Vol 10 (2013) - Issue 3

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Emergency Legislation Paves the Way for Irish Debt Restructuring

The Irish Bank Resolution Corporation Act 2013 (the 'Act') was enacted in Ireland on 7 February 2013. This emergency legislation provides for the liquidation of the Irish Bank Resolution Corporation ('IBRC') which was formerly Anglo Irish Bank, by means of a Special Liquidation Order ('SLO') and the sale or transfer of the assets and liabilities of IBRC. The Act was drafted as part of a deal with the European Central Bank ('ECB') that resulted in a major improvement in the terms of Ireland’s bank debt. The Act facilitated the termination of certain promissory notes used by IBRC as security to borrow from the Central Bank of Ireland (the 'CBI'). The promissory notes were then replaced with longterm bonds with a much longer repayment schedule.

Liquidation of IBRC
Joint special liquidators were appointed to IBRC with immediate effect from the date of the Act in order to wind up its business and operations. The Minister for Finance, Michael Noonan, (the 'Minister') stated that the intention of the Act is for the net debt owed by IBRC to the CBI and its associated floating charge security to be purchased by the National Asset Management Agency ('NAMA'), the Irish state 'bad bank', using NAMA bonds, in a way that ensures that there is no capital loss for the CBI. The Minister also stated that the Ministerial Guarantee underpinning the net debt owed to the CBI by IBRC will also be transferred to NAMA and that eligible depositors, bondholders and counterparties will be repaid. Pursuant to the Act, the joint special liquidators may exercise all of the functions and powers of the Board of IBRC. Consequently, nothwithstanding any pre-existing statutory, contractual or equitable restrictions on disposals, the special liquidators may dispose of the assets and liabilities of IBRC. As a result of the appointment of the special liquidators, the CBI became the economic owner of promissory notes issued by the Minister to IBRC (EUR 25.3 billion) and Irish Nationwide Building Society (EUR 5.3 billion) (the 'Promissory Notes') and the other IBRC assets held by the CBI as collateral for the Exceptional Liquidity Assistance Facility ('ELA Facility') provided by the CBI to IBRC. The intention is that NAMA will acquire the ELA Facility and the associated floating charge over IBRC assets from the CBI in exchange for Government-guaranteed NAMA bonds, and NAMA will then enforce its security. This will result in NAMA becoming entitled to the proceeds of any disposal of IBRC’s charged assets.

Sale of assets
The assets of IBRC which are subject to the floating charge will, following an independent valuation process, be sold by the joint special liquidators to third parties at or above their independent valuation. It is expected that a large number of those assets will be sold within the next six months. If the assets cannot be sold to third parties or the prices offered by the third parties are less than the independent valuations, they will be sold to NAMA at their valuation price in partial satisfaction of the amounts owed to NAMA under the ELA Facility. Creditors will then be repaid from the proceeds of these sales in accordance with the normal sequence of priority, as set out under the Irish Companies Acts 1963–2013 (the 'Companies Act'), that is, preferred creditors (including employees) will be paid first followed by the IBRC debt to NAMA. Remaining proceeds (if any) will then be paid to unsecured creditors who have not been paid under the relevant guarantee schemes (namely, the Deposit Guarantee Scheme, which covers deposits up to a maximum of EUR 100,000 per depositor per institution, and the Eligible Liabilities Guarantee Scheme, which only guarantees the balance of personal deposits in the participating institutions over the EUR 100,000 limit of the Deposit Guarantee Scheme). However, if the sale proceeds are not sufficient to cover the debt owed by IBRC to NAMA, the shortfall will be met by the Ministerial Guarantee.