Irish Bank Resolution Corporation Act and Appointment of Special Liquidators

In the early hours of 7 February 2013, the Irish Bank Resolution Corporation Act 2013 (the "IBRC Act") was passed. The IBRC Act provides for the Minister for Finance to make a "Special Liquidation Order" ("SLO") winding up IBRC. As a result of the SLO:

  • Kieran Wallace and Eamonn Richardson of KPMG were appointed as joint Special Liquidators of IBRC;
  • all proceedings against IBRC (including to appoint a receiver) were stayed and no further proceedings can be issued against IBRC without the consent of the High Court of Ireland, but IBRC's claims against third parties are unaffected;
  • no petition may be made to wind up subsidiaries of IBRC or place them in examinership without the consent of the Special Liquidator; and
  • the employment of IBRC's employees was terminated with immediate effect.

Any investigations or proceedings already, or to be, undertaken by the Central Bank of Ireland ("CBI"), the Director of Public Prosecutions, An Garda Síochána, the Director of Corporate Enforcement or any other regulatory authority are unaffected by the SLO. The terms and conditions of mortgages, loans and other products provided to IBRC customers are unaffected by the SLO.

The IBRC Act disapplies or amends some provisions of the Companies Act, the Central Bank and Credit Institutions (Resolution) Act 2011 and other legislation in relation to IBRC.

Disposals of IBRC Assets

Under the IBRC Act, the Special Liquidators can exercise all of the powers and functions of the Board of IBRC and may dispose of the assets and liabilities of IBRC notwithstanding pre-existing statutory, equitable or contractual restrictions on such disposals.

As a result of the appointment of the Special Liquidator, the CBI became the economic owner of the promissory notes dated 22 December 2010 issued by the Minister for Finance to IBRC (€25.3 billion) and Irish Nationwide Building Society (€5.3 billion) (together, the "Promissory Notes") and the other IBRC assets held by the CBI as collateral for the Exceptional Liquidity Assistance Facility ("ELA Facility") provided by the CBI to IBRC.

The National Asset Management Agency ("NAMA") will acquire the ELA Facility and the associated floating charge over IBRC assets from the CBI in exchange for Government guaranteed NAMA bonds, and NAMA will then enforce its security. As a result, NAMA will become entitled to the proceeds of any disposal of IBRC's charged assets.

The Special Liquidators will oversee a sales process for the assets of IBRC, which will involve the independent valuation of such assets by experts appointed by the Special Liquidators. Third parties will be allowed to bid for the IBRC assets but, if the prices offered by third parties are less than the independent valuations, then such assets will be acquired by NAMA at a price equal to the independent valuations in partial satisfaction of the amounts owed to NAMA under the ELA Facility.

If there is any shortfall between the amount of NAMA bonds issued to the CBI, and the value realised by NAMA for IBRC's assets, the Minister will reimburse NAMA. Any excess assets available following the repayment of NAMA will be for IBRC's unsecured creditors, and the normal rules for creditor priorities will apply to the liquidation.

Extinguishment of the Promissory Notes

The Promissory Notes held by the CBI as a result of the appointment of the Special Liquidator have been exchanged for a portfolio of Government bonds issued by the National Treasury Management Agency ("NTMA"). As a result, the Promissory Notes have been extinguished. This transaction spreads the cost of the Promissory Notes from a weighted average life of c. 7-8 years to c. 34-35 years at a lower funding cost for the State.

Eligible Liabilities Guarantee Scheme and Deposit Guarantee Scheme

The liquidation of IBRC will trigger the Deposit Guarantee Scheme (up to €100,000 for individuals and up to €200,000 for individuals with a joint account) and the Eligible Liabilities Guarantee Scheme (the "ELG Scheme").

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.