Civil Law and Banking Insolvency Resolution Disputes in Europe

1. Introduction

Banking insolvency and resolution disputes in Europe arise when a credit institution becomes insolvent, fails or is likely to fail, and shareholders, depositors, bondholders, subordinated creditors, customers, employees, counterparties or other creditors challenge the consequences.

European banking distress is legally different from an ordinary corporate insolvency.

A normal company may enter liquidation and have its assets distributed among creditors. A bank, however, can be placed into a special recovery and resolution regime designed to preserve financial stability and critical banking functions.

The central European framework includes:

Bank Recovery and Resolution Directive (BRRD) — Directive 2014/59/EU

Single Resolution Mechanism Regulation — Regulation (EU) No. 806/2014

Deposit Guarantee Schemes Directive — Directive 2014/49/EU

national insolvency and banking laws;

EU State-aid rules;

company law;

contract law;

property law;

administrative/judicial-review principles.

The most important distinction is:

Insolvency = inability to meet financial obligations.
Resolution = a statutory intervention designed to deal with a failing or likely-to-fail bank while pursuing public-interest objectives.

The CJEU has expressly confirmed that actual balance-sheet insolvency is not necessarily required before a bank can be regarded as failing or likely to fail for resolution purposes; liquidity problems can also be relevant. (curia)

2. What Is Banking Resolution?

Resolution is an intervention by designated authorities when a bank is failing or likely to fail and the legal conditions for resolution are satisfied.

The principal objectives include:

maintaining critical functions;

avoiding serious disruption to financial stability;

protecting public funds;

protecting covered depositors;

preventing disorderly collapse;

allocating losses to shareholders and creditors according to the statutory hierarchy.

The principal resolution tools include:

sale of business;

bridge institution;

asset separation;

bail-in.

3. Ordinary Insolvency vs Bank Resolution

Therefore, a creditor cannot simply assume:

“The bank owes me €500,000, therefore I can immediately enforce the debt.”

Resolution legislation can substantially affect the timing, form and enforceability of that claim.

4. Major Legal Principles

A. Shareholders normally bear losses first

European resolution law follows the principle that shareholders should generally absorb losses before creditors.

The CJEU has repeatedly recognised this principle in banking-resolution litigation. (curia)

B. Bail-in

Bail-in means that certain liabilities may be written down or converted into equity instead of the bank being rescued entirely through public funds.

Possible consequences include:

cancellation;

write-down;

conversion into shares;

reduction of principal;

postponement or modification of claims.

C. No Creditor Worse Off

An important safeguard is the principle that creditors should not ultimately receive less than they would have received if the bank had instead been liquidated under the applicable ordinary insolvency counterfactual.

This principle has been central to litigation concerning Banco Popular.

The General Court held in the Banco Popular litigation that affected shareholders and creditors were not entitled to additional compensation from the Single Resolution Fund where they would not have received better treatment in liquidation than under the resolution. (curia)

5. Case Law

Case 1 — Kotnik and Others v Državni zbor Republike Slovenije

Case C-526/14, CJEU, 19 July 2016

Kotnik is one of the foundational European banking-resolution cases.

The case arose from measures imposed on Slovenian banks during the financial crisis, including the write-down of equity, hybrid capital and subordinated debt.

The CJEU examined:

State aid;

burden-sharing;

shareholder losses;

subordinated creditor losses;

legitimate expectations;

property rights;

bank restructuring.

The Court held that EU State-aid rules did not prevent the Commission's banking-sector framework from requiring burden-sharing by shareholders and subordinated creditors as a condition for State aid. (curia)

Civil-law significance

A shareholder or subordinated bondholder cannot necessarily argue:

“My contractual investment must always be protected.”

Financial-stability law can legally require investors to absorb losses.

Principle

Investment rights in a failing bank are subject to the statutory banking-resolution framework.

6. Case 2 — Ledra Advertising and Others v Commission and ECB

Joined Cases C-8/15 P to C-10/15 P, CJEU, 20 September 2016

The Ledra Advertising litigation arose from the Cyprus financial crisis and restructuring measures.

The case is important for determining whether EU institutions can be challenged in damages in connection with financial-stability measures.

The CJEU recognised that EU institutions remain subject to EU law, including fundamental-rights obligations, even when operating in the context of financial assistance programmes.

