Legislation enabling the immediate liquidation of IBRC (formerly Anglo Irish Bank) was signed into law in the early hours of 7 February. Draft legislation was published on 6 February following media speculation that the Irish Government was preparing plans to liquidate IBRC and was promptly brought before both Houses of the Oireachtas (the Irish Parliament). The Minister for Finance stated that immediate action was necessary in order to prevent any action being taken which could have put IBRC’s assets at risk.
The need for the legislation related to Ireland’s efforts to secure a deal on the State’s promissory notes issued in respect of the obligations of IBRC. The Minister stated that it was always envisaged that the opening position on the restructuring of the promissory notes would be the liquidation of IBRC and the transfer of its assets to NAMA.
Irish Bank Resolution Corporation Act
IBRC has been placed in liquidation by a Ministerial Order made under the Act, called a Special Liquidation Order. Unlike other forms of liquidation, no court order or shareholder resolution was required to commence the liquidation. On the making of the order by the Minister for Finance, two joint Special Liquidators were appointed.
No other insolvency process can now be initiated against IBRC or in respect of any of its subsidiaries without the consent of the Special Liquidators.
Application of Companies Acts
The provisions of the Companies Acts governing the liquidation of companies will apply to the special liquidation of IBRC with some key differences. The Special Liquidators have full custody and power over all the assets and undertaking of IBRC, and the power to carry on its business so far as may be necessary for the liquidation. These powers are to be exercised subject to the right of the Minister for Finance to give instructions to the Special Liquidators as to the manner in which the liquidation is to be conducted. The terms and conditions of the Special Liquidators’ appointment and their reporting obligations are all subject to direction of the Minister for Finance.
The provisions of the Companies Acts which require a liquidator to report to and be supervised by the High Court (for compulsory liquidations) or the creditors (in voluntary liquidations) are disapplied. The Special Liquidators do however have power to apply to the High Court for directions on any question arising in the liquidation.
The provisions of the Companies Acts dealing with such matters as the scrutiny and, in certain cases, the reversal of certain pre-liquidation transactions, such as fraudulent preference and fraudulent disposition of assets (except for transactions in favour of the Central Bank), and contribution and pooling orders affecting related companies apply. Similarly the liquidator’s powers of investigation of conduct by directors and officers apply, including the power to impose sanctions against defaulting persons.
The Sales Process
The duties and powers of the Special Liquidators concerning the asset disposal process are augmented by the power of the Minister for Finance to issue instructions in respect of that process.
Independent Valuation
The Minister will issue instructions to the Special Liquidators to appoint persons to carry out an independent valuation of IBRC’s assets. The valuation of the assets will have to comply with the Act and use standard valuation methodologies. Unless otherwise appropriate, loan assets will be valued using discounted cash flow analysis, taking into account the timing and reliability of cash flows, together with an appropriate discount factor.
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Third Party Bidding Process
The assets will be offered for sale and in the event that a third party makes an offer that is at or above the valuation, the assets will be sold to the highest bidder. This is not expressly set out in the Act, but the Minister confirmed this position at various stages in the legislative debates. -
Transfers to NAMA
If no bid matches the independent valuation, the assets will be sold to NAMA at their valuation price. The Minister will give written directions to NAMA setting out the terms and conditions of its bid.
Where it is necessary to do so, the Minister can direct NAMA to:
- provide credit facilities to the Special Liquidators on such terms and conditions as are specified in the direction; and
- take any action which, in the Minister’s opinion, is necessary for the achievement of the purposes of the Act.
There are provisions within the Act which seek to remove potential barriers to the sale and/or transfer of IBRC’s assets, including any cause of action IBRC might seek to sell or transfer.
Currently, it is estimated that the part of the process aimed at selling to third parties will last until mid-2013.
Employees
The Special Liquidation Order constitutes notice to each employee of IBRC of the termination of his/her employment with immediate effect. The Special Liquidators can retain persons on such terms as they see fit where required. The Minister has indicated that the majority of employees are likely to be re-employed by the Special Liquidators, for some time at least.
Court Proceedings
The Act confers an automatic stay on all court proceedings against IBRC and no new proceedings can be commenced against it without the prior consent of the High Court.
The Special Liquidation Order does not affect any ongoing investigation or disciplinary action by the Central Bank, the Director of Public Prosecutions, Gardaí (Irish police), Director of Corporate Enforcement or any other regulatory authority into the affairs of IBRC.
Injunctions
The circumstances in which injunctive relief can be obtained or granted affecting the conduct of the Special Liquidators are limited. In determining whether to grant such relief, the High Court will have regard to the public interest and whether awarding damages as an alternative would amount to an injustice. The fact that a person seeking injunctive relief might be declared bankrupt or insolvent if an injunction is not granted does not amount to an injustice for the purposes of the Act.
Contributed by Grant Murtagh & Niamh Cacciato
