On 1 February 2013, at 08:30hrs, the Dutch Minister of Finance decided to nationalise the fourth largest financial conglomerate in the Netherlands. More precisely, he decided to expropriate all shareholders and subordinated debtholders of SNS Reaal. In an earlier blog, I reported on the position of senior debtholders who remained untouched by this decision. In this blog, I comment on a milestone in the legal battles following the nationalisation of SNS Reaal: the interim judgment of 11 July by the Enterprise Chamber of the Amsterdam Court of Appeal.
An expropriation such as this may be challenged in two proceedings. First, interested parties may challenge the expropriation decision itself. They must lodge an appeal directly with the highest administrative court, the Netherlands Council of State. This court must decide within a fortnight. Then, expropriated investors may challenge the damages offered by the State as compensation for their losses before the Enterprise Chamber of the Amsterdam Court of Appeal.
In the SNS Reaal case, some 700 claimants challenged the expropriation decision. But on 25 February 2013, the Council of State upheld the expropriation of all shareholders and subordinated bondholders. 0-1 for the State of the Netherlands.
Then, the Minister refused to pay shareholders and subordinated debtholders any damages, arguing that had he not stepped in, SNS Reaal would have gone bankrupt and investors would have received nothing anyway. But the law requires the State to fully compensate expropriated securities owners and in its interim judgement, the Enterprise Chamber held that the Minister had not convincingly argued that EUR 00.00 represented full compensation. Therefore, it ordered experts to advise on the proper value of the expropriated securities at the moment immediately before nationalisation. 1-1 for the securities owners.
This is an intriguing decision for multiple reasons, only two of which I will discuss here. First, the burden of proof lies with expropriated investors as the Enterprise Chamber must assume that the damages offered by the State represent full compensation of their losses. This means proceedings such as these are an uphill battle for expropriated investors. In the present case, however, the court was not convinced by the State’s arguments, primarily because the State refused to submit full valuation reports of SNS Reaal’s assets. These reports had been essential to the Minister’s decision to nationalise. Moreover, there was a difference of EUR 1.1 billion between the valuations of SNS’s real estate portfolio by SNS Reaal and by the Minister.
Second, the Minister had publicly stated that the expropriation contributed to the recapitalisation of SNS Reaal for EUR 1 billion. This statement seems at odds with his position that EUR 00.00 represented full compensation for investors’ losses. Moreover, it pretty much sounds like a bail-in, which means a compulsory write-down of creditors’ claims so that private parties shoulder the costs of a bank insolvency rather than taxpayers. But Dutch law does not (yet) provide for bail-in. With this decision, the Enterprise Court confirmed that expropriation is different from bail-in.
The Enterprise Chamber’s decision is an important one as it shows that under Dutch law, shareholders and subordinated debtholders may be expropriated, but that Dutch judges will critically consider the State’s compensation for their losses. It remains to be seen, however, how high the extra bill for the Dutch taxpayer will be. The experts must valuate, for instance, SNS Reaal’s real estate portfolio – on which earlier expert opinions differed so much – but they must also consider what SNS Reaal would be worth had the State not recapitalised it in 2008 with EUR 750 million. Also, the battles are far from over. Only this morning, it was made public that the Minister has lodged an appeal against the Enterprise Chamber’s interim decision with the Netherlands Supreme Court, while its final judgment may also be appealed against.