PH and Others v European Central Bank (T-323/22)

Contents

Judgment of the general Court (Fourth Chamber)10 July 2024^note(Economic and monetary policy — Prudential supervision of credit institutions — Opposition of the ECB to the acquisition of qualifying holdings in a credit institution — Action for annulment — Interest in bringing proceedings — Direct concern — Inadmissibility in part — Reputation and professional competence of the proposed acquirer — Financial soundness — Compliance with prudential requirements — Anti-money laundering and counter-terrorist financing — Proportionality)In Case T‑323/22,PH,PI,PJ,Socrates Capital Ltd, established in Toronto (Canada),represented by D. Hillemann, C. Fischer and T. Ehls, lawyers,vEuropean Central Bank (ECB), represented by E. Yoo, S. Letocart and V. Hümpfner, acting as Agents,European Commission, represented by D. Triantafyllou, acting as Agent,THE GENERAL COURT (Fourth Chamber),composed of R. da Silva Passos, President, S. Gervasoni (Rapporteur) and T. Pynnä, Judges,Registrar: V. Di Bucci,having regard to the written part of the procedure,having regard to the fact that no request for a hearing was submitted by the parties within three weeks after service of notification of the close of the written part of the procedure, and having decided to rule on the action without an oral part of the procedure, pursuant to Article 106(3) of the Rules of Procedure of the General Court,gives the following

JudgmentOnly the paragraphs of the present judgment which the Court considers it appropriate to publish are reproduced here.

1By their action under Article 263 TFEU, the applicants, PH, PI, PJ and Socrates Capital Ltd, seek annulment of the decision of the European Central Bank (ECB) of 22 March 2022 by which it opposed the acquisition by PH, PI and PJ of a qualifying holding in HKB Bank GmbH (‘the target bank’) and the exceedance of 50% of the capital and voting rights in the latter.

I.Background to the dispute and events subsequent to the bringing of the action

2When the contested decision was adopted, the target bank was a less significant credit institution, within the meaning of Article 6(4) of Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ 2013 L 287, p. 63), situated in Germany and under the direct prudential supervision of the Bundesanstalt für Finanzdienstleistungsaufsicht (Federal Financial Supervisory Authority, Germany; ‘BaFin’).

3On the date of the contested decision, Socrates Capital held 81.6% of the capital and 95.14% of the voting rights in the target bank. Socrates Capital was itself 100% indirectly and ultimately owned by A (through two holding companies)....

7Notifications were sent to BaFin – on 9 April 2020 by PH and on 9 July 2020 by PI and PJ – in respect of their intention to acquire, as indirect acquirers in the case of PH and PI and as a direct acquirer in the case of PJ, a qualifying holding and to exceed holding 50% of the capital and voting rights in the target bank (‘the proposed acquisition’), as a result of the acquisition of all the shares held by Socrates Capital in the target bank....

10In August 2020, Socrates Capital, PI and PJ concluded a sale and purchase agreement for the purpose of the proposed acquisition (‘the sale and purchase agreement’). Under the sale and purchase agreement, which was subject to conditions precedent and termination clauses, Socrates Capital agreed to sell to PJ, for an amount of EUR [2-20] million, the qualifying holding which it had acquired in the target bank in June 2017....

20On 22 March 2022, the ECB notified the proposed acquirers of the contested decision and of its response to the comments on the draft version of the contested decision (‘the response to the comments’).

21The contested decision was adopted on the basis, inter alia, of Articles 22 and 23 of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ 2013 L 176, p. 338), as transposed by German legislation on the credit sector. The ECB concluded, in essence, that it should oppose the proposed acquisition, given that the proposed acquirers did not meet the criteria of good repute, financial soundness and compliance with prudential requirements or anti-money laundering and counter-terrorist financing requirements....

II.Procedure and forms of order sought

26By document lodged at the Court Registry on 8 September 2022, the ECB asked the Court to declare that there was no longer any need to adjudicate on the action. By order of 11 January 2023, the Court decided to reserve its decision on that application for a decision that there is no need to adjudicate on the action until it ruled on the substance of the case.

27The applicants claim that the Court should:– declare that the contested decision is unlawful and that their rights have been infringed;– order the ECB to pay the costs.

28The ECB contends that the Court should:– principally, declare that there is no longer any need to adjudicate on the action;– in the alternative, dismiss the action as inadmissible in so far as it was brought by Socrates Capital and, in any event, dismiss it as unfounded;– order the applicants jointly and severally to pay the costs.

29The European Commission, intervening in support of the ECB, contends that the Court should:– dismiss the action as unfounded;– order the applicants to bear the costs.

