Emergency Legislation Paves The Way For Irish Debt Restructuring

Author:Mr Patrick Molloy, Libby Garvey, Niall Horgan, William Prentice and Chris Quinn

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 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 will result in a major improvement in the terms of Ireland's bank debt. The Act will also facilitate the termination of certain promissory notes used by IBRC as security to borrow from the Irish Central Bank. The promissory notes will then be replaced with long-term bonds with a much longer repayment schedule.

Liquidation of IBRC

Joint special liquidators have been appointed to IBRC with immediate effect in order to wind up its business and operations. The Minister for Finance, Michael Noonan, stated that the intention of the Act is for the net debt owed by IBRC to the Central Bank and its associated floating charge security to be purchased by 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 Central Bank. The Minister also stated that the Ministerial Guarantee underpinning the net debt owed to the Central Bank by IBRC will also be transferred to NAMA and that eligible depositors, bondholders and counterparties will be repaid.

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, they will be sold to NAMA at their valuation price. Creditors will then be repaid from the proceeds of these sales in accordance with the normal sequence of priority, as set out under the Companies Acts, 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 of100,000 per depositor per institution, and the Eligible Liabilities Guarantee Scheme, which only guarantees the balance of personal deposits...

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