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w The International Comparative Legal Guide to:
A practical cross-border insight into securitisation work
Published by Global Legal Group, with contributions from:
A&L Goodbody
Association for Financial Markets in Europe
Ali Budiardjo, Nugroho, Reksodiputro
Ashurst LLP
Baker & McKenzie – Santiago
Bell Gully
Brodies LLP
Caspi & Co.
Cervantes Sainz
Cuatrecasas, Gonçalves Pereira
Drew & Napier LLC
Elvinger Hoss Prussen
Estudio Beccar Varela
Freshfields Bruckhaus Deringer LLP
Frost & Fire Consulting
Gárdos Füredi Mosonyi Tomori Law Office
K&L Gates Studio Legale Associato
King & Spalding LLP
King & Wood Mallesons
Latham & Watkins LLP
LECAP
Levy & Salomão Advogados
Maples and Calder
McMillan LLP
Nishimura & Asahi
Pestalozzi Attorneys at Law Ltd
Roschier Advokatbyrå AB
Schulte Roth & Zabel LLP
Shearman & Sterling LLP
Sidley Austin LLP
Stibbe
Tsibanoulis & Partners
Verita Legal (K. Argyridou & Associates LLC)
Vieira de Almeida & Associados –
Sociedade de Advogados, R.L.
Wadia Ghandy & Co.
9th Edition
Securitisation 2016
ICLG
WWW.ICLG.CO.UK
The International Comparative Legal Guide to: Securitisation 2016
General Chapters:
Country Question and Answer Chapters:
1 Documenting Receivables Financings in Leveraged Finance and High Yield Transactions –
James Burnett & Mo Nurmohamed, Latham & Watkins LLP 1
2 CLOs and Risk Retention in the U.S. and EU: Complying with the Rules – Craig Stein &
Paul N. Watterson, Jr., Schulte Roth & Zabel LLP 8
3 US Taxation, Including FATCA, of Non-US Investors in Securitisation Transactions –
David Z. Nirenberg, Ashurst LLP 14
4 The Transformation of Securitisation in an Evolving Financial and Regulatory Landscape –
Bjorn Bjerke & Charles Thompson, Shearman & Sterling LLP 25
5 Reviving Securitisation in Europe: the Journey Lengthens –
Richard Hopkin, Association for Financial Markets in Europe 32
6 Albania Frost & Fire Consulting: Franci Nuri 36
7 Argentina Estudio Beccar Varela: Javier L. Magnasco & María Victoria Pavani 46
8 Australia King & Wood Mallesons: Anne-Marie Neagle & Ian Edmonds-Wilson 56
9 Belgium Stibbe: Ivan Peeters & Philip Van Steenwinkel 67
10 Brazil Levy & Salomão Advogados: Ana Cecília Manente &
Fernando de Azevedo Peraçoli 78
11 Canada McMillan LLP: Don Waters & Rob Scavone 89
12 Cayman Islands Maples and Calder: Scott Macdonald & Christopher Wall 100
13 Chile Baker & McKenzie – Santiago: Jaime Munro Cabezas &
Cristóbal Larrain Baraona 109
14 China King & Wood Mallesons: Roy Zhang & Zhou Jie 120
15 Cyprus Verita Legal (K. Argyridou & Associates LLC): Karolina Argyridou &
Fotini Kaimaklioti 133
16 England & Wales Sidley Austin LLP: Rupert Wall & Rachpal Thind 142
17 France Freshfields Bruckhaus Deringer LLP: Hervé Touraine & Olivier Bernard 157
18 Germany King & Spalding LLP: Dr. Werner Meier & Dr. Axel J. Schilder 170
19 Greece Tsibanoulis & Partners: Emmanouil Komis & Evangelia Kyttari 185
20 Hong Kong King & Wood Mallesons: Paul McBride & YuCheng Lin 195
21 Hungary Gárdos Füredi Mosonyi Tomori Law Office: Erika Tomori &
Péter Gárdos 208
22 India Wadia Ghandy & Co.: Shabnum Kajiji & Nihas Basheer 218
23 Indonesia Ali Budiardjo, Nugroho, Reksodiputro: Freddy Karyadi &
Novario Asca Hutagalung 228
24 Ireland A&L Goodbody: Peter Walker & Jack Sheehy 238
25 Israel Caspi & Co.: Norman Menachem Feder & Oded Bejarano 250
26 Italy K&L Gates Studio Legale Associato: Andrea Pinto &
Vittorio Salvadori di Wiesenhoff 262
27 Japan Nishimura & Asahi: Hajime Ueno & Koh Ueda 275
28 Luxembourg Elvinger Hoss Prussen: Philippe Prussen & Marie Pirard 290
29 Mexico Cervantes Sainz: Diego Martínez Rueda-Chapital 301
30 Netherlands Freshfields Bruckhaus Deringer LLP: Mandeep Lotay & Ivo van Dijk 311
31 New Zealand Bell Gully: Murray King & Jennifer Gunser 326
Mark Nicolaides,
Latham & Watkins LLP
Sales Director
Florjan Osmani
Account Directors
Oliver Smith, Rory Smith
Sales Support Manager
Toni Hayward
Editor
Tom McDermott
Senior Editor
Rachel Williams
Chief Operating Officer
Dror Levy
Group Consulting Editor
Alan Falach
Group Publisher
Richard Firth
Published by
Global Legal Group Ltd.
59 Tanner Street
London SE1 3PL, UK
Tel: +44 20 7367 0720
Fax: +44 20 7407 5255
Email: info@glgroup.co.uk
URL: www.glgroup.co.uk
GLG Cover Design
F&F Studio Design
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Printed by
Ashford Colour Press Ltd
April 2016
Copyright © 2016
Global Legal Group Ltd.
All rights reserved
No photocopying
ISBN 978-1-910083-91-8
ISSN 1745-7661
Strategic Partners
Further copies of this book and others in the series can be ordered from the publisher. Please call +44 20 7367 0720
Disclaimer
This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice.
Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication.
This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified
professional when dealing with specific situations.
Contributing Editor
Continued Overleaf
EDITORIAL
Welcome to the ninth edition of The International Comparative Legal Guide to:
Securitisation.
This guide provides the international practitioner and in-house counsel with
a comprehensive worldwide legal analysis of the laws and regulations of
securitisation.
It is divided into two main sections:
Five general chapters. These chapters are designed to provide readers with a
comprehensive overview of key securitisation issues, particularly from the
perspective of a multi-jurisdictional transaction.
Country question and answer chapters. These provide a broad overview of common
issues in securitisation laws and regulations in 34 jurisdictions.
All chapters are written by leading securitisation lawyers and industry specialists
and we are extremely grateful for their excellent contributions.
Special thanks are reserved for the contributing editor, Mark Nicolaides of Latham
& Watkins LLP, for his invaluable assistance.
Global Legal Group hopes that you find this guide practical and interesting.
