decision that the content of the resolution action adopted by the SRB is definitively fixed and that that action produces binding legal effects. It is therefore the Commission, and not the SRB, which must answer for that resolution action before the EU judicature (C 551/22 P, para 88).

In reaching its conclusion, the Court of Justice followed Advocate General Capeta’s opinion, delivered on 9 November 2023, insofar as it rejected the General Court’s position that an application for annulment of a resolution scheme must target the SRB decision adopting such resolution scheme. However, the Court’s reasoning diverges on the interpretation of the Meroni doctrine proposed by the Advocate General Capeta. The Advocate General Capeta argued that the Meroni doctrine does not necessitate the involvement of the Commission or Council for the procedure of adoption and entry into force of a resolution scheme; instead, their role in such procedure was a deliberate legislative choice made in the SRMR (Opinion of Advocate General Capeta of 9 November 2023, Case C-551/22P, para 30-31). She further contended that the rigid limits on delegating discretionary powers to agencies, like the SRB, would be outdated (Opinion of Advocate General Capeta of 9 November 2023, Case C-551/22P, para 78). This would follow from the case law. In particular, after the short-selling case (Judgment of 22 January 2014, United Kingdom v Parliament and Council (C-270/12, EU:C:2014:18), AG Capeta considered that delegating discretionary authority to agencies for individual decision-making should be permissible, as long as those decisions are subject to judicial review. While rulemaking powers cannot be delegated, individual discretionary decisions could be, provided they are sufficiently constrained (Opinion of Advocate General Capeta of 9 November 2023, Case C-551/22P, para 92-93).

The Court of Justice, however, did not discard the Meroni doctrine in the SRB context (See also M. Bodellini  G. Giacomo Cimini, ‘And Meroni spoke again – the SRB does not resolve Banks, the Commission does it’ (EU Law Live, 12 July 2024). Rather, it invokes the original doctrine to support its position, albeit citing the short-selling case (C 551/22 P, para 74). That said, its arguments are primarily grounded in the specific language and framework of the SRMR. It, therefore, remains to be seen whether this judgment represents a broader pushback against the growing trend of “agentification” and concerns about the resulting democratic deficit, or whether its implications will remain confined to the context of the SRM Regulation and more specifically to the implementation of a resolution scheme. Recital 31 of the SRMR states that “In order to ensure a swift and effective decision-making process in resolution, the Board should be a specific Union agency with a specific structure, corresponding to its specific tasks, and which departs from the model of all other agencies of the Union”, suggesting a wider approach. The debate continues.

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Jean-Marc Gollier, Eubelius, Brussels and lecturer at UCLouvain & Katrien Morbee, Senior Lecturer Queen Mary University of London