1.1 What are the main trends/significant developments in the lending markets in your jurisdiction?
Lending activity in Ireland, like business activity more generally, was significantly impacted by the COVID-19 pandemic. As the year went on, however, activity levels improved and a number of sectors showed considerable resilience, including lending for real estate development (particularly in the residential sector and notably for social and affordable residential developments), lending to investment funds and leveraged/acquisition finance as M&A and management buyout activity held up well. However, many lenders in the Irish market – as across the globe – spent a considerable amount of their time in 2020 managing the fallout from the pandemic. This was particularly notable in those sectors most immediately impacted by restrictive measures, such as leisure, hospitality and childcare.
There continues to be an active tertiary market where the funds that acquired portfolios of non-performing loans in the 2012 to 2015 period are exiting their positions.
Green finance remains to be an area of significant interest for lenders and this is only likely to grow in importance given the zero emissions targets by 2050 set by the EU for Member States. These targets are set to be incorporated into Irish law by the Climate Action and Low Carbon Development (Amendment) Bill 2020.
The consequences of Brexit for the Irish economy generally remain to be seen, notwithstanding the Trade and Co-operation Agreement concluded between the EU and the UK. While some welcome clarity has been given to Irish companies trading in goods with UK counterparties, the position regarding trade in services, and financial services in particular, is subject to further agreement between the EU and UK.
1.2 What are some significant lending transactions that have taken place in your jurisdiction in recent years?
Despite the COVID-19 pandemic, there was a reasonable level of transactional activity, both domestically and cross-border, across multiple asset classes in 2020. Real estate finance continued to be an area of focus, although activity slowed during the first lockdown when construction activity was largely suspended. Nonetheless, Dillon Eustace acted for a lender which completed a significant financing for a mixed-use development in central Dublin during that period. Dillon Eustace has also advised Allied Irish Banks, p.l.c. and Ulster Bank Ireland DAC among others on multiple residential developments and we have advised, and continue to advise, a number of investors on the acquisition, development and leasing of portfolios of social housing units.
Leveraged/acquisition finance activity proved resilient as well, particularly for businesses in the transport, logistics and related sectors. Dillon Eustace acted on two notable transactions in this space, one for a lender supporting the acquisition of a group involved with refrigerated containers and the other acting for Principal Logistics Technologies in its acquisition of Brentech Data Systems. Other standout transactions included Deutsche Bank's provision of financing to the Seniors Money group which facilitated the return of lifetime loans to the Irish market; Dillon Eustace acted for Deutsche Bank.
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), 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) and to certain provisions of the Act relating to transactions with directors which require, among other things, that both the guarantor and the borrower fall within the concept of "group" companies for the purposes of the Act.
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 into which they enter. 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, subject to all applicable laws, the same 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. 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. 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 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, counter-terrorist financing, anti-corruption and human rights laws and regulations, and any restrictions on financial transfers arising from any United Nations, EU and/or Irish sanctions).
3 Collateral Security
3.1 What types of collateral are available to secure lending obligations?
In principle, all assets of an Irish company are available to secure lending, subject to any contractual restrictions to which a company might be bound. The most common forms of security taken by a lender are:
- Mortgage: there are essentially two types of mortgage – a legal mortgage and an equitable mortgage. A legal mortgage involves the transfer of legal title to an asset by a debtor, by way of security, upon the express or implied condition that legal title will be transferred back to the debtor upon the discharge of its obligation. An equitable mortgage on the other hand involves the transfer of the beneficial interest in the asset to the mortgagee with legal title remaining with the debtor and, as such, creates an equitable security interest only. Mortgages are commonly taken over shares, aircraft and ships.
- Charge: this represents an agreement between a creditor (chargee) and a debtor (chargor) to appropriate and look to an asset and its proceeds to discharge indebtedness. The principle difference between a mortgage and a charge is that a charge need not involve the transfer of ownership in the asset. A charge may be fixed (i.e. security attaches to a specific asset) or floating (i.e. security floats over the asset leaving the chargor free to deal with it until, upon the occurrence of certain defined events, the charge crystallises into a fixed charge) in nature. A fixed charge can be created by a company or an individual, whereas a floating charge can only be created by a company. It is also worth noting that a floating charge ranks behind certain preferential creditors such as the Irish Revenue Commissioners ("Revenue") and employees of the chargor in respect of unpaid wages, etc.
- Assignment: this is akin to a mortgage in that it transfers the legal or beneficial ownership in an asset to the creditor upon the understanding that ownership will be assigned back to the debtor upon discharge of the secured obligation owing to the creditor. Assignments are most commonly utilised in the context of intangible assets such as receivables, book debts and other choses in action. Assignments to a creditor are sometimes referred to as security assignments to distinguish them from absolute assignments where the ownership is being assigned by way of sale for value. In order to be a valid and effective legal assignment, as opposed to an equitable assignment, there must be absolute assignment (although it can be stated to be by way of security), it must be in writing under hand of the assignor, and express notice in writing must be given to the third party from whom the assignor would have been entitled to receive or claim the right which is assigned.
- Others: to include a pledge, lien, chattel mortgage, bill of sale and retention of title.
3.2 Is it possible to give asset security by means of a general security agreement or is an agreement required in relation to each type of asset? Briefly, what is the procedure?
Security over all, or substantially all, of a company's assets usually takes the form of an "all-assets" debenture, which is a single security document entered into by a company in favour of the secured party(-ies) to create security (e.g. a combination of mortgages, assignments and/or fixed and floating charges) over the borrower's assets. The debenture will usually include: (i) a fixed charge over specific assets which are identifiable and can be controlled by the lender (e.g. buildings, restricted accounts, intellectual property assets); (ii) a floating charge over fluctuating and less identifiable assets (e.g. inventory); (iii) an assignment of any interest in receivables, contracts, insurance policies and bank accounts; and (iv) a mortgage and/or charges over real estate and shares.
Originally Published by ICLG
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.