I INSOLVENCY LAW, POLICY AND PROCEDURE

i Statutory framework and substantive law

Ireland is a sovereign state in Europe and a member of the European Union since 1973. The legal system in Ireland is a combination of statute and common law in which a large emphasis is placed on precedent.

The principal statutes governing insolvency law in Ireland are as follows:

  • a the Companies Acts 2014, which came into operation on 1 June 2015, consolidating and replacing the previous Companies Acts;
  • b Council Regulation (EC) No. 1346/2000 (referred to when a debtor has its centre of main interests (COMI) in an EU Member State) (the Insolvency Regulation);2
  • c the National Asset Management Agency Act 2009 (relevant from the perspective of statutory receivers appointed by the National Asset Management Agency); and
  • d the Irish Bank Resolution Corporation Act 2013 (which introduced the concept of Special Liquidation) (the IBRC Act).
ii Policy

Remedies in the area of insolvency and bankruptcy have traditionally involved enforcement of security, realisation of a debtor’s assets and the penalisation of resisting debtors. In recent years, however, there has been a subtle shift towards a ‘rescue culture’ in respect of certain companies. This has been motivated by a desire to achieve value for all stakeholders.

For those businesses that are in difficulty but can demonstrate that they have a reasonable prospect of survival3 examinership remains an attractive model for formal corporate restructuring and recovery. Examinership is a rehabilitative procedure that, broadly speaking, is a hybrid of Chapter 11 in the United States and administration in England and Wales.

Many businesses in Ireland borrowed significantly from 2000 to 2008 and much of that borrowing was used to fund property acquisitions. From 2008 onwards, there was a prevailing policy of enforcement by the lending institutions in respect of businesses and individuals who have breached covenants in their agreements. The lending institutions are taking enforcement steps in two ways: by the appointment of receivers to secured property or by issuing proceedings in the Irish courts to obtain judgments against defaulting debtors (or both). Over the past few years, large tranches of distressed loans and associated security have been purchased by venture capital and private equity funds. Even as the Irish economy has recovered, a significant amount of this distressed debt remains.

iii Insolvency procedures

The formal insolvency and rescue procedures available in Ireland to wind up or rescue companies are:

  • a creditors’ voluntary liquidation;
  • b compulsory or court liquidation;
  • c examinership; and
  • d statutory scheme of arrangement.

Receivership is a distinct enforcement remedy available to secured creditors only and does not involve the commencement of insolvency proceedings. The Companies Acts recognise and protect the rights of secured creditors to enforce their security in accordance with its terms, and secured creditors can, as a general rule, enforce or realise their security outside an Irish winding-up process.4

Creditors’ voluntary liquidation

To commence a creditors’ voluntary liquidation (CVL), the company, acting through its members (in general meeting), resolves that it cannot, because of its liabilities, continue in business and that it should be wound up voluntarily.5

The members’ meeting at which the winding-up resolution is passed must be held on the same day or the day before a meeting of the company’s creditors.6 The winding up commences once the members’ resolution has been passed and, thereafter, the company must cease to carry on its business except insofar as is necessary to facilitate the liquidation.

The creditors almost entirely control the CVL process, although any interested party can apply to the Irish High Court (the High Court) for directions to determine any question arising during the course of the winding up.7

Once appointed, the function of the liquidator is to realise all of the assets of the company and to distribute the proceeds of sale of those assets to creditors in accordance with the priorities prescribed by the Companies Acts and the Rules of the Superior Courts.

The liquidator conducts the liquidation independently and reports on the conduct of the liquidation to meetings of the members and creditors at the end of each year. The liquidator is also obliged to submit a report to the Office of the Director of Corporate Enforcement following his investigation into the affairs of the company.8

Compulsory liquidation

A High Court or compulsory liquidation is commenced by the presentation of a petition for the winding up of a company, which can be presented by:

  • a the company itself;9
  • b a creditor of the company;10
  • c a member or contributory of the company;11
  • d the Director of Corporate Enforcement;12 or
  • e the Registrar of Companies.13

A court-appointed liquidator (the official liquidator) is subject to the supervision of the High Court. An official liquidator is an officer of the court and must conduct the liquidation in accordance with the provisions of the Rules of the Superior Courts and the Companies Acts. Formerly, many of an official liquidator’s powers were exercisable only with the sanction of the High Court. The Companies Act 2014 has changed the position in this regard to one where the requirement is to notify creditors of the exercise of certain powers. There will also be a greater role for committees of inspection in court liquidations. In addition, it remains open to an official liquidator to seek directions from the court in an appropriate manner as to the carrying out of his or her functions.