Significance

Bank restructuring can therefore involve:

property rights;

legitimate expectations;

proportionality;

fundamental rights;

institutional responsibility.

Principle

Financial-stability measures are not outside the legal order simply because they respond to a banking crisis.

The case is especially useful where creditors argue that restructuring measures disproportionately interfered with their property or contractual rights.

7. Case 3 — Dowling and Others v Minister for Finance

Case C-41/15, CJEU, 8 November 2016

This case arose from the Irish banking crisis.

Ireland adopted measures permitting the recapitalisation of a bank, including an increase in share capital without the ordinary consent of the existing shareholders.

The shareholders challenged the measures under EU company law.

The CJEU held that EU law did not prevent such intervention in circumstances involving a serious disturbance of the economy and financial system. The Court emphasised that shareholder and creditor interests cannot prevail in all circumstances over the general interest in financial-system stability. (curia)

Civil-law significance

This is important for shareholder disputes concerning:

dilution;

forced recapitalisation;

compulsory capital increases;

reduction of shareholder control.

Principle

Exceptional banking-stability measures may modify ordinary corporate rights.

8. Case 4 — Banco Santander (Resolution of Banco Popular)

Case C-410/20, CJEU, 5 May 2022

The Banco Popular resolution is one of the most important European banking-resolution episodes.

Banco Popular was resolved in June 2017.

The CJEU examined challenges to the resolution scheme.

The Court confirmed, among other matters, that:

insolvency is not necessarily required for a finding that a bank is failing or likely to fail;

liquidity difficulties can be relevant;

the resolution authorities may act where the statutory conditions are met;

applicants had not demonstrated that alternative private-sector or supervisory measures would have prevented the bank's failure within a reasonable time.

(curia)

Importance

This establishes an important distinction:

Insolvency ≠ only trigger for resolution.

A bank can be balance-sheet solvent but still suffer such severe liquidity problems that it is failing or likely to fail.

9. Case 5 — Del Valle Ruíz and Others v SRB

Joined Cases T-302/20, T-303/20 and T-307/20, General Court, 22 November 2023

This was part of the extensive litigation arising from the Banco Popular resolution.

Shareholders and creditors sought compensation from the Single Resolution Fund.

The General Court rejected those claims because the affected persons had not established that they would have been better off under liquidation than under the actual resolution.

(curia)

Importance

The case illustrates the No Creditor Worse Off principle.

The relevant comparison is essentially:

Actual resolution outcome vs hypothetical liquidation outcome.

A creditor cannot establish compensation merely by showing:

“I lost money.”

The creditor must satisfy the applicable statutory compensation test.

10. Case 6 — Banco Santander (Resolution of Banco Popular II)

Joined Cases C-775/22, C-779/22 and C-794/22, CJEU, 5 September 2024

This is particularly important for civil claims by investors.

The investors had purchased Banco Popular capital instruments and alleged that the information provided by the bank was flawed or incorrect.

They sought remedies including:

nullity of purchase agreements;

restitution;

damages.

The CJEU examined the interaction between:

BRRD;

bail-in;

write-down;

conversion of subordinated instruments;

shareholder/creditor protection;

national civil-law claims.

The judgment is directly identified by the CJEU as concerning actions for damages and declarations of nullity following the purchase of capital instruments where the prospectus information was allegedly flawed or incorrect. (Infocuria)

Principle

Resolution law can affect the availability and practical consequences of ordinary civil remedies concerning financial instruments.

This is extremely important in banking insolvency litigation.

11. Case 7 — Banco Santander (Resolution of Banco Popular III)

Case C-687/23, CJEU, 11 September 2025

This is a particularly important recent authority.

The dispute concerned subordinated bonds and a damages/nullity action brought before the Banco Popular resolution.

The CJEU examined whether rights arising from those pre-resolution claims could subsequently be affected by the resolution measures and transferred to Banco Santander.

The Court held that rights arising from actions for nullity and damages brought before the resolution could remain enforceable against Banco Santander in the circumstances addressed by the judgment. (curia)

Why this matters

This case demonstrates that timing can be decisive.

Compare:

Claim before resolution

A customer already has proceedings concerning the bank's conduct.

Resolution occurs later

The question becomes:

Is the pre-existing claim itself affected by the resolution measures?

The answer depends upon the precise nature of the claim and the BRRD provisions.

