May 11
Dolores Utrilla
Dolores Utrilla
3rd May 2021
Banking & Finance Internal Market Justice & Litigation

Analysis: “Clarification of exception to mutual recognition under Directive 2001/24 in light of judicial protection and legal certainty” by Laura Wissink

On 29 April 2021, the Court of Justice delivered its judgement in Banco de Portugal and Others (C-504/19). The case concerns the effects of two decisions adopted by Banco de Portugal on 29 December 2015 (the Decisions), which modified, with retroactive effect, the resolution measures adopted by Banco de Portugal in August 2014 with respect to Banco Espírito Santo (BES), in Spanish judicial proceedings. The background of the case is explored in this Insight by Dolores Utrilla and explained in this News Alert on EU Law Live.

Directive 2001/24 on the reorganisation and winding up of credit institutions establishes mutual recognition by Member States of reorganisation measures adopted by the administrative or judicial authorities of the home Member State in order to ensure such measures are effective in all Member States. This allows for home Member State’s authorities to have the sole power to decide upon and implement the reorganisation measures in accordance with their own laws (cf. recital 6 of the directive). Accordingly, Article 3(2) provides that, in principle, the laws of the home Member States (lex concursus) apply to reorganisation measures, without any further formalities and regardless the relevant rules in the host Member State (Cf. LBI (C-85/12, paragraph 40; Insight).

In certain cases, however, an exception to the application of the lex concursus is provided for, such as the one relevant to the current case laid down in Article 32 regarding pending lawsuits. As confirmed in LBI (paragraphs 51-52), this provision sets out that the effects of reorganisation measures or winding-up proceedings on a pending lawsuit concerning an asset or a right of which the credit institution has been divested shall be governed solely by the law of the Member State in which the lawsuit is pending.

The applicability of this exception requires three conditions to be met (cf. Insight), which in this case have been fulfilled according to the Court (paragraphs 38-45). Thus, the effects of the Decisions on the pending lawsuit shall be governed by Spanish law. This exception concerns only the effects for the purpose of the pending lawsuit: it cannot call into question the validity of the Decisions themselves.

With respect to the extent of the effects, Advocate General Kokott concluded in her Opinion that this exception concerns only procedural effects, due to, inter alia, the general scheme of the directive, the need to interpret exceptions restrictively, and the practical impossibilities of determining all effects by reference to the host Member State’s laws (Opinion, points 43-54). She ultimately concluded that VR – the natural person involved – would have to raise any objections to the Decisions before the Portuguese courts, and that issues relating to legal certainty and effective judicial protection are due to the absence of any procedural options in Spanish law in this case (cf. Insight).

The Court of Justice’s judgment does not follow this reasoning. It states that it does not follow from Article 32 nor recital 30 thereof that the legislator intended to limit the extent of the exception. Moreover, recital 23, justifying the exceptions to the applicability of the lex concursus, indicates that both procedural and substantive effects of reorganization measures may conflict with the rules normally applicable in the context of the economic and financial activity of the credit institution in question and its branches in other Member States. The Court concludes that Article 32 refers thus to all effects, both procedural and substantive, of reorganization measures.

The Court of Justice proceeds by explaining that this interpretation is also required in light of the principle of legal certainty and the right to effective judicial protection.

Recalling the requirements under the principle of legal certainty and, in particular, the stricter observance of this principle in case of rules liable to have financial consequences, the Court’s judgment concludes that recognition of the effects of the Decisions would result in incompatibility with this principle, in so far as such recognition would be able to call into question the judicial decisions already taken in favour of VR that are still the subject of a pending lawsuit. It considers that at the time that VR had brought the action before court, she had indeed all the information necessary to make a fully informed decision in this respect. But pending these proceedings, VR could not anticipate the Decisions and make arrangements accordingly.

In line with LBI (paragraph 38), the Court of Justice recognizes that Directive 2001/24 allows for reorganization measures adopted by the competent authority of the home Member State to amend, even with retroactive effect, the legal rules applicable to reorganization measures. It concludes, however, that the right to an effective remedy would be restricted in cases where a court would have to reject an action as a consequence of such reorganization measures which have the effect of modifying, with retroactive effect, the legal framework relevant to the resolution of the dispute that gave rise to that action, or even directly to the legal situation which is the subject matter of that dispute, and are adopted subsequent to the bringing of such action and a judgement.

Thus, the Court of Justice does not follow the Advocate General’s approach of prioritising the application of the lex concursus in order to ensure the universal effectiveness of reorganization measures (Opinion, point 53). Instead, it interprets the relevant provisions in such a way that mutual recognition is precluded in a case like the one at hand in light of the principle of legal certainty and the right to effective judicial protection.


Laura Wissink is an external PhD candidate of Utrecht University, with a background in banking supervision. Her PhD concerns effective judicial protection in cases of composite procedures in the Single Supervisory Mechanism.


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