III.Law...

C.Admissibility of the action in so far as it is brought by Socrates Capital

51The ECB maintains that Socrates Capital is not directly and individually concerned by the contested decision, with the result that it does not have standing to bring an action for annulment under the fourth paragraph of Article 263 TFEU. The contested decision does not affect Socrates Capital’s legal situation, since that decision does not prevent it, from a purely legal point of view, from selling its stake to the interested purchaser, since no provision is made for a sanction against the seller of the shares. From the point of view of the purpose of the procedure, the criteria for assessing the acquisition of a qualifying holding and the administrative procedure, the seller of the qualifying holding is not directly concerned by a decision opposing the acquisition, which affects only the potential purchaser. The ECB adds that the requirement to be individually concerned is not met because the contested decision is the result of the assessment of criteria unrelated to the seller of the qualifying holding.

52The applicants contest that line of argument. The ECB allegedly does not take account of the fact that the sale and purchase agreement contains a conditionality clause, according to which the agreement is not enforceable if the ECB opposes the transaction. The contested decision also affects Socrates Capital’s right to property and its freedom to conduct a business. In addition, the contested decision states that the reputation of the proposed acquirers is vitiated by the fact that they ‘did business’ with the seller, which amounts to a general prohibition on purchasing the target bank. Socrates Capital is individually affected, since no other entity holds the majority of the shares that the proposed acquirers wish to acquire.

53In that regard, the Court observes that the four applicants have brought one and the same action. Since one and the same action is involved, provided that PH, PI and PJ have standing, there is no need to examine Socrates Capital’s standing (see, to that effect, judgment of 24 March 1993, CIRFS and Others v Commission, C‑313/90, EU:C:1993:111, paragraph 31).

54However, the Court considers it appropriate, in the interests of the proper administration of justice and in view of the particular importance of the question of admissibility raised by the ECB’s plea of inadmissibility, to rule on that plea.

55The fourth paragraph of Article 263 TFEU provides for two situations in which natural or legal persons are accorded standing to bring proceedings against an act which is not addressed to them. First, such proceedings may be instituted if the act is of direct and individual concern to those persons. Second, such persons may bring proceedings against a regulatory act not entailing implementing measures if that act is of direct concern to them (judgment of 18 October 2018, Internacional de Productos Metálicos v Commission, C‑145/17 P, EU:C:2018:839, paragraph 32).

56The conditions of admissibility laid down in the fourth paragraph of Article 263 TFEU must be interpreted in the light of the fundamental right to effective judicial protection, but such an interpretation cannot have the effect of setting aside the conditions expressly laid down in that Treaty (judgment of 3 October 2013, Inuit Tapiriit Kanatami and Others v Parliament and Council, C‑583/11 P, EU:C:2013:625, paragraph 98).

57In the present case, the contested decision was not notified to Socrates Capital. Moreover, no provision required such notification to be given to that applicant as the transferor of the qualifying holding at issue. Since Socrates Capital is not an addressee of the contested decision, it can be recognised as having standing to bring proceedings only if it falls within one of the two situations to which reference is made in paragraph 55 above.

58Furthermore, since the contested decision is not a regulatory act, the Court must examine whether the action is admissible in the context of the first situation referred to in paragraph 55 above.

59Accordingly, the Court must first determine whether Socrates Capital is directly concerned by the contested decision.

60The condition that the measure forming the subject matter of the proceedings must be of direct concern to a natural or legal person, as laid down in the fourth paragraph of Article 263 TFEU, requires the fulfilment of two cumulative criteria, namely the contested measure should, first, directly affect the legal situation of the individual and, second, should leave no discretion to the addressees who are entrusted with the task of implementing it, such implementation being purely automatic and resulting from EU rules alone without the application of other intermediate rules (judgment of 22 June 2021, Venezuela v Council (Whether a third State is affected), C‑872/19 P, EU:C:2021:507, paragraph 61).

61In order to determine whether a measure produces legal effects, it is necessary to look in particular to its purpose, its content, its scope, its substance and the legal and factual context in which it was adopted (judgment of 22 June 2021, Venezuela v Council (Whether a third State is affected), C‑872/19 P, EU:C:2021:507, paragraph 66).

62The mechanism for monitoring qualifying holdings provided for in Article 22 et seq. of Directive 2013/36 makes the person wishing to acquire a qualifying holding in a credit institution subject to a prior assessment, in particular of his or her reputation and financial soundness, in order to ensure the sound and prudent management of the credit institution concerned.