Principle

The temporal relationship between the civil claim and the resolution date can materially affect enforceability.

12. Case 8 — European Commission v Fundación Tatiana Pérez de Guzmán el Bueno

Case C-551/22 P, CJEU, 18 June 2024

This case concerned the Single Resolution Mechanism and challenges connected with the resolution procedure.

The Court examined the admissibility and legal character of actions challenging resolution measures.

The judgment is significant because resolution decisions operate within a specialised administrative framework involving:

SRB;

Commission;

judicial review;

resolution schemes;

rights of affected shareholders and creditors.

(Curia)

Principle

Bank-resolution disputes often require administrative-law judicial review in addition to private-law litigation.

13. Case 9 — Banca Popolare di Bari v Commission

Case T-415/21, General Court, 20 December 2023

This case concerned a damages action connected with State aid involving Banca Popolare di Bari.

The General Court examined:

non-contractual liability of the EU;

limitation;

sufficiently serious breach;

causal connection;

alleged harm.

The case illustrates that banking-sector disputes can produce a separate EU non-contractual-liability claim where a party alleges that an EU institution acted unlawfully. (Infocuria)

An appeal was subsequently brought in C-145/24 P, and the CJEU issued judgment on 3 September 2026. (Curia)

Principle

A banking institution seeking damages from an EU institution faces the ordinary EU non-contractual-liability requirements, including a sufficiently serious breach and causal link.

14. Case 10 — Deutsche Bank and BHW Bausparkasse v ECB

Case C-556/24 P, judgment 29 January 2026

This recent CJEU case concerned ECB prudential supervision, including the treatment of irrevocable payment commitments connected with deposit-guarantee schemes or resolution funds.

The Court examined the ECB's prudential discretion and judicial review of its capital-treatment decision. (Curia)

Relevance

Banking insolvency disputes are not limited to the moment of resolution.

They can also involve disputes concerning:

prudential capital;

resolution-fund contributions;

deposit-guarantee arrangements;

supervisory decisions.

Principle

Prudential supervision and resolution financing can themselves generate judicial disputes.

15. Bail-In and Civil Rights

Suppose a customer owns:

€500,000 subordinated bank bonds.

The bank fails.

Under ordinary contract reasoning, the investor might say:

“The bank promised to repay €500,000.”

But under resolution law, the instrument may be subject to:

write-down;

conversion;

bail-in;

loss absorption.

Therefore, the contractual claim is not analysed in isolation.

The court must examine:

Contract + instrument terms + BRRD + resolution decision + creditor hierarchy.

16. Depositors vs Investors

A crucial distinction must be made between:

Depositor

Customer holds a bank deposit.

Investor

Customer holds:

shares;

bonds;

subordinated debt;

preference shares;

structured securities.

Deposit protection and resolution treatment differ.

A covered deposit may benefit from the deposit guarantee scheme, while an investment security can be exposed to losses under the resolution hierarchy.

Therefore:

€100,000 in a covered deposit is legally different from €100,000 in subordinated bank bonds.

17. Depositor Claims

When a bank enters insolvency or resolution, depositors may raise questions concerning:

repayment;

covered deposits;

temporary high balances;

set-off;

joint accounts;

compensation timing;

transfer of deposits to another bank.

The EU deposit-guarantee framework generally provides protection for covered deposits up to the statutory level, while the precise treatment of claims depends upon the applicable rules.

18. Shareholder Claims

Shareholders may challenge:

cancellation of shares;

dilution;

compulsory conversion;

capital reduction;

recapitalisation;

valuation;

resolution decision.

However, Kotnik and Dowling demonstrate that ordinary shareholder rights may yield to statutory financial-stability measures in an appropriately justified banking crisis. (curia)

19. Bondholder Claims

Bondholders can face different outcomes depending on the ranking of their instruments.

Typical hierarchy:

shareholders;

subordinated instruments;

senior unsecured creditors;

other protected categories;

covered deposits, subject to the applicable statutory framework.

The exact hierarchy depends upon the applicable EU and national rules and the particular instrument.

20. Subordinated Debt

Subordinated debt is particularly important.

The investor may argue:

“The bank breached the bond contract.”

The resolution authority may respond:

“The instrument was legally subject to bail-in/write-down.”

The court therefore has to reconcile:

contractual rights;

statutory resolution powers;

creditor hierarchy;

property rights;

financial stability.