The International Comparative Legal Guide series is also available online at
www.iclg.co.uk.
Alan Falach LL.M.
Group Consulting Editor
Global Legal Group
Alan.Falach@glgroup.co.uk
The International Comparative Legal Guide to: Securitisation 2016
Country Question and Answer Chapters:
32 Portugal Vieira de Almeida & Associados – Sociedade de Advogados, R.L.:
Paula Gomes Freire & Mariana Padinha Ribeiro 339
33 Russia LECAP: Elizaveta Turbina & Ivan Mahalin 353
34 Scotland Brodies LLP: Bruce Stephen & Marion MacInnes 364
35 Singapore Drew & Napier LLC: Petrus Huang & Ron Cheng 374
36 Spain Cuatrecasas, Gonçalves Pereira: Héctor Bros & Elisenda Baldrís 387
37 Sweden Roschier Advokatbyrå AB: Johan Häger & Dan Hanqvist 405
38 Switzerland Pestalozzi Attorneys at Law Ltd: Oliver Widmer & Urs Klöti 416
39 USA Latham & Watkins LLP: Lawrence Safran & Kevin T. Fingeret 428
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© Published and reproduced with kind permission by Global Legal Group Ltd, London
Chapter 24
A&L Goodbody
Peter Walker
Jack Sheehy
Ireland
Terms in Consumer Contracts) Regulations 1995 (the UTCCR
Regulations) and hence unenforceable.
The Consumer Protection Code (the CPC) of the CBI also imposes
obligations on “regulated entities” in their dealings with their
“customers”. The Consumer Protection Act 2007 contains a general
prohibition on unfair, misleading, aggressive and prohibited trading
practices that could result in a contract with a consumer being
rendered void or unenforceable.
1.3 Government Receivables. Where the receivables
contract has been entered into with the government or
a government agency, are there different requirements
and laws that apply to the sale or collection of those
receivables?
Under the Prompt Payments of Accounts Act 1997, all Irish public
bodies and contractors on public sector contracts must pay amounts
due to their suppliers promptly (i.e. on or before the due date in the
contract or, if there is no due date (or no written contract), within
45 days of receipt of the invoice or delivery of the global services).
In certain circumstances, enforceability of receivables contracts
with the government/a government agency could potentially be an
issue as a result of the law of sovereign immunity.
2 Choice of Law – Receivables Contracts
2.1 No Law Specified. If the seller and the obligor do not
specify a choice of law in their receivables contract,
what are the main principles in your jurisdiction that
will determine the governing law of the contract?
Contracts entered into on or after 17 December 2009 will be
governed by Regulation (EC) 593/2008 of 17 June 2008 (Rome I).
Contracts entered into prior to 17 December 2009 will be subject to
the Contractual Obligations (Applicable Law) Act, 1991, pursuant
to which the Rome convention on the law applicable to contractual
obligations (the Rome Convention) was enacted in Ireland.
Under Rome I in the absence of an express choice of law in a contract,
the applicable law of the contract will be that of the country with
which it has the “closest connection”, which is the country where the
party who is to perform the contract has its habitual residence or its
central administration (unless the contract is within one of a number
of defined classes for which specific rules apply or is manifestly
more closely connected with the law of a different country, or if it is
sufficiently certain from the terms or circumstances of the contract
which law the parties intended to apply).
1 Receivables Contracts
1.1 Formalities. In order to create an enforceable
debt obligation of the obligor to the seller: (a) is it
necessary that the sales of goods or services are
evidenced by a formal receivables contract; (b) are
invoices alone sufficient; and (c) can a receivable
“contract” be deemed to exist as a result of the
behaviour of the parties?
To be enforceable against the obligor a debt obligation need not
be evidenced by a formal written contract, but must be evidenced
as a matter of contract or deed. Contracts may be written, oral or
partly written and partly oral. An invoice could itself constitute
the contract between the seller and obligor if the standard elements
of a contract are present. Where a contract is oral, evidence of
the parties’ conduct may be used in determining the terms of the
contract. A contract may also be implied based on a course of
conduct or dealings between the parties.
1.2 Consumer Protections. Do your jurisdiction’s laws:
(a) limit rates of interest on consumer credit, loans or
other kinds of receivables; (b) provide a statutory right
to interest on late payments; (c) permit consumers to
cancel receivables for a specified period of time; or
(d) provide other noteworthy rights to consumers with
respect to receivables owing by them?
Consumer credit agreements are regulated by the Consumer Credit
Act 1995 (as amended) (the CCA) and the European Communities
(Consumer Credit Agreements) Regulations 2010 (as amended) (the
CCA Regulations).
There is no statutory interest rate cap, but under the CCA if the
cost of credit under a credit agreement is excessive it may be
unenforceable. In addition, pursuant to Section 149 of the CCA
a “credit institution” (as defined under the CCA) must notify the
Central Bank of Ireland (the CBI) of any increase of any existing
charge it imposes on its customers (or any new charge not previously
notified to the CBI) and the CBI may direct the credit institution to
refrain from imposing or changing the charge.
There is no statutory right to interest on late payments, but
contractual “default interest” may be imposed (as long as the rate of
such default interest is not so high as to constitute a penalty).
If a consumer credit agreement does not comply with the
requirements of the CCA, the creditor may not be able to enforce
it. Certain clauses in a receivables contract with a consumer could
be also found to be unfair under the European Communities (Unfair
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Ir el an d 3 Choice of Law – Receivables Purchase
Agreement
3.1 Base Case. Does your jurisdiction’s law generally
require the sale of receivables to be governed by
the same law as the law governing the receivables
themselves? If so, does that general rule apply
irrespective of which law governs the receivables (i.e.,
your jurisdiction’s laws or foreign laws)?
Irish law does not require the sale of receivables to be governed
by the law governing the receivables themselves. Whether under
Rome I, the Rome Convention or principles of Irish common law,
the parties to a contract can (subject to certain exceptions) choose
the law of any country to govern the contract, irrespective of the law
governing the receivable.
However, whether a receivable has been validly sold and whether
such sale has been perfected will generally be a matter for the law
governing the receivable and not the law governing the receivables
sale agreement. Furthermore, the enforceability of the receivables
against the obligor may be determined by the law of the jurisdiction
in which the obligor is located.
3.2 Example 1: If (a) the seller and the obligor are located
in your jurisdiction, (b) the receivable is governed
by the law of your jurisdiction, (c) the seller sells
the receivable to a purchaser located in a third
country, (d) the seller and the purchaser choose the
law of your jurisdiction to govern the receivables
purchase agreement, and (e) the sale complies with
the requirements of your jurisdiction, will a court in
your jurisdiction recognise that sale as being effective
against the seller, the obligor and other third parties
(such as creditors or insolvency administrators of the
seller and the obligor)?
Yes, it should.
