Irish Transfer Pricing Firm of the Year 2015 International Tax Review European Law Firm of the Year...

Irish Transfer Pricing Firm of the Year 2015International Tax Review

European Law Firm of the Year 2015Hedge Fund Journal

Law Firm of the Year 2014Irish Pensions Awards

Financial Times 2012-2014Matheson is the only Irish law firm commended by the Financial Times for innovation in corporate law, finance law, dispute resolution and corporate strategy.

International Corporate Restructuring Summit 2015 – Legal Update

Tony O’Grady and Patrick Molloy

ReceivershipLuxor

In the matter of Luxor Investments Limited Rhatigan group of companies Whether or not an agreement dated 25 October 2013 between

Luxor and UBSIG (ROI) Limited (subsidiary of Ulster Bank) is applicable in circumstances where the plaintiffs (ie, Luxor and other related companies) propose to redeem their loans with the defendant (Beltany Property Finance Limited) at par

2013 – restructuring between Rhatigan group and Ulster Bank – led to the fee agreement being concluded between Luxor and Ulster Bank

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Receivership (contd.)Luxor

Agreed to pay a fee to UBSIG on each completion date (ie, when the property was sold in whole or part)

Agreement provided for the payment of the fee independently of the repayment of the loans

Fee to be calculated on the disposal of the hotel or at the termination date by reference to the market value of the hotel at disposal or termination date subject to a minimum fee of €1 million

Financier secured – redemption at par to include all interest due

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Issues to be considered: Whether the fee agreement applies in the event of redemption

of the loans at par; and Is the fee agreement void as a clog on the plaintiffs’ equity of

redemption Evidence – at the time the fee agreement entered into neither

party expected the plaintiffs’ loans to be redeemed at par No ambiguity in the words used in the fee agreement Lack of clarity about circumstances when enforceable

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In construing contractual documents, the courts must not rewrite the bargain made by the parties

What should reasonable parties be taken to have intended by the use of those words in that agreement made in those circumstances, in relation to this event which they did not in fact foresee

Held: the fee agreement was intended to protect the bank should there be a deficit on disposal – never envisaged that the bank would recover all the monies due plus interest and still be entitled to an additional fee

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Receivership (contd.)Breccia

Flynn & Benray v Breccia Shareholder dispute relating to Blackrock Hospital Limited

(Blackrock Clinic) A shareholder (Breccia) purchased a co-shareholder’s (Benray)

loans and security, made demand and appointed a receiver to Benray’s shareholding in Blackrock

Benray obtained an injunction to prevent the sale of Benray’s shareholding in BHL


Benray claimed that the shareholders’ agreement precluded Breccia from making demand and appointing a receiver

Shareholders’ agreement entitled Breccia to step-in and pay off Benray’s debt to Anglo

Benray claimed that Breccia was in breach of the shareholders’ agreement and / or implied duties of good faith


Held per Haughton J: The loans and associated security had been acquired validly and

lawfully Pursuant to an implied term to like effect and / or an implied term

that the shareholders owed each other mutual duties of good faith and fair dealing, the demand and appointment of the receiver was invalid

The sole remedy available to Breccia was to avail of the step-in provision under the shareholders’ agreement

Granted a permanent injunction preventing Breccia from selling Benray’s shares other than in accordance with the shareholders’ agreement

Receivership (contd.)McPhillips

McPhillips v ACC Loan Management Limited & Others The security document required the appointment of a receiver

to be made “by writing under its hand” Foley’s / O’Reilly’s Bar – Bank of Scotland appointment –

security provided for the appointment under seal whereas the receiver was appointed under hand

ACC argued that the appointment of a receiver under seal also constituted the appointment of a receiver under hand – English authority cited in support of this position

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Receivership (contd.)McPhillips

Internal execution policy adopted in 2010 differentiated between documents executed under hand and under seal – no common authorised signatories

Court noted that an appointment under hand means under the hand of a duly authorised officer – no authority cited in support of this conclusion

Held: the document appointing the receiver was not signed in accordance with the bank’s own internal procedures and the appointment was therefore invalid