Where the company in question is insolvent, it is typically a creditor who applies to have it wound up compulsorily on the grounds that the company is unable to pay its debts as they fall due for payment. It may, however, also be the company’s directors or the company itself that presents a petition before the court.

The powers of the directors will cease once an order has been made to wind up the company, but the official liquidator may request their assistance and any necessary information from them. The shareholders retain their residual powers and have a proprietary interest in the liquidation of the company.

When the official liquidator has carried out all of his functions, he or she is required to apply to the High Court for final orders that will include an order discharging him or her as liquidator. Discharge occurs only once the liquidator has made all required payments pursuant to the final orders.

The High Court may, if satisfied that the urgency of the situation warrants it, appoint a provisional liquidator pending the hearing of the winding-up petition, for the purpose of continuing the company’s business or preserving its assets or where an immediate investigation into the affairs of the company is necessary.14

Transaction avoidance in creditors’ voluntary liquidations and compulsory liquidations

A transfer of property by an insolvent company to a creditor within six months of the commencement of the winding-up of that company, if made with a view to giving such creditor a preference over other creditors, may be deemed an ‘unfair preference’ and therefore invalid.15 The relevant provision is only applicable if, at the time of the transfer, the company was unable to pay its debts as they fell due. Essentially, for the transaction to amount to an unfair preference, the company must positively intend to improve the position of the beneficiary creditor in the event of the company’s liquidation. Case law in this area indicates that it must have been the ‘dominant intention’ of the company to prefer the creditor in question.

Where the preferential transaction is made in favour of a ‘connected person’,16 the transaction will be invalidated where made within two years of the commencement of the winding up; a ‘connected person’ includes a related company. In addition, unless the contrary is shown, the preferential transaction in favour of a connected person is deemed to have been made with a view to giving such person a preference over other creditors, and to be an unfair preference. Consequently, the burden of proof is on the connected person to show that the transaction was not fraudulent.

Further, where property of a company has been improperly transferred, the High Court may order the return of the property to the company on the application of a liquidator, creditor or contributory of the company.17 To apply for such an order, it must be shown to the satisfaction of the court that the effect of such disposal was to perpetrate a fraud on the company, its creditors or members. Unlike the unfair preference provision, there is no operative time limit for the making of the fraudulent disposition. There is also no requirement that, at the time of the disposition, the company was unable to pay its debts as they fell due – all that is required is a disposal of property where the effect of such disposal is to perpetrate a fraud on the company, its creditors or members.

A floating charge on the undertaking or property of a company created in the 12 months before the commencement of its winding up may be rendered invalid (except to the extent of monies actually advanced or paid, or the actual price or value of the goods or services sold or supplied to the company at the time of or subsequent to the creation of, and in consideration for, the charge) unless it is proved that the company was solvent immediately after the creation of the charge.18 Where the floating charge is created in favour of a ‘connected person’, the period of 12 months is extended to two years.

Where a company is being wound up by the High Court, any disposition of the property of the company (including things in action) and any transfer of shares or alteration in the status of the members of the company, made after the commencement of the winding up, shall, unless the court otherwise orders, be void.

In certain circumstances, a liquidator may be entitled to disclaim onerous covenants, unprofitable contracts or any other property that is unsaleable or not readily saleable.19 The liquidator must apply to the High Court within 12 months of the commencement of the winding up, seeking the court’s leave to disclaim. Any person suffering loss or damage as a result of a disclaimer will be deemed a creditor of the company in the amount of such loss or damage and may prove for that amount as a debt in the winding up.