3.3 Example 2: Assuming that the facts are the same as
Example 1, but either the obligor or the purchaser
or both are located outside your jurisdiction, will a
court in your jurisdiction recognise that sale as being
effective against the seller and other third parties
(such as creditors or insolvency administrators of the
seller), or must the foreign law requirements of the
obligor’s country or the purchaser’s country (or both)
be taken into account?
See section 2 and question 3.1 above. In addition, under Rome I
and the Rome Convention, laws other than the governing law of
the receivables purchase agreement may sometimes be taken into
account. For instance, where a contract is governed by Irish law
but will be performed in a place other than Ireland, the Irish courts
might apply certain mandatory provisions of the law of the country
where the contract is to be performed (if the contract would be
otherwise rendered unlawful in that country).
Similarly, under the Rome Convention the applicable law of a
contract is presumed to be that of the country with which it has the
“closest connection” (i.e. the country where the party performing
the contract has its habitual residence or its central administration).
However, if the contract is a commercial or professional contract,
the applicable law will be the law of the place in which the principal
place of business of the party performing the contract is situated
or, where performance is to be effected through a place of business
other than the principal place of business of that party, the country
in which that other place of business is situated.
If the contract falls outside the scope of Rome I or the Rome
Convention, Irish common law principles will determine the
applicable law by reference to the parties’ intentions. If the parties’
intention cannot be established, the applicable law will be the law
with which the contract has its “closest and most real connection”.
2.2 Base Case. If the seller and the obligor are both
resident in your jurisdiction, and the transactions
giving rise to the receivables and the payment of
the receivables take place in your jurisdiction, and
the seller and the obligor choose the law of your
jurisdiction to govern the receivables contract, is
there any reason why a court in your jurisdiction
would not give effect to their choice of law?
In those circumstances, the Irish courts should give effect to the
choice of Irish law.
2.3 Freedom to Choose Foreign Law of Non-Resident
Seller or Obligor. If the seller is resident in your
jurisdiction but the obligor is not, or if the obligor
is resident in your jurisdiction but the seller is not,
and the seller and the obligor choose the foreign
law of the obligor/seller to govern their receivables
contract, will a court in your jurisdiction give effect to
the choice of foreign law? Are there any limitations
to the recognition of foreign law (such as public
policy or mandatory principles of law) that would
typically apply in commercial relationships such as
that between the seller and the obligor under the
receivables contract?
As discussed above, Rome I and the Rome Convention provide
that the parties to a contract may freely choose the law of their
contract and that choice is generally only overridden if it conflicts
with mandatory rules or public policy. Contracts falling outside
the scope of Rome I or the Rome Convention will be subject to
standard Irish common law principles which also generally support
the parties’ right to choose the governing law of their contract and
will only displace their choice in exceptional circumstances.
2.4 CISG. Is the United Nations Convention on the
International Sale of Goods in effect in your
jurisdiction?
No, it is not.
A&L Goodbody Ireland
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Ir el an d include: a declaration of trust over the receivables (or over the
proceeds of the receivables): a sub-participation; or a novation. An
outright sale of receivables may be described as a “sale”, a “transfer”
or an “assignment”, although “assignment” often indicates a transfer
of the rights in respect of the receivables (and not the obligations),
while a “transfer” often indicates a transfer of both rights and
obligations by way of novation. The phrase “security assignment”
is often used to distinguish a transfer by way of security from an
outright assignment.
4.2 Perfection Generally. What formalities are required
generally for perfecting a sale of receivables? Are
there any additional or other formalities required for
the sale of receivables to be perfected against any
subsequent good faith purchasers for value of the
same receivables from the seller?
A sale of receivables by way of an outright legal assignment is
perfected by the delivery of notice in writing of the sale to the
obligor(s) of the relevant receivables of the receivables in accordance
with the requirements of Section 28(6) of the Supreme Court of
Judicature (Ireland) Act 1877 (the Judicature Act). The provision
of notice does not of itself result in the transfer becoming a legal
(as opposed to an equitable) assignment as certain other formalities
are also required, namely: (i) the assignment must be in writing
under the hand of the assignor; (ii) it must be of the whole of the
debt; and (iii) it must be absolute and not by way of charge. If the
assignment does not fulfil all these requirements, it will likely take
effect as an equitable assignment so that any subsequent assignment
effected by the seller which is fully compliant with the Judicature
Act requirements will take priority if notified to the obligor prior to
the date on which the original assignment is notified to the obligor.
A novation of receivables (i.e. of both the rights and obligations
in respect of such receivables) requires the written consent of the
obligor, the seller and the purchaser.
4.3 Perfection for Promissory Notes, etc. What additional
or different requirements for sale and perfection
apply to sales of promissory notes, mortgage loans,
consumer loans or marketable debt securities?
The transfer requirements for promissory notes (as well as other
negotiable instruments) are governed by the Bills of Exchange
Act 1882, which provides that they are transferable by delivery (or
delivery and endorsement).
Mortgage loans and their related mortgages may be transferred
by way of assignment. For a mortgage over real property in
order to effect a full legal (rather than just equitable) assignment,
the transfer will need to be registered at the Land Registry or the
Registry of Deeds (whether the land is registered or unregistered).
Most residential mortgage-backed securitisation transactions
are structured as an equitable assignment of mortgage loans and
their related mortgages to avoid giving notice to the underlying
mortgagors and registering the transfer. Under the CBI’s Code of
Conduct on the Transfer of Mortgages (if applicable), a loan secured
by a mortgage of residential property may not be transferred without
the written consent of the borrower (the relevant consent is usually
obtained under the mortgage origination documentation).
Questions 8.3 and 8.4 below outline some of the regulatory
requirements in relation to consumer loans. Under the CCA
Regulations, a consumer must be provided with notice of any
transfer by the creditor of its loan, except where the original creditor
continues to service the credit. Under the CPC where part of a
regulated business is transferred by a regulated entity (including a
3.4 Example 3: If (a) the seller is located in your
jurisdiction but the obligor is located in another
country, (b) the receivable is governed by the law
of the obligor’s country, (c) the seller sells the
receivable to a purchaser located in a third country,
(d) the seller and the purchaser choose the law of the
obligor’s country to govern the receivables purchase
agreement, and (e) the sale complies with the
requirements of the obligor’s country, will a court in
your jurisdiction recognise that sale as being effective
against the seller and other third parties (such as
creditors or insolvency administrators of the seller)
without the need to comply with your jurisdiction’s
own sale requirements?
As per section 2 and questions 3.1 and 3.3 above, under Rome I and
the Rome Convention where there is an express choice of law by the
parties to a contract, the Irish courts should recognise the choice of
law and assess the validity of the contract in accordance with the law
chosen by the parties.
However, certain mandatory principles of Irish law cannot be
disapplied and the courts might not apply the parties’ chosen law to
the extent it conflicted with those mandatory principles.