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Receivership (contd.)Kavanagh v McLaughlin

Tom Kavanagh & Bank of Scotland plc v McLaughlin Whether or not a receiver was validly appointed Document appointing receiver was signed by bank employee Held: power of attorney or other formal type of authorisation

not necessary if relevant employee was, in fact, authorised Evidence adduced left Supreme Court in no doubt that

employee had authority on behalf of bank to appoint receiver Appointment of receiver not required to be made by deed Written document appointing receiver signed by authorised

employee a valid appointment even if document purports to be a deed and employee not authorised to execute deeds

Receivership (contd.)Thomas Hill

Declan McDonald v Thomas Hill Possession proceedings brought by way of interlocutory

application Borrower denied having received the demand Senior manager of the bank confirmed that he printed, signed

and placed the letter of demand in the bank’s internal post No evidence before the court to prove as a matter of certainty

that the letter of demand had in fact been sent (ie, no certificate of posting or affidavit from the person who physically posted the letter)

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ExaminershipLadbrokes

In the matter of Ladbroke (Ireland) Limited and Others In the matter of eircom Ltd – Kelly J First written judgment in relation to the matter Upholds the primacy of the examiner’s commercial judgment

which is subject to review by the court only to the extent that it is so “utterly unreasonable and absurd that no reasonable man would have done it”

Decision of examiner to withhold sensitive commercial information with a view to protecting the interests of companies – question of fact rather than law

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Examinership (contd.)Ladbrokes

Held: the decision of the examiner was within the scope of his commercial judgment and was neither utterly unreasonable nor absurd

Decision likely to benefit the examinership process generally Alternative whereby the examiner’s commercial judgment

would be subject to review by the courts at any time would render the process unwieldy and unattractive to directors of insolvent companies

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Examinership (contd.)Camden Investments

Re Camden Street Investments Limited and ors Examiner sought confirmation of proposals for a single scheme

of arrangement for 3 related companies Held: a separate and distinct scheme of arrangement is

required for each company to which an examiner is appointed – however, in this case, the scheme of arrangement adequately distinguished between the proposals for each of the 3 companies

Despite the court finding that there was a failure by examiner in duty to put all material matters before court, proposals were confirmed

MiscellaneousCompanies Act 2014

Primary changes under Companies Act 2014: Greater consistency between 3 different methods of winding-up

(members’ voluntary, creditors’ voluntary and court-ordered) Increase in the minimum amount of indebtedness entitling a

creditor to petition to wind-up a company from €1,269.74 to: €10,000 where one creditor petitions; and €20,000 where two or more creditors petition

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Miscellaneous (contd.)Companies Act 2014

Commencement of members’ voluntary winding-up by Summary Approval Procedure in all but the most unusual of cases

Qualifications requirement for appointment of liquidators Statutory powers of receiver Removal of the functions of “the Examiner”

Miscellaneous (contd.)Personal Insolvency (Amendment) Act 2015

Establishment of a Circuit Court review mechanism where creditors reject a borrower’s proposal for a Personal Insolvency Arrangement

Increase in the amount of debt which may be covered by a Debt Relief Notice from €20,000 to €35,000

Increase in the functions and powers of the Insolvency Service of Ireland

Miscellaneous (contd.)Belgard Motors

In the matter of J.D. Brian Motors Limited, trading as Belgard Motors (In Liquidation) Issue to be determined – crystallisation of floating charge and

competing claims of fixed charge holder and the Revenue Commissioners

Held: Supreme Court found that on a straightforward reading of section 285(f) of the Companies Act 1963 where a floating charge was crystallised prior to commencement of winding up upon the happening of which it became a fixed charge, preferential creditors did not have priority over such charge

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Miscellaneous (contd.)Belgard Motors

Obiter comments regarding the actions of the parties post service of the notice of crystallisation have to be considered

Noted that it was a matter for the legislature to intervene It is now clear that, in the absence of a change to the relevant

legislation, if a floating charge is crystallised prior to winding up of the debtor on foot of a properly drafted crystallisation notice served in accordance with the security document, the debenture holder will take priority over preferential creditors