Examinership

The examinership procedure is the most common form of formal corporate reorganisation under Irish law. Examinership is a remedial process whereby an insolvent company is placed under the protection of the High Court to enable a court-appointed examiner to investigate the company’s affairs and report to the court on the prospects of the company’s survival.20 If the company is deemed capable of being rescued, the court may sanction proposals for a scheme of arrangement formulated by the examiner. A scheme usually involves the part-payment of the company’s creditors. The overall aim is the survival of the business of the company.

A petition for the appointment of an examiner may be presented to the High Court by:21

  • a the company;
  • b the directors of the company;
  • c a creditor (including a contingent or prospective creditor) of the company; or
  • d shareholders holding at least one-tenth of the shares carrying the power to vote at general meetings at the time of presentation of the petition.

The effect of presenting a petition for the appointment of an examiner is that for 70 days from the date of presentation of the petition (which may be extended by a further 30 days) the company shall be deemed to be under the protection of the High Court. This means that creditors are prevented from taking the type of action that they would normally be entitled to take (e.g., enforcing security or issuing proceedings against the company).

The court shall not confirm the examiner’s proposals:

  • a unless they have been approved by at least one class of creditors whose interests would be impaired by the implementation of the proposals;
  • b if the sole or primary purpose of the proposals is the avoidance of tax; and
  • c unless the court is satisfied that the proposals are fair and equitable and not unfairly prejudicial to any interested party.

An examiner does not have an executive role in the company to which he or she is appointed and does not enjoy the same powers as a liquidator (unless he or she applies to court for one or more of such powers). The powers of the directors survive both the presentation of a petition and the appointment of an examiner. As such, the directors remain responsible for the day-to-day management of the company.

If the examiner’s proposals are confirmed by the High Court, they become binding on all members and creditors with effect from such date as the Court may fix.22

Statutory scheme of arrangement

A scheme of arrangement is a statutory procedure provided for under Irish law23 whereby a company puts forward compromise proposals to its members and creditors. The members and creditors then meet and vote on the scheme. At each class meeting, the scheme must be approved by a majority in number representing 75 per cent in value of the creditors voting whether in person or by proxy at the meeting. Provided the statutory voting majorities are obtained, the company can seek the sanction of the High Court to make the scheme binding on all parties.

The High Court will only confirm a scheme if it is satisfied that:

  • a sufficient steps have been taken to identify and notify all interested parties;
  • b the statutory provisions and procedures and all directions of the court have been complied with;
  • c the classes of members and creditors were properly constituted;
  • d the prescribed majorities at each meeting acted bona fide and no issue of coercion arises; and
  • e the compromise or arrangement is ‘fair and equitable’ such that an intelligent and honest person, a member of the class concerned, acting in respect of his or her interest, might reasonably approve.

The scheme becomes effective once the High Court order sanctioning the scheme is filed in the Irish Companies Registration Office. The scheme of arrangement process is seldom used in Ireland. Perhaps the principal reason for companies favouring the examinership process is the immediate and extensive protection that is afforded once an examinership petition is presented. In addition, examinership has a lower voting threshold for creditor class approval (i.e., a simple majority in number and value). It should also be noted that in an examinership, it is sufficient (in order for proposals for a scheme of arrangement to put before the court for approval) that the proposals have been approved by one class of creditors.

A statutory scheme of arrangement has the advantage that the directors can control the process to a greater extent than in an examinership. The Companies Act 2014 has streamlined the scheme of arrangement process, such that the number of court appearances has been reduced from as many as three under the old regime to now possibly only one. The intention behind this streamlining was to reduce the cost and to increase the attractiveness of the scheme of arrangement procedure.

iv Special regimes
Special liquidation of Irish Bank Resolution Corporation

The Irish government enacted the IBRC Act in February 2013 to secure and stabilise the assets of one of the most distressed Irish banks, Irish Bank Resolution Corporation (IBRC) (formerly known as Anglo Irish Bank Corporation Limited). The IBRC Act provides for the winding up of IBRC within a novel regime known as a ‘special liquidation’.

