Bonos Popular: The Supreme Court confirms the annulment
The Supreme Court has upheld the annulment of a subscription of Exchangeable Bonds Banco Popular Sentence 17 June 2016.
In addition to its importance to customers who acquired Banco Popular bonds, their arguments are extensible to other convertible or exchangeable bonds such as those placed in Banco Sabadell or the famous "Valores Santander".
The Alcor Group is dedicated to the manufacture of products for application in the automotive and aeronautic.
In November 2010, un empleado de Banco Popular contactó con Grupo Alcor para ofrecerle unos bonos subordinados necesariamente convertibles en acciones. The client was classified as "Retail" by the bank itself. They were subscribed 2,000,000 € in good brawlers.
There were no reports of the risks of the product or suitability test was performed, despite having qualified as a retailer.
The 18 June 2012 conversion occurs, resulting in losses of 1.585.178 €.
The Alcor Group filed suit in July 2013 requesting the annulment of the order of subscription Exchangeable bonds of Banco Popular amounting to 1.585.178 euros. Alternatively it requested the contract termination.
The Court of First Instance No. 5 Vitoria gave judgment on 12 December 2013 annulling, ordering the return of principal with interest and condemning the People's Bank to pay the costs.
The People's Bank presented appealed and the Provincial Court of Álava, in sentence 2 May 2014 desestimó su recurso. The Court indicates that:
- The contract was subject to MiFID.
- The client was no risk investment expert on complex financial products.
- The People's Bank offered the product and took the initiative.
- There was no proper contractual information.
- Neither the delivery of the triptych or the publication of the securities note can supplement the deficient and insufficient pre-contractual information.
- Failure to comply with MiFID and lack of information can not be remedied by the prior signing of a waiver document signed the same day subscription.
- Convertible bonds are a complex product.
- There was error in the essential consent affect a substantial element of the contract (the early conversion) y excusable (by the lack of information by the bank, the lack of financial knowledge of the client, and the confidence he had in the state).
So the bank filed an extraordinary appeal for procedural infringement (that is dismissed) and appeal to the Supreme Court.
The appeal was based on the following reasons:
1.- Alcor is a professional client for the purposes of Article 78 to 3 c) of the Securities Market Act.
2.- Convertible bonds are not a complex financial product.
3.- The error was not excusable.
As to the first plea, the bank had classified as a retailer in the conclusion of the deposit of securities, y su condición de minorista se considera por la Audiencia como hecho probado, you can not alter the appeal. Therefore is dismissed.
Por lo que se refiere al carácter de complex product, the mandatorily convertible bonds They offer investors only part of the future increase of the action potential in exchange for a coupon preset, and expose the investor to part or the entire lowering action. Thus, these instruments are closer to the capital than debt issuer; and usually have, as in the contentious case, subordinated.
Article 79 to 8 a) de la Ley del Mercado de Valores establece las condiciones que deben de cumplir los productos para ser considerados “no complejos” (redeemable at any time at known prices by the public, inability to lose more than the amount invested, and comprehensive public information available to the public and are not products).
A contrario sensu, are complex products that do not meet any of these characteristics (increased risk, lower liquidity and difficulty of understanding).
The mandatorily convertible bonds are therefore a complex product (so also considers the CNMV) plus "risky" so the financial institution is required to “suministrar al inversor minorista una información especialmente cuidadosa”. El motivo se desestima.
As error, the Chamber considers that it was essential and excusable. In convertible bonds the key issue is to properly inform the customer of what will happen to the exchange:
“The crux of the information is not in what happens after the exchange, since any investor knows that the value of shares traded may range upwards or downwards. But what It happens before the exchange, namely, that the investor will be clear that the actions will receive no why necessarily have a value equivalent to the price at which bought the bonds, but may have a lower market value, in which case you will have lost, and on the date of exchange, all or part of the investment.”
“Namely, the company providing the service must inform the customer investment conditions the conversion into shares of deriving the risk of loss when performing the swap. The mere fact deliver a tryptic digest of the product in which reference is made to the date of valuation of shares not enough by itself to give as fulfilled this obligation to report on the risk of loss.”
For, there was advice by the People's Bank since it was he who offered the Bonds al Grupo Alcor. Se omitió proporcionar una información previa sobre la naturaleza y riesgos de los Bonds en función de la fecha de conversión. El incumplimiento de las obligaciones del banco hace que el error sea excusable. And stresses the Chamber that the reporting obligation by the bank is active and not mere availability.
Ultimately, se desestiman los recursos y the decision declaring the nullity of the subscription of the Bonds exchangeable Banco Popular confirms.