63The criteria for assessing the notification of acquisition of a qualifying holding laid down in Article 23 of Directive 2013/36 are intended to assess the suitability of the proposed acquirer and the planned acquisition which it submits to the competent authority. In particular, the purpose of the assessment is to check that the proposed acquirer enjoys a good reputation and has the necessary financial soundness, so that the institution in which the stake is to be acquired continues to meet its prudential requirements. The assessment also helps to ensure that the transaction is not financed by the proceeds of illegal activities (Opinion of Advocate General Campos Sánchez-Bordona in Berlusconi and Fininvest, C‑219/17, EU:C:2018:502, point 80).

64Under Article 22(1) of Directive 2013/36, it is for the proposed acquirer to notify the competent authorities of the proposed acquisition. Furthermore, that directive does not mention either the publication of that notification or the possibility for persons other than the proposed acquirer, in particular the person wishing to transfer his or her shareholding in a credit institution, to participate in the procedure for assessing the proposed acquisition.

65According to Article 22(5) of Directive 2013/36, if the competent authorities decide to oppose the proposed acquisition, they are to inform the proposed acquirer, providing the reasons.

66Lastly, according to the third subparagraph of Article 26(2) of Directive 2013/36, if a holding is acquired despite opposition by the competent authorities, Member States, regardless of any other penalty to be adopted, are to provide either for exercise of the corresponding voting rights to be suspended, or for the nullity of votes cast or for the possibility of their annulment.

67It follows from the foregoing that the purpose of the mechanism for monitoring qualifying holdings is to assess, before such holdings are acquired, the suitability of proposed acquirers wishing to gain access to the banking sector as owners.

68In those circumstances, opposition to the acquisition of a qualifying holding in a credit institution must be regarded as not altering the legal position of the company selling such a holding.

69Although opposition to the acquisition of a qualifying holding does call into question the possibility for proposed acquirers to enter into a contract with the seller of a qualifying holding, that opposition does not, however, call into question the seller’s right to enter into a transaction to transfer the qualifying holding, which it may conclude with another potential acquirer; that opposition is merely a refusal to allow the proposed acquirers to gain access to the banking sector as owners.

70That conclusion is borne out by the legal context of the contested decision. Directive 2013/36 makes no reference either to the publication of the notification of the acquisition of a qualifying holding in a credit institution, or to the possibility of third parties being involved in the administrative procedure, or indeed to the systematic publication of the decision of the competent authority. If the opposition to the acquisition of a qualifying holding is not observed, it provides for penalties only in respect of the exercise of the voting rights corresponding to the shareholding acquired by the proposed acquirers. In particular, the penalties provided for in Paragraph 2c(2) of the Kreditwesengesetz (Law on credit institutions) of 9 September 1998 (BGBl. 1998 I, p. 2776), as amended by the Law of 10 August 2021 (BGBl. 2021 I, p. 3436) (‘the KWG’) includes neither sanctions against a seller of a qualifying holding nor measures such as the invalidity of the acquisition itself or the obligation to return to the situation prior to the sale.

71Thus, in the present case, the contested decision assesses the suitability of the proposed acquirers and not the lawfulness of the sale and purchase agreement.

72The clause in the sale and purchase agreement stipulating that the agreement will not enter into force without the ECB’s authorisation was voluntarily inserted by the parties to the agreement. It is true that a clause inserted by the parties to an agreement may reflect legislation (see, to that effect and by analogy, judgment of 5 May 1998, Dreyfus v Commission, C‑386/96 P, EU:C:1998:193, paragraph 51). However, in the present case, that clause reflects legislation which makes the proposed acquirer individually subject to an administrative authorisation the purpose of which is to assess whether that acquirer is suitable to access the banking sector as an owner. Unlike the circumstances of the case that gave rise to the judgment of 5 May 1998, Dreyfus v Commission (C‑386/96 P, EU:C:1998:193), the ECB is not ruling on the conformity of any agreement entered into between the proposed acquirers and the seller of a shareholding in a credit institution when it assesses the notification of that acquisition.

73Furthermore, Article 16 of the Charter of Fundamental Rights of the European Union (‘the Charter’) provides that the freedom to conduct a business in accordance with Union law and national laws and practices is recognised.

74Article 17 of the Charter provides that everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions.

75In that regard, although the contested decision does constitute an interference with the right to property and the freedom to conduct a business of the proposed acquirers, it cannot be regarded as constituting an interference with the same rights vis-à-vis Socrates Capital. The contested decision does not directly affect Socrates Capital’s right to sell its shares in the target bank.