Joint special liquidators were appointed to liquidate IBRC. Portfolios of assets including the mortgage book of IBRC have been identified by the special liquidators who will oversee a process of independent valuation and the sale of such assets to third parties. The proceeds of these sales will be used to repay creditors in accordance with the priorities prescribed by the Companies Acts.

The Special Liquidation Order (the Order) made by the Minister for Finance to commence the special liquidation provides:

  • a for an immediate stay on all proceedings against IBRC;
  • b that no further actions or proceedings can be issued against IBRC without the consent of the High Court;
  • c that no action or proceedings for the winding up of IBRC or the appointment of a liquidator or an examiner can be taken, issued, continued or commenced;
  • d for the removal of any liquidator or examiner appointed prior to the Order; and
  • e that it constitutes notice of termination of employment for each employee with immediate effect.

The appointment of a receiver pursuant to a debenture or charge created by IBRC does not constitute proceedings for the purposes of the Order.

The special liquidators have the same duties and powers as a liquidator in a compulsory liquidation except that they are appointed by the Minister for Finance and are obliged to comply with the instructions given to them by the Minister and act in the interests of the Irish taxpayer.

Administration of insurance companies

The Insurance (No. 2) Act 1983, as amended, introduced a procedure designed to manage insurance companies that are insolvent,24 and only applies to non-life insurance companies. This Act provides for the appointment of an administrator to take over the management of an insurer with a view to re-establishing the business on a sound financial footing where it can also comply with the regulatory requirements. The procedure is not restricted by any timescale and is supported by funding from the Insurance Compensation Fund, which ensures that all creditors are paid in full.

v Cross-border issues

Under the Insolvency Regulation ‘main’ insolvency proceedings may only be opened in Ireland in respect of a company (including a foreign-registered company) having its COMI in Ireland.

In Ireland, the insolvency proceedings that may be opened for the purposes of the Insolvency Regulation include compulsory liquidations, creditors’ voluntary liquidations (with confirmation of the High Court) and examinerships.

A foreign company incorporated and having its COMI in a country, which is not subject to the provisions of the Insolvency Regulation, may be wound up by the High Court even if it has not carried on business in Ireland and has no assets in the jurisdiction, provided that:

  • a a sufficiently close connection can be established between the company’s business and Ireland;
  • b there is a reasonable possibility that a winding-up order will benefit those applying for it; and
  • c the High Court can exercise jurisdiction over one or more persons interested in the distribution of the company’s assets.

No such foreign company may be wound up voluntarily in Ireland.

The Insolvency Regulation was introduced to improve the efficiency and effectiveness of insolvency proceedings that have cross EU-border effects by harmonising the provisions in each Member State concerning jurisdiction, recognition and applicable law. It provides for the automatic recognition of judgments of other Member States opening insolvency proceedings unless it would be manifestly contrary to public policy, as a matter of Irish law, to give recognition to such a judgment.25 Where main proceedings have been initiated in one Member State, they shall produce the same effects in any other Member State.26 Furthermore, the effects of these proceedings may not be challenged by any other Member State.

The Insolvency Regulation also provides for the recognition and enforceability of insolvency judgments across Member States.27 A liquidator in main proceedings and a liquidator in secondary proceedings are bound to cooperate with each other and to share information with each other.28 The Insolvency Regulation has made cooperation on insolvency matters between Member States much more effective.

II INSOLVENCY METRICS

After experiencing unprecedented levels of growth since the mid-1990s, Ireland entered a recession in 2008 amid the global economic downturn. Ireland began to emerge from the downturn in 2013, and overall economic indicators show that the modest recovery which was observed during 2014 continued, at a markedly increase pace during 2015. This strong performance has continued into 2016.

Unsurprisingly, during the recession, the level of activity in the insolvency sector grew significantly. This can be seen in the fact that corporate insolvencies for 2012 totalled 1,684,29 a 117 per cent increase on the 2008 total.