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Overview - trends

Judicial willingness to scrutinise enforcement Implication of terms in security documents Strict letter of documents approach to enforcement steps Examinership predictability enhancement

Legal Update – other trends/developments

Trends in debt financing New credit servicing legislation

Trends in debt financing transactions

2015 another strong year for loan sales (sales of European property backed loans estimated to be EUR70bill vs EUR80bill for 2014)

end is in sight (at least for Ireland)? Acquirers may look to sell on bundles or securitise in medium

term Refinancing by borrowers and “connection sales” continuing

in meantime

Trends in debt financing transactions

Other trends we are seeing: Irish banks acquiring performing loan books as a way of

acquiring new business New market entrants in retail/SME space – non bank lending

becoming more prevalent New technology in lending space: crowd funding; sales of

invoices on line

Banks will remain critical but share of lending to drop

Capital Markets Union

Action plan launched 30 Sept by Commission How to develop Europe’s capital markets

European economy equivalent in size to US but equity markets less than 50% in size and debt markets less than 33%

Europe’s investment needs are enormous More funding sources may reduce vulnerability to financial

shocks More liquid markets = lower costs and more competition


A range of initiatives including: A kick start for securitisation – lower capital requirements for

“simple, transparent and standardised securitisation” New insolvency laws to allow “early restructuring” and second

chance for debtors (and more uniformity across EU) Making it easier to raise equity/debt from investors (simpler

prospectus laws) (European SMEs currently receive 5 times less funding from capital markets than in US)

Pan European information systems on SMEs


Other funding sources to complement banks? Private placement of notes by SMEs and other issuers outside

large corporates? Methodology similar to US market could be adopted

Loan origination funds More invoice discounting/asset based lending online invoice trading Crowdfunding – Commission to decide on how best to develop

this; ie promote growth but look after investor protection

New Credit Servicing legislation

Aim of the government was to ensure that borrowers whose loans are sold by a regulated entity to an unregulated entity maintain the same regulatory protections, including under the various Central Bank Codes (including CPC, CCMA and Code of Conduct for Business Lending to SMEs)

Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 introduced on 8 July 2015


Applies to loans to “relevant borrowers” relevant borrower is a:

natural person within the State (unless can be categorised as a professional client for MIFID or is a regulated financial services provider); or

an SME - but only in this case where loan was provided by someone licenced to provide credit in State

Difficult to determine if borrower comes within one of these categories when you acquire loans (unless there is engagement with borrower in advance)


SME: An entity that employs fewer than 250 persons and has an

annual turnover or not more than EUR50m and/or an annual balance sheet total of not more than EUR43m

Definition not restricted to SMEs located in Ireland but we think that was the intention


“credit servicing” – managing or administering a credit agreement (long list of activities that come within this)

Does not include: determination of overall strategy for a portfolio, maintenance of control of key decisions and enforcement - once any such action, if it was taken by a regulated entity would not breach Codes and other provisions of financial services law

Carve out helpful for SPVs/master servicers but if they do anything that comes with “credit servicing”, they may need authorisation


“credit servicing firm” (requiring authorisation): If you undertake credit servicing other than on behalf of a

regulated financial services provider; or If you hold the legal title to loans to relevant borrowers and

haven’t appointed an authorised credit servicing firm. Also regulated financial service provider authorised, by

Central Bank or equivalent in EEA State, to provide credit in Ireland is taken to be authorised (ie Irish banks, passported banks and retail credit firms)


Points to consider for owners of loans (typically SPVs): Is there a servicer appointed? Do its terms of appointment

need to be revised? Does servicer need to apply for authorisation? Deadline is 8

October 2015 ensure nothing done in future that could require it to be

authorised


For credit servicers: Compliance with various regulatory requirements (minimum

competency, fitness and probity regime) as well as Codes Codes require amendment to cater for scenario of having loan

owner, servicer and borrower as opposed to just regulated lender/borrower relationship

Central Bank working on set of authorisation requirements and standards for credit servicers (consultation period ended 30/9)

Consideration to be given to respective roles of credit servicing firm, loan owner and any other servicer

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