3.5 Example 4: If (a) the obligor is located in your
jurisdiction but the seller is located in another
country, (b) the receivable is governed by the
law of the seller’s country, (c) the seller and the
purchaser choose the law of the seller’s country to
govern the receivables purchase agreement, and
(d) the sale complies with the requirements of the
seller’s country, will a court in your jurisdiction
recognise that sale as being effective against the
obligor and other third parties (such as creditors or
insolvency administrators of the obligor) without
the need to comply with your jurisdiction’s own sale
requirements?
Yes. See section 2 and questions 3.1, 3.3 and 3.4 above.
3.6 Example 5: If (a) the seller is located in your jurisdiction
(irrespective of the obligor’s location), (b) the
receivable is governed by the law of your jurisdiction,
(c) the seller sells the receivable to a purchaser located
in a third country, (d) the seller and the purchaser
choose the law of the purchaser’s country to govern
the receivables purchase agreement, and (e) the sale
complies with the requirements of the purchaser’s
country, will a court in your jurisdiction recognise that
sale as being effective against the seller and other third
parties (such as creditors or insolvency administrators
of the seller, any obligor located in your jurisdiction
and any third party creditor or insolvency administrator
of any such obligor)?
Yes. See section 2 and questions 3.1, 3.3, 3.4 and 3.5 above.
4 Asset Sales
4.1 Sale Methods Generally. In your jurisdiction what are
the customary methods for a seller to sell receivables
to a purchaser? What is the customary terminology – is
it called a sale, transfer, assignment or something else?
In Ireland receivables are most commonly sold by way of equitable
(or legal) assignment. Other methods which are more rarely used
A&L Goodbody Ireland
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Ir el an d 4.6 Restrictions on Assignment – General Interpretation.
Will a restriction in a receivables contract to the
effect that “None of the [seller’s] rights or obligations
under this Agreement may be transferred or assigned
without the consent of the [obligor]” be interpreted as
prohibiting a transfer of receivables by the seller to
the purchaser? Is the result the same if the restriction
says “This Agreement may not be transferred or
assigned by the [seller] without the consent of
the [obligor]” (i.e., the restriction does not refer to
rights or obligations)? Is the result the same if the
restriction says “The obligations of the [seller] under
this Agreement may not be transferred or assigned by
the [seller] without the consent of the [obligor]” (i.e.,
the restriction does not refer to rights)?
Either of the first two formulations would likely be interpreted by
an Irish court as prohibiting a transfer of relevant receivables by
the seller to the purchaser (see our response to question 4.7 below).
In the last instance, the seller will implicitly have the authority to
assign its rights to a purchaser (but not its obligations) as in the
absence of an express contractual prohibition on the assignment
of rights, the receivables may be assigned without the obligor’s
consent.
4.7 Restrictions on Assignment; Liability to Obligor. If
any of the restrictions in question 4.6 are binding,
or if the receivables contract explicitly prohibits
an assignment of receivables or “seller’s rights”
under the receivables contract, are such restrictions
generally enforceable in your jurisdiction? Are there
exceptions to this rule (e.g., for contracts between
commercial entities)? If your jurisdiction recognises
restrictions on sale or assignment of receivables
and the seller nevertheless sells receivables to the
purchaser, will either the seller or the purchaser be
liable to the obligor for breach of contract or tort, or
on any other basis?
Restrictions on assignment or transfers of receivables are generally
enforceable in Ireland. As noted in question 4.6 above, if a contract
is silent on the question of assignment, then a contract (and the
receivables arising thereunder) will normally be freely assignable.
If an assignment is effected in breach of a contractual prohibition on
assignment it will be ineffective as between the obligor, the seller
and the purchaser, but should still be effective as between the seller
and purchaser.
4.8 Identification. Must the sale document specifically
identify each of the receivables to be sold? If so, what
specific information is required (e.g., obligor name,
invoice number, invoice date, payment date, etc.)?
Do the receivables being sold have to share objective
characteristics? Alternatively, if the seller sells all
of its receivables to the purchaser, is this sufficient
identification of receivables? Finally, if the seller sells
all of its receivables other than receivables owing by
one or more specifically identified obligors, is this
sufficient identification of receivables?
The sale document must specify the receivables being sold with
sufficient clarity that they are identifiable and distinguishable from
the rest of the seller’s assets. The receivables being sold need not
transfer of consumer loans), at least two months’ notice must be
provided to affected consumers if the transfer is to another regulated
entity (and one month if it is not).
Marketable debt securities in bearer form may be transferred by
delivery and endorsement; in registered form, by registration of
the transferee in the relevant register. Dematerialised marketable
securities may be transferred by debiting the clearing system
account of the purchaser (or its custodian or nominee/intermediary).
4.4 Obligor Notification or Consent. Must the seller or the
purchaser notify obligors of the sale of receivables in
order for the sale to be effective against the obligors
and/or creditors of the seller? Must the seller or the
purchaser obtain the obligors’ consent to the sale
of receivables in order for the sale to be an effective
sale against the obligors? Whether or not notice is
required to perfect a sale, are there any benefits to
giving notice – such as cutting off obligor set-off
rights and other obligor defences?
A seller or purchaser need not notify the obligors to effect a valid
equitable sale of the receivables (which would be effective against
the seller). However, in order for a legal sale of the receivables to
be effected (enforceable against both the seller and the underlying
obligor) written notice would need to be provided (and ideally,
from an evidentiary perspective, the underlying obligor would
acknowledge the notice).
The obligors’ consent is not required for the sale to be effective
against them.
If notice is not provided: (i) obligors can discharge their debts by
paying the seller; (ii) obligors may set-off claims against the seller
even if they accrue after the assignment; (iii) a subsequent assignee
without notice of the prior assignment would take priority over the
claims of the initial purchaser; and (iv) the purchaser cannot sue
the obligor in its own name, but must join the seller as co-plaintiff.
4.5 Notice Mechanics. If notice is to be delivered to
obligors, whether at the time of sale or later, are
there any requirements regarding the form the notice
must take or how it must be delivered? Is there any
time limit beyond which notice is ineffective – for
example, can a notice of sale be delivered after the
sale, and can notice be delivered after insolvency
proceedings against the obligor or the seller have
commenced? Does the notice apply only to specific
receivables or can it apply to any and all (including
future) receivables? Are there any other limitations or
considerations?
See also the response above to question 4.3.
Notice must be in writing and given to the obligor at the time of,
or after the sale (preferably after), but there is no particular form
specified. The notice should clearly state that the obligor must pay
the assignee (the purchaser) from then on.
There is no specific time limit for the giving of notices set down
in the Judicature Act and notice can be given to obligors postinsolvency of the obligor or the seller (including pursuant to an
irrevocable power of attorney granted by the seller). The notice
should only apply to specific receivables.
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Ir el an d 4.10 Continuous Sales of Receivables. Can the seller
agree in an enforceable manner to continuous sales
of receivables (i.e., sales of receivables as and when
they arise)? Would such an agreement survive and
continue to transfer receivables to the purchaser
following the seller’s insolvency?