In 2013, the total number of corporate insolvencies fell to 1,365, which represented a 19 per cent drop from the total number in the previous year. The reduction was largely attributable to a significant reduction in the number of creditors’ voluntary liquidations. The downward trend continued during 2014 and 2015. The figures that are available for the first six months of 2016 are interesting, in that the total number of corporate insolvencies does not look set to decrease by much, if at all. The decline in the number of creditors’ voluntary liquidations looks set to continue, but the number of receiverships in fact looks set to increase year-on-year, which may be attributable to an increase in enforcement of security by loan purchasers.

Types of process

2008

2009

2010

2011

2012

2013

2014

2015

2016
(January – June, inclusive)

Receiverships

57

124

225

284

399

363

299

251

165

Examinerships

62

37

16

16

27

21

18

19

7

Creditors’ voluntary liquidations

568

1,139

1,191

1,252

1,187

918

779

729

313

Court liquidations

86

106

93

86

71

63

68

50

25

Total

773

1,406

1,525

1,638

1,684

1,365

1,164

1,049

510

III PLENARY INSOLVENCY PROCEEDINGS

The following is a brief summary of some of the most legally significant decisions in insolvency cases in the past 12 months.

i In re Tucon Process Installations Limited30

The facts of this case concerned payments made into a company’s overdrawn bank account between the time of the passing of a resolution to have the company placed into a creditors’ voluntary liquidation and the time of the holding of the necessary creditors’ meeting. The liquidator subsequently brought proceedings in the Circuit Court seeking to have those payments set aside as a fraudulent disposition pursuant to Section 139 of the Companies Act 1990 (the 1990 Act). These proceedings were discontinued. Further proceedings to the same effect were issued in the High Court, except that the applicant was now the company (in liquidation), rather than the liquidator in his own name.

The High Court (Hunt J) held that the company (in liquidation) did not have standing to maintain the proceedings, holding that the nomination of specific parties as potential applicants expressly precludes such statutory applications being brought by a party other than those specified by the legislature. Hunt J held that otherwise the precise words used to legislate for classes of applicant would be deprived of their ordinary meaning. In a judgment delivered on 13 July 2016, the Court of Appeal upheld this finding. Costello J, giving the judgment of the Court of Appeal, noted that there had been cases where applications under Section 139 were brought in the name of a company (in liquidation), but no issue was taken with the locus standi of the companies in those cases and, therefore, they were not the authority for the proposition that the current proceedings were correctly brought.

The High Court had proceeded to decide the case on its merits, lest it be wrong on the locus standi point. Hunt J held that the principles to be discerned in relation to Section 139 from these cases are that improper dispositions or misapplications of company property will be caught by the Section and that a simple payment made to an unsecured creditor when the company is insolvent will not, without more, trigger the operation of the Section. In the Court of Appeal, the appellant company argued that it was sufficient to bring a transaction within the scope of the Section that the company was insolvent at the time it disposed of property because any such disposal must mathematically have the effect of reducing the assets available to the creditors of the company should it go into insolvent liquidation. On behalf of the Court of Appeal, Costello J held that this construction would effectively erase the requirement to establish an element of fraud and would mean, in effect, that all dispositions of an insolvent company of whatever kind must be construed as fraudulent within the meaning of Section 139. Costello J held that such a construction would introduce a huge degree of uncertainty in relation to the workings of overdrawn company bank accounts as well as to many payments made in the ordinary course of business. Such uncertainty would be ‘undesirable, unnecessary and contrary to the provisions of the Companies Acts’. Costello J stated that the Companies Acts are clear that transactions in the ordinary course of business (not amounting to fraudulent preferences) between a company and its creditors at arm’s length will not be avoided or set aside if they occurred prior to the date of the commencement of the winding up the company.

ii In re Walfab Engineering Limited31

Section 160(2)(h) of the 1990 Act provides that the fact of a person being a director of a company at a time when the company received a statutory warning from the Registrar of Companies that it should file an annual return or face being struck off the register of companies, was a ground for disqualification of a director of an insolvent company, if the necessary return or returns were not filed and the company was struck off. The purpose behind the provision was to encourage directors to place insolvent companies into liquidation rather than simply allow them to cease trading and be struck off the register.