76Contrary to what is maintained by the applicants, the ECB did not find that the proposed acquirers were not of good repute on the ground that they generally ‘did business’ with Socrates Capital. In particular, the ECB did not criticise the proposed acquirers for having signed the sale and purchase agreement with Socrates Capital. In paragraph 2.7 of the contested decision, the ECB merely criticised the proposed acquirers for their intention to involve A in the implementation of the business plan and to appoint him to the advisory board after the proposed acquisition. The applicants are therefore not justified in claiming that the contested decision amounts to a general prohibition on Socrates Capital selling its shares in the target bank.

77Socrates Capital is therefore not directly concerned by the contested decision.

78Consequently, without there being any need to examine whether Socrates Capital is individually concerned by the contested decision, the action is inadmissible so far as that company is concerned.

D.Substance of the action...

6.The second plea in law, alleging infringement of point 1 of the first sentence of Paragraph 2c(1b) of the KWG as regards the professional competence of the proposed acquirers...

(a)Whether it is possible for the ECB to assess the professional competence of the proposed acquirers

357In the reply, the applicants claim for the first time that the ECB could not take as its basis the professional competence of the proposed acquirer in order to adopt the contested decision. Article 23(1) of Directive 2013/36 refers to good repute and not to the professional competence of the proposed acquirer. The ECB therefore infringed that article, as transposed into German law....

362Furthermore, it is true that Article 23(1) of Directive 2013/36 makes reference, in subparagraph (a), only to the reputation of the proposed acquirer, whereas subparagraph (b) of that article makes reference to the reputation, knowledge, competence and experience, as set out in Article 91(1) of that directive, of any member of the management body who will direct the business of the credit institution as a result of the proposed acquisition.

363However, the Court notes that, according to its usual meaning, to be of ‘good repute’ means being ‘worthy of esteem’ or being ‘known to be respectable’. Such a definition, which refers in particular to public opinion, does not preclude a person’s good repute from being dependant on his or her professional competence.

364According to recital 8 of Directive 2007/44/EC of the European Parliament and of the Council of 5 September 2007 amending Council Directive 92/49/EEC and Directives 2002/83/EC, 2004/39/EC, 2005/68/EC and 2006/48/EC as regards procedural rules and evaluation criteria for the prudential assessment of acquisitions and increase of holdings in the financial sector (OJ 2007 L 247, p. 1), the provisions of which were reproduced in Directive 2013/36, the application of the criterion concerning the reputation of the proposed acquirer implies the determination of whether any doubts exist as to the integrity ‘and professional competence’ of the proposed acquirer and whether those doubts are founded.

365Taking into consideration professional competence when examining the reputation of the proposed acquirer is consistent with assessing the ‘suitability’ of the proposed acquirer, in accordance with the wording of Article 23(1) of Directive 2013/36. It is also consistent with the objective of monitoring the acquisition of qualifying holdings, which is to ensure the sound and prudent management of the credit institution. Given that the holder of a qualifying holding is in a position to influence the credit institution concerned, his or her professional competence contributes to that sound and prudent management of that institution.

366Moreover, the Joint Guidelines support that interpretation, since they state, in particular in paragraph 10.1, that the assessment of the reputation of the proposed acquirer should cover his or her integrity and his or her professional competence.

367The wording of point 1 of the first sentence of Paragraph 2c(1b) of the KWG, referred to in paragraph 282 above, does not make it possible to preclude such an interpretation. The explanatory memorandum to the Gesetz zur Umsetzung der Beteiligungsrichtlinie (Law on the Implementation of the Holdings Directive) of 12 March 2009 (BGBl., 2009 I, p. 470), which transposes Directive 2007/44 into German law, states that the reliability criterion consists of determining whether there are doubts as to the integrity ‘and professional ability’ of the proposed acquirer and whether those doubts are well founded.

368It follows from the foregoing that the reputation criterion referred to in Article 23(1) of Directive 2013/36 must be interpreted as including an assessment of the professional competence of the proposed acquirer.

369Consequently, the applicants are not justified in claiming that the ECB infringed Article 23 of Directive 2013/36, as transposed into German law, by examining the professional competence of the proposed acquirers....

Operative part

On those grounds,THE GENERAL COURT (Fourth Chamber)hereby:

1.Dismisses the action;

2.Orders PH, PI, PJ and Socrates Capital Ltd to bear their own costs and to pay those incurred by the European Central Bank (ECB);

3.Orders the European Commission to bear its own costs.

Delivered in open court in Luxembourg on 10 July 2024.