Yes. However, the sale of the receivables would need to be by way
of an equitable assignment (an agreement whereby a seller purports
to sell receivables on a continuous basis will generally take effect as
an agreement to assign); the receivables will then be automatically
equitably assigned as and when they come into existence.
See question 6.5 for the effect the seller’s insolvency could have on
such an agreement to assign.
4.11 Future Receivables. Can the seller commit in an
enforceable manner to sell receivables to the
purchaser that come into existence after the date of
the receivables purchase agreement (e.g., “future
flow” securitisation)? If so, how must the sale of
future receivables be structured to be valid and
enforceable? Is there a distinction between future
receivables that arise prior to or after the seller’s
insolvency?
Yes. See question 4.10 above − an assignment of a receivable
not in existence at the time of the agreement, but which will be
ascertainable in the future, is treated as an agreement to assign and
should give rise to an equitable assignment as soon as the receivable
comes into existence. See question 6.5 for the effect the seller’s
insolvency could have on such an agreement to assign.
4.12 Related Security. Must any additional formalities
be fulfilled in order for the related security to be
transferred concurrently with the sale of receivables?
If not all related security can be enforceably
transferred, what methods are customarily adopted
to provide the purchaser the benefits of such related
security?
Related security will typically be capable of being assigned in
the same manner as the receivables themselves. It is important,
however, to ensure that the assignment provisions are consistent.
The transfer or assignment of certain types of security may require
additional formalities (some of which are referred to in question 4.3
above).
4.13 Set-Off; Liability to Obligor. Assuming that a
receivables contract does not contain a provision
whereby the obligor waives its right to set-off against
amounts it owes to the seller, do the obligor’s set-off
rights terminate upon its receipt of notice of a sale?
At any other time? If a receivables contract does
not waive set-off but the obligor’s set-off rights are
terminated due to notice or some other action, will
either the seller or the purchaser be liable to the
obligor for damages caused by such termination?
Until notice of the sale of the receivables contract is provided to the
relevant underlying obligor, the obligor will be entitled to exercise
any rights of set-off against the purchaser even if they accrue after
the date of the sale. It would likely depend on the circumstances,
but if an obligor’s set-off rights were terminated due to notice or for
some other valid reason, the seller or purchaser should not be liable
to the obligor for damages caused as a result.
share objective characteristics but normally a portfolio of receivables
being sold is all of the same type. To our knowledge, the scenario
has not been considered by the Irish courts but a purported sale of
all of a seller’s receivables other than those owing by specifically
identified obligors might be effective if the contract sufficiently
identifies the receivables not being sold.
4.9 Respect for Intent of Parties; Economic Effects on
Sale. If the parties describe their transaction in the
relevant documents as an outright sale and explicitly
state their intention that it be treated as an outright
sale, will this description and statement of intent
automatically be respected or will a court enquire into
the economic characteristics of the transaction? If the
latter, what economic characteristics of a sale, if any,
might prevent the sale from being perfected? Among
other things, to what extent may the seller retain:
(a) credit risk; (b) interest rate risk; (c) control of
collections of receivables; or (d) a right of repurchase/
redemption without jeopardising perfection?
If a transaction is expressed to be an outright sale and the sale
agreement (and other documents) purports to effect an outright sale,
but this does not reflect the actual agreement between the parties,
the purported sale could be recharacterised as a secured loan.
Irrespective of the label given to a transaction by the parties, the
court will look at its substance (including the particular economic
characteristics of the transaction) and will examine whether it
creates rights and obligations consistent with a sale.
English case law (which is only of persuasive authority in the Irish
courts and is not binding on them) has established a number of key
questions which must be considered when determining whether a
transaction is a sale rather than a secured loan:
(i) Is the transaction a “sham”, (i.e. do the transaction documents
accurately reflect the intention of the parties or is there
some other agreement or agreements that constitute the real
transaction between the parties)?
(ii) Does the seller have the right to reacquire the receivables?
(iii) Does the purchaser have to account for any profit made by it
on the sale of the receivables?
(iv) Is the seller required to compensate the purchaser if it
ultimately realises the acquired receivables for an amount
less than the amount paid?
Although it will depend on the particular circumstances, the fact
that the seller remains as servicer/collection agent of the receivables
post-sale, or retains some degree of credit risk in respect of the
receivables post-sale, is not considered to be inconsistent with the
transfer being treated as a sale (rather than a secured loan).
There is no Irish case law on the point, but a right of repurchase/
redemption for the seller would likely be inconsistent with the
transaction being one of true sale. However, if the seller has only
a right to ask the purchaser to sell the receivables back, such an
arrangement might not be inconsistent with a true sale.
If the sale is recharacterised as a secured loan, the assets “sold” will
remain on the seller’s balance sheet and the loan will be shown as a
liability of the seller. In addition, as it is not the practice in Ireland
to make “back-up” security filings, the security may not have been
registered and may be void in an insolvency of the seller for lack of
registration.
In addition to recharacterisation, sale transactions are also
vulnerable under certain provisions of the Irish Companies Act 2014
(the Companies Act) such as Section 443 (power of court to order
the return of assets improperly transferred) and Section 604 (unfair
preferences) of the Companies Act.
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Ir el an d created with the Irish Registrar of Companies (the Registrar of
Companies) within 21 days of its creation (see below for outline of
the new priority register under the Companies Act).
Section 408(1) of the Companies Act specifically excludes security
interests over the following assets from the registration requirement:
(a) cash;
(b) money credited to an account of a financial institution, or any
other deposits;
(c) shares, bonds or debt instruments;
(d) units in collective investment undertakings or money market
instruments; or
(e) claims and rights (such as dividends or interest) in respect of
any thing referred to in any of paragraphs (b) to (d).
The expression “charge” which now excludes the assets referred to in
section 408(1) above, was drafted to give effect to recommendations
of the Irish Company Law Review Group, the group involved with
drafting the Companies Act and in accordance with the exceptions
to the registration requirements envisaged under Directive 2002/47/
EC on Financial Collateral Arrangements as implemented in
Ireland by way of the European Communities (Financial Collateral
Arrangements) (Amendment) (No.2) Regulations 2011 (the
Regulations). It should be noted that “cash” has not been defined
in the Companies Act but is defined in the Regulations as “money
credited to an account” or a claim for the repayment of money (for
example, money market deposits).
Prior to the enactment of the Companies Act, registration of a
charge did not determine priority, such that as long as a charge was
filed within the 21-day period after creation, a prior created charge
would take priority over a subsequently created charge even where
that later charge was registered first. However, the Companies
Act changed this position, implementing a priority register so that
the priority of charges is now linked to the date of receipt by the
Registrar of Companies of the particulars of the charge, rather than
the date of creation of the charge. Practically speaking this means
that filing in the Companies Registration Office should be effected
immediately after closing or as soon as possible thereafter.