The facts of this case were that directors failed to file annual returns for two companies. While the failure was not disputed, the directors contended that the reason for the failure was the economic downturn and the companies’ reliance on the construction industry, which significantly affected the financial position of the companies. Though the directors believe they acted honestly and reasonably throughout, they conceded that they simply did not have the resources to place the company into liquidation. One of the directors claimed to be a non-executive director who was not involved in an active manner in the company.

In a judgment delivered on 20 January 2016, the Court of Appeal allowed an appeal that was brought by the Director of Corporate Enforcement (the Director) from a decision of the High Court concerning the proper construction to be placed on Section 160(2)(h). Giving the judgment of the Court of Appeal, Kelly P reiterated the principles as set out by Finlay Geoghegan J in Re Clawhammer Ltd [2005] 1 IR 503 and stated that Section 160(2)(h) identifies conduct that, by itself, the legislature identified as rendering a director presumptively unfit for such office. Kelly P disagreed with the factors that the High Court had taken into account, which were: the financial downturn, the lack of qualifications of the parties, the family nature of the business or the general consensus of the industry at the time. None of aforementioned factors provide ‘a form of absolution’ from the statutory duties of directors.

In relation to the argument made by one of the directors that he was not actively involved in the affairs of the company, Kelly P reiterated the orthodox position that had been set out in previous authorities, stating that it would be contrary to the whole notion of proper corporate regulation that passive directors would be exonerated from liability or relieved from disqualification or restriction on the basis of the passive nature of their role.

Finally, an issue arose regarding the meaning of Section 160(9A) of the 1990 Act, which provides that if, on an application for disqualification, the court may as an alternative, where it adjudges that disqualification is not justified, restrict a person from being a director within the meaning of Section 150 of the 1990 Act. The High Court held that it was ‘trammelled by all of the requirements of s. 150 when applying the provisions of s. 160(9A)’. In other words, if the Director sought a disqualification order under Section 160(2)(h), under this construction, the court was obliged to consider the criteria of honesty and responsibility that are typically at issue in Section 150 applications. Kelly P held that this was not correct and stated that the effect of Section 160(9A) was simply to provide more lenient sanction in an appropriate case.

iii In re A-Wear Limited (In Receivership)32

In this case, the Revenue Commissioners issued an application seeking directions from the High Court pursuant to Section 316(1A) of the Companies Act 1963 (the 1963 Act) in respect of the categorisation of the charges created by a debenture over certain assets of a company which was in receivership, namely A-Wear Limited (A-Wear). The secured creditor had appointed a receiver who formed a view as to the proper interpretation of the debenture – and consequently as to how he should allocate proceeds of realisations. The principal question presented in the case was whether the relevant provisions of the debenture gave rise to a fixed or floating charge over the assets in question. Under Irish law, in a liquidation, preferential debts (which include certain unpaid tax owed to the Revenue) will be paid prior to the claims of the holder of a floating charge. This does not apply if the charge holder can successfully characterise its charge as a fixed charge.

In a judgment delivered on 18 March 2016, the High Court (O’Connor J) noted that Section 316(1A) provided that, on an application for directions such as this, the applicant (here the Revenue Commissioners) must adduce evidence that a particular action or omission on the part of the receiver is causing unfair prejudice to the applicant.

The crux of the matter revolved around whether the chargee had a contractual right to control the book debts and revenues that could be enforced against A-Wear. The Court referred to the negative pledge included in the debenture according to which (1) A-Wear was restricted from charging or disposing of any assets that fell within the ambit of a fixed charge and (2) A-Wear was allowed to dispose of assets that were the subject of a floating charge. Revenue alleged that the negative pledge was not sufficient in itself to support the argument that a fixed charge had been created in the absence of additional specific language conferring control of the proceeds of the book debts that should be lodged in a separate bank account. In rejecting the Revenue Commissioners’ contention, the Court held that the restrictions imposed by the debenture indicated that the debts were in equity the property of the charge and so were not available to the charger in the ordinary course of its business. On this basis, the Court refused to grant the directions that were sought, namely to hold that the assets were subject to a floating charge. (This was with the exception of certain concessions that had been made as the case had progressed.) The Court declined to give directions as to whether a PayPal account payment could be categorised as a bank account credit available to A-Wear, taking the view that there was insufficient evidence about the arrangements between A-Wear and PayPal.

