Irish High Court Clarifies Standard of Proof for Loan Purchasers

Author:Mr Brian Clarke, John Breslin, Robin McDonnell and Karole Cuddihy
Profession:Maples and Calder

Purchasers of distressed debt have inevitably found themselves involved in legal disputes with borrowers seeking to undermine the loan purchaser's position as secured lender or at least put it on full proof of its entitlements.

In English v Promontoria (Aran) Limited the High Court (Murphy J) placed a stay on the appointment of a receiver, on the basis that the secured creditor had not put forward sufficient evidence to establish clearly its legal entitlement to appoint a receiver over the asset in question[1]. It was not in dispute that Ulster Bank had been entitled to assign the debt.  Having noted that position, Murphy J stated:

"If, as in this case, it purports to exercise that right of transfer, then a complete stranger with whom the plaintiff [i.e. the borrower] has no connection can come knocking on his door claiming an entitlement to possession of his property. It appears to the Court that before ceding possession of his property, the plaintiff is entitled to insist that the stranger prove its entitlement to possession by showing that it duly acquired the interest of the bank in his loans and the security underpinning those loans, in particular, the mortgage on the property."

Stay on Receiver Appointment Lifted

In English v Promontoria (Aran) Limited (No.2), Promontoria succeeded in having the stay on the receiver's appointment lifted[2] . After the first decision, Murphy J had given Promontoria an opportunity to produce further documentation to the plaintiff's lawyers, in order to persuade them of its entitlements. 

Failing that, the court allowed Promontoria to bring an application to have the stay vacated. The plaintiff, Mr English, did not put forward affidavit evidence to challenge the central contentions being made by Promontoria.  Rather, the plaintiff put forward a number of legal arguments as to why the evidence given as to the debt purchase was insufficient or, it was argued, revealed legal flaws in the intended loan sale.

For example, it was argued that proper notice of assignment (from Promontoria to the plaintiff) had not been proved, as required by section 28(6) of the Supreme Court of Judicature (Ireland) Act 1887.  The court held that proper notice had been given. 

The plaintiff also argued that a director who executed the instrument of appointment of the receiver was in breach of section 142 of the Companies Act 2014 which limits the number of directorships which a person may hold to 25. However evidence was...

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