Failure to register a registrable security interest within 21 days of
its creation will result in that security interest being void as against
the liquidator and any creditors of the company which created the
registrable charge. However, an unregistered charge will still be
valid as against the chargor, provided the chargor is not in liquidation.
5.4 Recognition. If the purchaser grants a security
interest in receivables governed by the laws of your
jurisdiction, and that security interest is valid and
perfected under the laws of the purchaser’s country,
will it be treated as valid and perfected in your
jurisdiction or must additional steps be taken in your
jurisdiction?
The relevant security must be valid and perfected under the laws
of Ireland and under the governing law of the security, in order
for it to be given effect by the Irish courts. If the security over the
receivables is created by a purchaser which is an Irish company and
the receivables are situated in Ireland, details of the security will
generally need to be filed with the Registrar of Companies within 21
days of its creation (see question 5.3 above).
Since the enactment of the Companies Act, details of security over
the receivables created by a purchaser which is a foreign company
where the receivables are situated in Ireland, does not need to be
filed with the Registrar of Companies. Only charges submitted
against an Irish or external company already registered with the
CRO will be accepted.
5 Security Issues
5.1 Back-up Security. Is it customary in your jurisdiction
to take a “back-up” security interest over the seller’s
ownership interest in the receivables and the related
security, in the event that an outright sale is deemed
by a court (for whatever reason) not to have occurred
and have been perfected?
It is not customary in Ireland to take such a “back-up” security when
the intention is to effect an outright sale of the relevant receivable.
5.2 Seller Security. If it is customary to take back-up
security, what are the formalities for the seller
granting a security interest in receivables and related
security under the laws of your jurisdiction, and for
such security interest to be perfected?
See question 5.3 (below).
5.3 Purchaser Security. If the purchaser grants
security over all of its assets (including purchased
receivables) in favour of the providers of its funding,
what formalities must the purchaser comply with
in your jurisdiction to grant and perfect a security
interest in purchased receivables governed by the
laws of your jurisdiction and the related security?
Security is most commonly taken over receivables by way of a legal
(or equitable) assignment or a charge over book debts.
Receivables assigned by way of security will create a mortgage
over the receivables, either legal (if the requirements of the
Judicature Act are followed – see question 4.2 above) or (in the
absence of these requirements) equitable. Prior to the perfection
of an equitable mortgage by notice to the obligor, the assignee’s
security will be subject to prior equities (such as rights of set-off and
other defences), and will rank behind a later assignment (where the
later assignee has no notice of the earlier assignment and has itself
given notice to the obligor). In addition, the obligor will be able to
discharge its debt by continuing to pay the assignor (as described in
questions 4.4 and 4.5).
Alternatively, a fixed or floating charge could be granted over the
receivables. In comparison to a mortgage (which is a transfer of
title together with a condition for re-assignment on redemption), a
charge is a mere encumbrance on the receivables, giving the chargee
a preferential right to payment out of the receivables in priority to
other creditors of the relevant company.
A fixed charge is typically granted over specific receivables and
attaches to those receivables upon the creation of the fixed charge.
In comparison, a floating charge is normally granted over a class
of assets (both present and future) which, prior to the occurrence
of a “crystallisation event”, can continue to be managed in the
ordinary course of the chargor’s business. On the occurrence of a
crystallisation event, the floating charge will attach to the particular
class of the chargor’s assets, effectively becoming a fixed charge over
those assets. The chargee’s degree of control over the receivable is
the determining factor in distinguishing a fixed from floating charge
(and in that regard the Irish courts look at the substance of the
security created, rather than how it is described or named).
In terms of perfection, if an Irish company grants security over
certain types of assets (including receivables constituting book
debts) (i.e. it creates a “registrable charge” for the purposes of the
Companies Act), it must register short particulars of the security
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Ir el an d 5.8 Enforcement over Bank Accounts. If security over
a bank account is possible and the secured party
enforces that security, does the secured party
control all cash flowing into the bank account from
enforcement forward until the secured party is repaid
in full, or are there limitations? If there are limitations,
what are they?
Normally, notice of the creation of security over the account
is provided to the bank with which the account is held, and an
acknowledgment sought that the bank will, inter alia, (upon
notification that the security has become enforceable) act in
accordance with the instructions of the secured party. If such an
acknowledgment has been obtained, once the secured party enforces
its security over the relevant bank account, the bank should follow
its instructions in respect of all cash in (or flowing into) the account
until the obligations owed to the secured party are discharged in full.
However, this control is conferred on the secured party by contract
– the bank could refuse to act in accordance with the secured party’s
instructions. Furthermore, rights of set-off (under statute, common
law or contract) might be exercisable in respect of the cash in the
account to the detriment of the secured party. Finally, under Irish
banking crisis resolution legislation, the CBI and the Minister for
Finance have powers to direct the activities of Irish credit institutions
in certain circumstances, and the exercise of such powers could
interfere with the secured party’s control over the bank account.
5.9 Use of Cash Bank Accounts. If security over a bank
account is possible, can the owner of the account
have access to the funds in the account prior to
enforcement without affecting the security?
This depends on the type of security granted over the account/
account balance. If a floating charge is granted, the fact the
owner of the account may access funds in the account should not
affect the validity of the floating charge. However, if the security
granted purports to be a fixed charge, the more freely the owner can
access the funds in the account, the less likely the charge would
actually be treated as a fixed charge and the more likely it would be
recharacterised as being a floating charge.
6 Insolvency Laws
6.1 Stay of Action. If, after a sale of receivables that is
otherwise perfected, the seller becomes subject to
an insolvency proceeding, will your jurisdiction’s
insolvency laws automatically prohibit the purchaser
from collecting, transferring or otherwise exercising
ownership rights over the purchased receivables (a
“stay of action”)? If so, what generally is the length of
that stay of action? Does the insolvency official have
the ability to stay collection and enforcement actions
until he determines that the sale is perfected? Would
the answer be different if the purchaser is deemed to
only be a secured party rather than the owner of the
receivables?
The appointment of a liquidator or an examiner to an insolvent Irish
company imposes an automatic stay of action against the entity, but
if the receivables have been transferred by legal assignment, the sale
will have already been perfected, and the stay should not affect the
purchaser’s ability to enforce its rights in the receivables.
In the event that a winding up order is issued against the seller and
a liquidator is appointed while there is no general stay of action
5.5 Additional Formalities. What additional or different
requirements apply to security interests in or
connected to insurance policies, promissory notes,
mortgage loans, consumer loans or marketable debt
securities?
A security assignment is usually taken over insurance policies.
Security over mortgage or consumer loans will be created by
mortgage or charge. An equitable mortgage is typically created over
the mortgage securing a mortgage loan.