iv Harrington v. Gulland Property Finance Limited33

In this case, a mortgagor sought an interlocutory injunction, restraining a receiver from acting further, pending the trial of the action. The principal argument that was advanced by the mortgagor was that the charge holder (Gulland) could not appoint a receiver until it became registered with the Property Registration Authority as the owner of the charge. In a judgment delivered on 29 July 2016, the High Court (Baker J) held that there was an arguable case that this proposition was correct in light of the wording of Section 64 of the Registration of Title Act 1964 (the 1964 Act).

Section 64(1) of the 1964 Act provides:

‘(1) The registered owner of a charge may transfer the charge to another person as owner thereof, and the transferee shall be registered as owner of the charge.’

Section 64(2) of the 1964 Act provides:

(2) There shall be executed on the transfer of a charge an instrument of transfer in the prescribed form, or in such other form as may appear to the Registrar to be sufficient to transfer the charge, but until the transferee is registered as owner of the charge, that instrument shall not confer on the transferee any interest in the charge.

The judgment in Gulland is of particular interest – apart from the obvious ramifications of the Court’s holding – because the High Court distinguished the decision of the Supreme Court in Kavanagh v. McLaughlin [2015] IESC 27. In Kavanagh, Laffoy J held that the appointment of the first plaintiff as receiver in that case was effective because it was made in pursuance of the contractual powers contained in the charge and was not dependent on the registration of the deed of assignment of the charge nor require that the assignee be registered as owner of the charge. In Gulland, Baker J noted that Kavanagh had concerned the appointment of a receiver by Bank of Scotland plc (BOS) following the transfer to it of certain security from Bank of Scotland Ireland Limited (BOSI), which had been had been effected by operation of law by virtue of the operation of the European Communities (Cross-Border Mergers) Regulations 2008 and the Companies (Cross-Border Mergers) Regulations 2007. The High Court had made an order approving the mergers as a result of which the assets and liabilities of BOSI were transferred to BOS. In Gulland, Baker J stated that the Supreme Court in Kavanagh took the view that the contractual power arising by virtue of the charge to appoint a receiver was not dependent on any of the statutory powers contained in the Act of 1964, as amended. Accordingly it was held in Kavanagh that the contractual right was vested in BOS by operation of law and was properly exercised.

In Gulland, Baker J held that none of the authorities that had been cited by the defendants dealt with the precise question at issue in the case. In light of the view she took of the authorities, Baker J held that it was arguable that Gulland had not had the power to appoint a receiver, and having considered the other principles applicable to interlocutory injunction applications, the Court granted the injunction sought.

IV ANCILLARY INSOLVENCY PROCEEDINGS

The Insolvency Regulation provides that the courts of a Member State other than that in which the debtor’s COMI is located may only open insolvency proceedings where the debtor has an ‘establishment’ in that Member State.34 Such proceedings are known as ‘territorial’ proceedings (or, if opened following the opening of main proceedings, ‘secondary’ proceedings and must be winding-up proceedings as defined in the Insolvency Regulation). Territorial proceedings may be opened prior to the opening of main proceedings, in which case they are not restricted to winding-up proceedings, but only if:35

  • a main proceedings cannot be opened because of conditions laid down by the law of the Member State where the debtor’s COMI is situated; or
  • b where the opening of territorial proceedings is requested by a creditor whose domicile, habitual residence or registered office is in the Member State within the territory of which the debtor’s establishment is situated.

The Insolvency Regulation has not, to date, been invoked often in the Irish courts. A significant decision of the Irish courts concerning the Insolvency Regulation took place in 2014, with the notable appointment of a provisional liquidator (subsequently confirmed as official liquidator) to McArthur Group Limited in secondary proceedings.