Kotnik is particularly important here. (Infocuria)

21. Mis-Selling Before Bank Failure

A separate issue arises where the bank mis-sold the investment.

Example:

Bank sells subordinated bonds to retail customer.

Bank fails to explain the loss risk.

Customer purchases €200,000.

Two years later the bank enters resolution.

Bonds become worthless.

The investor may have:

Claim A

A mis-selling claim based on inadequate information.

Claim B

A claim arising from the resolution/write-down itself.

These are not necessarily the same claim.

The Banco Popular litigation demonstrates how the interaction between pre-resolution investment claims and later resolution measures can become legally complicated. (Infocuria)

22. Civil Liability of the Bank

Possible claims include:

breach of contract;

misrepresentation;

negligent advice;

investment-services violations;

defective prospectus information;

unfair terms;

fraud;

restitution.

But resolution may affect:

the defendant;

the enforceability of the claim;

the transferred liabilities;

the available remedy.

23. Civil Liability of the Resolution Authority

A claimant may challenge:

legality of the resolution decision;

valuation;

procedural defects;

proportionality;

failure to satisfy statutory conditions;

breach of fundamental rights.

However, resolution authorities operate within specialised EU administrative-law frameworks.

A claimant normally needs to identify the specific legal basis for judicial review rather than simply arguing:

“I lost money, therefore the resolution was unlawful.”

24. Judicial Review

Bank-resolution litigation may involve:

EU General Court

Challenges to SRB/Commission measures.

CJEU

Appeals or preliminary references.

National courts

Claims involving:

contracts;

damages;

consumer law;

national implementation of BRRD;

shareholder rights.

This creates a multi-level judicial system.

25. Valuation Disputes

Valuation is central to resolution.

The question may be:

What would creditors have received in ordinary liquidation?

versus

What did they actually receive under resolution?

If the liquidation counterfactual is €20 million but resolution produces €25 million, a creditor may not have a compensation claim under the relevant “no creditor worse off” mechanism.

This was central to the Banco Popular compensation litigation. (curia)

26. Causation in Banking Insolvency Litigation

A claimant may have to establish:

Unlawful conduct

↓

Financial loss

↓

Causal connection

For example:

“The SRB's allegedly unlawful action caused me to lose €500,000.”

The claimant may need to establish that the loss resulted from the challenged act rather than from:

the bank's underlying insolvency;

market conditions;

pre-existing losses;

ordinary investment risk.

27. Limitation

Banking disputes can involve multiple limitation regimes:

national contract limitation;

tort/delict limitation;

securities claims;

administrative judicial-review deadlines;

EU non-contractual liability;

insolvency claims.

Timing is particularly important because resolution measures may take effect rapidly.

The Banco Popular cases demonstrate that the date on which an action is brought relative to the resolution date can be legally significant. (curia)

28. Cross-Border Insolvency

A European bank may operate through:

branches;

subsidiaries;

investment firms;

payment institutions;

foreign securities custodians.

Consequently, disputes can involve:

jurisdiction;

applicable law;

recognition of insolvency measures;

recognition of resolution measures;

asset location;

creditor ranking.

European banking law attempts to prevent fragmented national insolvency proceedings from undermining financial stability.

29. Fundamental Rights

Resolution disputes may involve:

Right to property

Shareholders and creditors may argue that their property has been interfered with.

Legitimate expectations

Investors may claim that they relied upon the previous legal regime.

Proportionality

The measure may be challenged as excessively burdensome.

Effective judicial protection

Affected parties must have access to appropriate judicial review.

The Kotnik and Ledra lines of authority are particularly important for these issues. (curia)

30. State Aid and Banking Rescue

Before the development of the modern resolution framework, European banking crises frequently involved State support.

State aid can raise questions concerning:

recapitalisation;

guarantees;

asset transfers;

restructuring;

burden-sharing.

Kotnik demonstrates how EU State-aid law can require private investors to share losses before State support is approved. (curia)

31. Resolution vs Liquidation

A useful example:

Bank A

Assets: €100 billion
Liabilities: €95 billion

But the bank suffers an immediate liquidity crisis and cannot meet obligations.

It may potentially be failing or likely to fail even though its balance sheet does not show conventional insolvency.