The type of security over marketable debt securities depends on
whether the relevant securities are bearer or registered, certificated,
immobilised or dematerialised and/or directly-held or indirectly-held:
(i) directly-held and certificated debt securities, where registered, are
generally secured by legal mortgage (by entry of the mortgagee on
the relevant register) or by equitable mortgage or charge (by security
transfer or by agreement for transfer or charge); (ii) security over
bearer securities may be created by mortgage or pledge (by delivery
together with a memorandum of deposit) or charge (by agreement
to charge); and (iii) security may be created over indirectly-held
certificated debt securities by legal mortgage (by transfer, either to an
account of the mortgagee at the same intermediary or by transfer to
the mortgagee’s intermediary or nominee via a common intermediary)
or by equitable mortgage or charge (by agreement of the intermediary
to operate a relevant securities account in the name of the mortgagor
containing the debt securities to the order/control of the chargee).
Section 408 of the Companies Act specifically excludes security
interests over shares, bonds or debt instruments from the registration
of a security interest requirement. If the security interest contributes
a “security financial collateral arrangement”, the Financial Collateral
Regulations may apply (see question 5.3 above).
5.6 Trusts. Does your jurisdiction recognise trusts? If not,
is there a mechanism whereby collections received
by the seller in respect of sold receivables can be
held or be deemed to be held separate and apart
from the seller’s own assets until turned over to the
purchaser?
Ireland recognises trusts, and a trust over collections received by the
seller in respect of sold receivables should be recognised under the
laws of Ireland (provided it is validly constituted).
5.7 Bank Accounts. Does your jurisdiction recognise
escrow accounts? Can security be taken over a bank
account located in your jurisdiction? If so, what is
the typical method? Would courts in your jurisdiction
recognise a foreign law grant of security (for example,
an English law debenture) taken over a bank account
located in your jurisdiction?
Ireland recognises the concept of money held in escrow in a bank
account. Security may be taken over a bank account in Ireland
and is typically taken by way of a charge or security assignment.
Security over a credit balance granted by a depositor in favour of
the bank at which such deposit is held can only be achieved by way
of charge (not by assignment). If the security constitutes a “security
financial collateral arrangement” over “financial collateral” within
the meaning of the Financial Collateral Regulations, then those
regulations should apply (as to which, see question 5.3 above).
Foreign-law governed security over an Irish situated bank account
must be valid under both Irish law and the foreign law in order for it
to be given effect by the Irish courts (see question 5.4 above).
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Ir el an d other creditors. Furthermore, Section 604 is only applicable if at the
time of the conveyance, mortgage or other relevant act, the company
was already insolvent. Where the conveyance, mortgage, etc. is in
favour of a “connected person”, the six-month period is extended
to two years.
Section 597 of the Companies Act renders invalid (except to the
extent of monies actually advanced or paid, or the actual price or
value of goods or services sold or supplied, to the company at the
time of or subsequently to the creation of, and in consideration for
the charge, or to interest on that amount at the appropriate rate)
floating charges on the property of a company created within 12
months before the commencement of the winding up of that
company (unless the company was solvent immediately after the
creation of the charge). Where the floating charge is created in
favour of a “connected person”, the 12-month period is extended
to two years.
6.4 Substantive Consolidation. Under what facts or
circumstances, if any, could the insolvency official
consolidate the assets and liabilities of the purchaser
with those of the seller or its affiliates in the
insolvency proceeding?
Irish law gives an Irish court the power, in certain circumstances, to
treat the assets and liabilities of one company as though they were
assets and liabilities of any other.
An Irish court may exercise its equitable jurisdiction and treat two or
more companies as a single entity if this conforms to the economic
and commercial realities of the situation, and the justice of the case
so requires.
Furthermore, if an Irish company goes into liquidation or
examination, the Companies Act specifies particular scenarios
where an Irish court has the power to “make such order as it thinks
fit” in respect of transactions entered into by that company to restore
the position to what it would have been if it had not entered into the
transaction. In addition, in certain limited instances, a court may
“pierce the corporate veil”.
Also, depending on the particular case, a court may: (i) order that
the appointment of an examiner to a company be extended to a
“related company” of the company in examination; (ii) (if it is just
and equitable to do so) order that any related company of a company
being liquidated pay some or all of the debts of the company in
liquidation (a “contribution order”); or (iii) provide that where two
or more “related companies” are being wound up (and it is just and
equitable to do so), both companies be wound up together as if they
were one company (a “pooling order”).
However, case law suggests that the above powers/orders will only
be exercised/granted in exceptional circumstances.
6.5 Effect of Insolvency on Receivables Sales. If
insolvency proceedings are commenced against
the seller in your jurisdiction, what effect do those
proceedings have on (a) sales of receivables that
would otherwise occur after the commencement of
such proceedings, or (b) sales of receivables that only
come into existence after the commencement of such
proceedings?
If a true sale of the receivables (including future receivables) has
already been effected, the purchase price for the receivables has
been paid (subject to the matters described in questions 6.1 and 6.3
above), and no further action is required by the seller, the seller’s
insolvency should not of itself affect the purchaser’s rights as
purchaser of the receivable.
(albeit a liquidator could seek to set aside any existing proceedings),
a plaintiff will need the leave of the court to issue new proceedings
against a company in a court ordered liquidation.
As regards examinership, a stay of action can be imposed for up
to 100 calendar days where the seller goes into examinership (an
examiner’s appointment is initially for 70 days, but may be extended
by another 30 days with the sanction of the court).
If the seller has been appointed as the servicer of the receivables,
the stay of action could block the purchaser from enforcing the
servicing contract, and any amounts held by the servicer in respect
of the receivables (if not held on trust for the purchaser under a valid
and binding trust arrangement) could be deemed to form part of the
insolvency estate of the servicer, rather than being the property of
the purchaser.
If only an equitable assignment has been effected (i.e. no notice has
been given to an obligor), an obligor may continue to pay the seller.
Normally, the seller will hold any such amounts on trust for the
purchaser, but if no such trust has been created, such amounts will
likely form part of the seller’s insolvency estate and the purchaser
would be an unsecured creditor of the seller in respect of those
amounts.
6.2 Insolvency Official’s Powers. If there is no stay
of action under what circumstances, if any, does
the insolvency official have the power to prohibit
the purchaser’s exercise of rights (by means of
injunction, stay order or other action)?
See question 6.1 above. Assuming the receivables have been
sold by legal assignment or by means of a subsequently perfected
equitable assignment, an Irish insolvency official appointed over the
seller should not be able to prohibit the purchaser’s exercise of its
rights (unless there has been a fraudulent preference or an improper
transfer of company assets, as described in our response to question
6.3 below).
6.3 Suspect Period (Clawback). Under what facts or
circumstances could the insolvency official rescind
or reverse transactions that took place during
a “suspect” or “preference” period before the
commencement of the insolvency proceeding? What
are the lengths of the “suspect” or “preference”
periods in your jurisdiction for (a) transactions
between unrelated parties, and (b) transactions
between related parties?
