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. Crowdfunding is an area of increasing interest, with Ireland's first equity crowdfunding platform – Spark, which is aimed at those looking to invest in startups with small amounts of money – having launched in 2018. Although not currently regulated in Ireland, the European Commission has proposed a pan-European regulatory regime for crowdfunding and brought a proposal for an EU framework on crowd and peer-to-peer finance for discussion in March 2018. The Department of Finance has stated that it will monitor the progress and developments on this and implement European regulations as necessary. Loan and financing activity levels remain high; domestically, sectors such as real estate and health care are particularly active while aviation and acquisition finance are among the sectors of most cross-border activity.
There have been notable legal/regulatory developments too – for example, unregulated entities (other than securitisation special purpose vehicles which are exempt) that hold title to Irish loans and/ or control the overall strategy or key decisions relating to such credit must now be authorised and regulated by the Central Bank of Ireland (the "CBI"). Firms providing certain services, which are already obliged to comply with anti-money laundering and counter-terrorist financing obligations even though they may not be authorised or licensed by the CBI, are required to register with the CBI unless they qualify for an exemption. The new requirement brings the firms (so-called "Schedule 2 Firms") into closer engagement with the CBI and increases regulatory focus on such entities.
The Securitisation Regulation (Regulation EU 2017/2401) came into force on 17 January 2018 and is now directly applicable across the EU since 1 January 2019. The new rules will apply in a harmonised manner to all securitisations, securitising entities, and EU-regulated institutional investors. The Regulation sets down new rules relating to due diligence, risk retention, transparency and credit granting.
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?
There has been a strong level of transactional activity, both domestically and cross-border, across multiple asset classes. As noted above, real estate finance has been an area of particular focus, particularly commercial investment and residential development (the latter being a sector in which non-bank lenders have been especially active). Notable transactions in this space have included the development of a landmark new hotel at Dublin Airport, a flagship mixed use development in Dublin's central business district and a significant number of student accommodation units in Dublin city, in all of which Dillon Eustace acted. The health care sector has also seen significant activity levels including a cross-border financing for the Centric Health group, a Dillon Eustace client. Noteworthy transactions continue to be completed in the non-performing loan space, such as PTSB's securitisation of a portfolio of non-performing loans with a gross balance sheet value of approximately €1.3 billion in which Dillon Eustace acted.
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 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 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 in ICLG
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