The CJEU's Banco Popular jurisprudence confirms that insolvency is not the only relevant condition for resolution. (curia)

32. Hypothetical Example

Facts

European Bank A has:

€80 billion deposits;

€20 billion senior bonds;

€5 billion subordinated debt;

€10 billion shareholder capital.

A liquidity crisis develops.

The resolution authority determines that the bank is failing or likely to fail.

It:

writes down shareholder capital;

converts subordinated debt;

transfers viable banking operations;

places certain assets into another entity.

Litigation

Shareholders argue:

“Our shares were unlawfully cancelled.”

Subordinated bondholders argue:

“Our bonds were contractual claims.”

Depositors argue:

“Our deposits must be protected.”

The resolution authority argues:

“The measures were necessary to protect financial stability and complied with BRRD.”

The court then examines:

statutory conditions;

valuation;

creditor hierarchy;

proportionality;

procedural requirements;

no-creditor-worse-off protection;

applicable compensation.

33. Important Case-Law Table

34. Direct vs Analogical Authorities

For accuracy, the cases should not all be described as ordinary “bank insolvency” cases.

Directly relevant to banking resolution

Kotnik

Banco Santander/Popular

Banco Santander II

Banco Santander III

Del Valle Ruíz

Fundación Tatiana Pérez

Banking-crisis/restructuring authorities

Dowling

Ledra

Prudential/supervisory authority

Deutsche Bank

This distinction matters because bank resolution is a specialised statutory regime, not simply ordinary civil insolvency law.

35. Legal Test for a Banking Insolvency/Resolution Dispute

A useful examination formula is:

Step 1 — Identify the bank's status

Is it:

solvent;

illiquid;

failing;

likely to fail;

already insolvent?

Step 2 — Identify the applicable regime

BRRD;

SRM Regulation;

national insolvency law;

deposit-guarantee legislation.

Step 3 — Identify the claimant

depositor;

shareholder;

bondholder;

employee;

counterparty;

customer;

creditor.

Step 4 — Identify the measure

bail-in;

write-down;

conversion;

sale of business;

bridge bank;

liquidation.

Step 5 — Examine legality

Was the statutory resolution test satisfied?

Step 6 — Examine procedural fairness

Were applicable procedural and judicial-review requirements respected?

Step 7 — Examine property rights

Was the interference justified and proportionate?

Step 8 — Calculate the liquidation counterfactual

What would the claimant have received in ordinary insolvency?

Step 9 — Examine causation

What actually caused the loss?

Step 10 — Determine remedy

Possible remedies include:

annulment;

compensation;

restitution;

damages;

statutory compensation;

creditor recovery.

36. Conclusion

Banking insolvency resolution disputes in Europe sit at the intersection of civil law, insolvency law, administrative law, EU financial regulation and fundamental rights.

The most important conceptual distinction is:

A failing bank is not necessarily dealt with through ordinary liquidation.

European law permits specialised resolution mechanisms designed to protect financial stability and critical banking functions.

The major cases establish several important principles:

Kotnik demonstrates the legitimacy of shareholder and subordinated-creditor burden-sharing in the banking crisis framework. (curia)

Dowling shows that exceptional banking-stability measures can modify ordinary shareholder rights. (curia)

Banco Popular/ C-410/20 confirms that actual insolvency is not necessarily required for resolution. (curia)

Del Valle Ruíz illustrates the importance of the no-creditor-worse-off counterfactual. (curia)

Banco Santander II demonstrates how bail-in interacts with private-law nullity and damages claims. (Infocuria)

Banco Santander III, decided in 2025, shows how the timing of a civil claim before resolution can affect whether that claim remains enforceable against a successor entity. (curia)

Thus, in a European banking-resolution dispute, the key question is not simply “How much did the creditor lose?” It is:

What was the claimant's legal position → what resolution measure was adopted → what statutory rights were affected → what would the claimant have received in ordinary liquidation → and what remedy does EU and national law permit?

Exam Keywords

Bank insolvency — bank resolution — BRRD — Single Resolution Mechanism — SRB — ECB — failing or likely to fail — bail-in — write-down — conversion — recapitalisation — shareholder losses — subordinated creditors — senior creditors — deposit guarantee — no creditor worse off — liquidation counterfactual — resolution scheme — creditor hierarchy — property rights — legitimate expectations — proportionality — judicial review — State aid — financial stability — successor liability — damages — restitution — cross-border insolvency — banking union.