(CN) — Shareholders of an Irish credit institution lost a battle before Europe's highest court Tuesday over a capital injection of $3.78 billion that kept the bank afloat during the economic crisis at a cost of 99.2 percent of its shares.
Permanent TSB is the only piece left of Irish Life and Permanent after the bank capsized along with the rest of the country in 2008. In court records, the bank's name is abbreviated as ILP.
With the European Union committing to help restructure Ireland's financial institutions, the governor of the Central Bank of Ireland ordered ILP in March 2011 to raise additional capital of 4 billion euros — about $5.6 billion at the time.
The Irish minister for finance later submitted a recapitalization proposal to the shareholders of Irish Life and Permanent Group Holdings, which owned ILP's entire share capital.
When the shareholders rejected that proposal at a July 20, 2011, general meeting, Ireland's high court directed ILPGH within the week to issue the minister new shares.
In exchange for a capital infusion of $3.78 billion, the minister obtained 99.2 percent of the ILPGH shares.
But shareholders balked, citing an EU law called the Second Directive that requires approval of the general meeting of ILPGH for such an increase in capital.
Ireland's High Court rejected their challenge in 2014, however, saying the government was justified in taking measures believed necessary to defend the integrity of its financial system.
With ILP unable alone to raise the amount of capital it required, the credit institution would have failed, the High Court said. It noted that this would have also hurt Ireland, the EU as a whole and its other member states.
Sitting at its headquarters in Luxembourg, the European Court of Justice ruled against the shareholders as well on Tuesday.
"The protection conferred by the Second Directive ... does not extend to a national measure of that kind that is adopted in a situation where there is a serious disturbance of the economy and financial system of a member state and that is designed to overcome a systemic threat to the financial stability of the European Union, due to a capital shortfall in the company concerned," the 14-page ruling states.
Despite the EU's interest in protecting shareholders and creditors, the court said "that interest cannot be held to prevail in all circumstances over the public interest in ensuring the stability of the financial system."
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