Ireland: Lending & Secured Finance 2018

Ireland

1 Overview

1.1 What are the main trends/significant developments in the lending markets in your jurisdiction?

Alternative finance continues to be a developing sphere in the Irish lending market. Alternative lenders are very active; in particular, in the Irish real estate finance space. Crowdfunding is an area of increasing interest. Although not currently regulated in Ireland, the European Commission has proposed a pan-European regulatory regime for crowdfunding in its 2018 work programme and is due to bring a proposal for an EU framework on crowd and peer-topeer finance for discussion in March 2018. Beyond the foregoing, domestic and cross-border loan and financing activity levels are high – especially in some sectors, like aviation, where Ireland has particular dominance and expertise.

There have been notable legal/regulatory developments too – for example, the establishment of the Central Credit Register, a new centralised system for collecting personal and credit information on loans.

The impact of Brexit on Ireland, while yet unknown, could present significant opportunities for the Irish lending market. This is so particularly given Ireland's common law system and its geographic location, being close to Britain and mainland Europe, which make it an attractive destination for international banks, currently operating out of the UK, which want to maintain an EU presence post-Brexit.

1.2 What are some significant lending transactions that have taken place in your jurisdiction in recent years?

As already noted, transaction activity levels have been healthy across a range of asset-classes. Real estate finance has been particularly strong with the full spectrum lenders (traditional banks, debt funds, etc.) and transaction types (e.g. commercial/residential, development/investment, etc.). One landmark transaction, in which Dillon Eustace acted for the purchaser/borrower, was the financing of the newly planned EXO building, which – when constructed – will be Dublin's tallest office building. Transaction numbers in the loan sales space – which has been a major focus for the past number of years – were lower in 2017 but 2018 looks set to be a very busy year. One noteworthy transaction in 2017 was Proteus RMBS DAC, which is a securitisation of the residential mortgage portfolio of Danske Bank in Ireland in which Dillon Eustace acted for the significant investor. The transaction is significant because of its size (€1.8 billion approx.), the context (i.e. securitisation used to fund the purchase/sale of a portfolio of tracker mortgages originated by Danske Bank) and the fact that this is one of the largest post-crisis securitisations in Ireland.

2 Guarantees

2.1 Can a company guarantee borrowings of one or more other members of its corporate group (see below for questions relating to fraudulent transfer/financial assistance)?

Yes; however, this is subject to the corporate benefit rule (discussed at question 2.2 below) and to certain provisions of the Companies Act 2014 (as amended) (the "Act") relating to the provision of financial assistance (discussed at question 4.1 below).

2.2 Are there enforceability or other concerns (such as director liability) if only a disproportionately small (or no) benefit to the guaranteeing/securing company can be shown?

Although not specifically addressed in the Act, it is generally accepted that Irish companies must derive some form of corporate benefit from transactions which they enter into. Accordingly, prior to authorising the provision of a guarantee/security to a third party, directors should consider, and document such considerations of, the commercial benefit that will accrue to the company as a result of providing such security. Directors who authorise a transaction which does not benefit the company may be liable for breach of their statutory and fiduciary duties. In the context of a guarantee of the borrowings of another corporate group member, it is often possible to establish sufficient corporate benefit if the provision of the guarantee/security would benefit the group as a whole. For example, a holding company which guarantees the obligations of its subsidiary could feasibly expect to benefit from the success of that subsidiary through increased dividends.

2.3 Is lack of corporate power an issue?

Generally no, as the doctrine of ultra vires has been abolished by the Act and accordingly an Irish company limited by shares has the same unlimited capacity as an individual. However, the Act introduced a new type of private company – a Designated Activity Company ("DAC") – which must (similar to a public limited company) have an objects clause which sets out the specific powers of the company. If it is not specifically stated in the objects clause of such a company that it has the power to issue a guarantee or grant security, then any such action by the company could be subject to challenge by a shareholder of that company. While this in itself should not impact the validity or enforceability of the guarantee/security, there is a risk that the third party lender may become indirectly involved in a dispute between a company and its shareholders. In addition to this, any liquidator appointed to a company, which has granted security in breach of its objects clause may, in certain circumstances, have clawback rights under the Act which could potentially result in the security being set aside (see question 8.2 below).

2.4 Are any governmental or other consents or filings, or other formalities (such as shareholder approval), required?

Generally no, subject to the provisions of the Act relating to financial assistance and transactions with directors. However, if the company is regulated or subject to the supervision of the Central Bank of Ireland (the "CBI") or some other regulatory authority, additional consents may be required. For example, an Irish regulated fund cannot give "guarantees" to support the obligations of a third party (which may include another sub-fund within the same umbrella fund structure). While, the term "guarantees" when used in this context is not defined, it is generally accepted that this term includes any security provided to support the obligations of a third party. In terms of formalities, a guarantee must be in writing and must be executed as a deed. Execution as a deed is important for a number of reasons, for example, to remove any concerns about the adequacy of the consideration passing to the guarantor.

2.5 Are net worth, solvency or similar limitations imposed on the amount of a guarantee?

No; however, in certain circumstances a guarantee may be set aside as an unfair preference or due to the insolvency of the company (see question 8.2 below).

2.6 Are there any exchange control or similar obstacles to enforcement of a guarantee?

Generally, no (subject to the application of anti-money laundering, anti-terrorism, anti-corruption and human rights laws and regulations, and any restrictions on financial transfers arising from any United Nations, EU and Irish sanctions).

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Originally published by Global Legal Group

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