V TRENDS

Based on the figures set out in the table in Section II, supra, the trend that has been evident since 2013, namely a gradual decline in corporate insolvencies since the peak in 2012, looks set to continue. It is perhaps worth noting that the number of receiverships does not appear to be falling much this year, if at all. The overall number of insolvencies is certainly still elevated, as compared to the pre-2009 levels. The numbers of corporate insolvencies are undoubtedly something of a lagging economic indicator, so the continuing economic recovery has not, as yet, resulted in a precipitous decline in the statistics under discussion. The sheer scale of the recession that occurred in Ireland from 2008 onwards has meant that the consequent deleveraging is not yet over.

On the subject of deleveraging, the clear, dominating trend in Irish restructuring has been, and remains, the volume of sales of loan books and other distressed assets. The purchasers of these assets have tended to be international private equity funds. It was reported this year that a total of €104 billion in loan sales took place in Europe in 2015, of which €24 billion concerned sales by Irish banks.36 This is a startling statistic, particularly in light of the fact that in 2015 the Irish economy represented less than 2 per cent of the EU economy in GDP terms.

We expect to see continued activity in the loan sale market. We have seen several ‘loan-to-own’ transactions and pre-pack receiverships. While pre-pack structures and transactions have been relatively uncommon in Ireland to date, a number have taken place. The UK’s decision to leave the EU following the ‘Brexit’ referendum will likely have an impact in this regard in the short term, given the UK’s very significant economic ties with Ireland, and Ireland’s status as a possible alternative location for investment. The precise medium-term effects of Brexit are a matter of speculation at this point, but it is notable that Irish 10-year bond yields have declined in the aftermath of the referendum. There appears to have been no large effect in this regard (either positively or negatively) to date.

Footnotes

1 Robin McDonnell is a partner and Saranna Enraght-Moony and Karole Cuddihy are associates at Maples and Calder.

2 On 20 May 2015, the European Parliament adopted a recast version of the Insolvency Regulation, which will apply with effect from the second anniversary of its coming into force (i.e., approximately June 2017) to all insolvency proceedings opened thereafter.

3 This is a threshold enshrined in Section 509(2) of the Companies Act 2014.

4 Section 440 of the Companies Act 2014 provides that holders of floating charges are subordinate to the claims of preferential creditors set out in Section 621 of the same Act.

5 Section 590 of the Companies Act 2014.

6 Section 587 of the Companies Act 2014.

7 Section 631 of the Companies Act 2014.

8 Section 682 of the Companies Act 2014.

9 Section 569 of the Companies Act 2014.

10 Ibid.

11 Section 599 of the Companies Act 2014 and Section 569 of the Companies Act 2014.

12 Section 761 of the Companies Act 2014.

13 Section 569 of the Companies Act 2014.

14 Section 573 of the Companies Act 2014.

15 Section 604 of the Companies Act 2014.

16 Section 220 of the Companies Act 2014.

17 Section 443 of the Companies Act 2014.

18 Section 597 of the Companies Act 2014.

19 Section 615 of the Companies Act 2014.

20 Section 509 of the Companies Act 2014.

21 Section 510 of the Companies Act 2014.

22 Section 541(7) of the Companies Act 2014.

23 Sections 450–457 of the Companies Act 2014.

24 PMPA Insurance plc and Quinn Insurance are two insurance companies that have gone into administration under the Insurance (No. 2) Act 1983.

25 Article 16 of the Insolvency Regulation.

26 Article 17 of the Insolvency Regulation.

27 Article 25 of the Insolvency Regulation.

28 Article 31 of the Insolvency Regulation.

29 All insolvency statistics have been sourced from www.insolvencyjournal.ie.

30 In re Tucon Process Installations Limited [2016] IECA 211.

31 Walfab Engineering Limited [2016] IECA 2.

32 In re A-Wear Limited (In Receivership) [2016] IEHC 141.

33 Harrington v. Gulland Property Finance Limited [2016] IEHC 447.

34 Article 3(2) of the Insolvency Regulation.

35 Article 3(4) of the Insolvency Regulation.

36 KPMG, European Debt Sales Report: 2016 edition.