Under Section 443 of the Companies Act, if a liquidator can show
that any company property was disposed of and the effect was
to “perpetrate a fraud” on either the company, its creditors or its
members, the High Court may, if just and equitable, order any person
who appears to have “use, control or possession” of the property or
the proceeds of the sale or development thereof, to deliver it or pay
a sum in respect of it to the liquidator on such terms as the High
Court sees fit.
Section 604(2) of the Companies Act provides that any conveyance,
mortgage, delivery of goods, payment, execution or other act
relating to property made or done by or against a company, which
is unable to pay its debts as they become due to any creditor, within
six months of the commencement of a winding up of the company
with a view to giving such creditor (or any surety or guarantor of
the debt due to such creditor) a preference over its other creditors,
will be invalid. Case law (under the equivalent provision of the
Companies Act 1963) indicates that a “dominant intent” must be
shown on the part of the entity concerned to prefer a creditor over
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Ir el an d (vi) have notified the Revenue Commissioners that it is or intends
to be a Section 110 company.
A company shall not be a qualifying company if any transaction or
arrangement is entered into by it otherwise than by way of a bargain
made at arm’s length.
The definition of “qualifying assets” is non-exhaustive and includes
shares, bonds, receivables, other securities, futures, etc.
7.2 Securitisation Entities. Does your jurisdiction have
laws specifically providing for establishment of
special purpose entities for securitisation? If so,
what does the law provide as to: (a) requirements for
establishment and management of such an entity; (b)
legal attributes and benefits of the entity; and (c) any
specific requirements as to the status of directors or
shareholders?
Irish law does not specifically provide for the establishment of
special purpose entities for securitisation transactions, but see
question 7.1 above.
7.3 Limited-Recourse Clause. Will a court in your
jurisdiction give effect to a contractual provision in
an agreement (even if that agreement’s governing law
is the law of another country) limiting the recourse of
parties to that agreement to the available assets of
the relevant debtor, and providing that to the extent
of any shortfall the debt of the relevant debtor is
extinguished?
A contractual provision limiting the recourse of the creditors of
an entity to its available funds is likely to be valid under Irish law
(whether the contract’s governing law is Irish or the law of another
country – see question 6.6 above).
7.4 Non-Petition Clause. Will a court in your jurisdiction
give effect to a contractual provision in an agreement
(even if that agreement’s governing law is the law
of another country) prohibiting the parties from: (a)
taking legal action against the purchaser or another
person; or (b) commencing an insolvency proceeding
against the purchaser or another person?
Although there is little authority in Irish law, it is likely that an Irish
court would give effect to contractual provisions (whether governed
by Irish law or the law of another country) prohibiting the parties
to the relevant contract from taking legal action (or commencing
an insolvency proceeding) against the purchaser or another person.
It is possible that an Irish court would consider an insolvency
winding-up petition even if it were presented in breach of a nonpetition clause. A party may have statutory or constitutional rights
to take legal action against the purchaser/another person, which may
not be contractually disapplied and a court could hold that the nonpetition clause was contrary to Irish public policy on the grounds
referred to above (i.e. ousting of court jurisdiction and/or Irish
insolvency laws).
7.5 Priority of Payments “Waterfall”. Will a court in your
jurisdiction give effect to a contractual provision in an
agreement (even if that agreement’s governing law is
the law of another country) distributing payments to
parties in a certain order specified in the contract?
An Irish court should generally give effect to a contractual provision
(whether the contract’s governing law is Irish or the law of another
If a receivables purchase agreement has been entered into, but
the purchase price is not paid prior to the seller’s insolvency, the
purchaser will be left as an unsecured creditor of the seller.
6.6 Effect of Limited Recourse Provisions. If a debtor’s
contract contains a limited recourse provision (see
question 7.3 below), can the debtor nevertheless be
declared insolvent on the grounds that it cannot pay
its debts as they become due?
A contractual provision limiting the recourse of the creditors of the
debtor (as specified in question 7.3 below) is likely to be valid as
a matter of Irish law (although such provisions have not yet been
adjudicated upon by the Irish courts). Accordingly, if all of the
debtor’s contracts contain a limited recourse provision whereby its
creditors agree to limit their recourse to the debtor (and assuming
the limited recourse provision operates correctly), it should not be
possible for the debtor to be declared insolvent on grounds that it
cannot pay its debts as they become due.
7 Special Rules
7.1 Securitisation Law. Is there a special securitisation
law (and/or special provisions in other laws) in
your jurisdiction establishing a legal framework
for securitisation transactions? If so, what are the
basics?
Yes. Section 110 of the Taxes Consolidation Act 1997 (the TCA)
allows for the special treatment of Irish companies (Section 110
SPVs) under which securitisations and other structured transactions
can be effected. Section 110 SPVs can either be private limited
companies (CLS) or designated activity companies (DAC)
incorporated under the Companies Act which, if they meet the
conditions set out in Section 110, have their profits calculated for
Irish tax purposes as if they were carrying on a trade. Where it is
envisaged that a Section 110 SPV will issue debt securities it must
be registered as a DAC.
This enables them to take deductions for all expenditure, in particular,
interest payments that must be made on the debt instruments issued
by them. This ensures that there is very little or no Irish tax payable
by Section 110 SPVs. This legislative regime has facilitated the
development of securitisation in Ireland, and Section 110 SPVs have
been used in numerous cross-border securitisations.
There are also generous exemptions available from Irish withholding
tax on payments of interest made by Section 110 SPVs which are
structured to fall within the securitisation legislation (these are
discussed in more detail in question 9.1). One clear advantage
for Section 110 SPVs is that they can make payments of “profit
dependent” interest without any negative implications and can use
straight “pass through” structures, for example, collateralised debt
obligations.
In order to avail of the relief under Section 110, the company must
be a “qualifying company”, i.e. it must:
(i) be resident in Ireland;
(ii) acquire “qualifying assets”;
(iii) carry on in Ireland a business of holding, managing, or both
the holding and management of, qualifying assets;
(iv) apart from activities ancillary to that business, carry on no
other activities;
(v) the market value of the qualifying assets is not less than €10
million on the day on which they are first acquired; and
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Ir el an d 8.2 Servicing. Does the seller require any licences, etc.,
in order to continue to enforce and collect receivables
following their sale to the purchaser, including to
appear before a court? Does a third party replacement
servicer require any licences, etc., in order to enforce
and collect sold receivables?
The seller does not need a licence in order to continue to enforce
and collect receivables following their sale to the purchaser, as debt
collection is not a specifically licensed activity in Ireland. However,
with respect to any credit agreement it continues to service, it will
be required to be authorised as a “credit servicing firm” as defined
in the Credit Servicing Act (see question 8.1 above) and comply
with applicable Irish consumer protection legislation (e.g. the CPC).
The seller would also need to be registered with the Data Protection
Commissioner. Where the seller continues to act as servicer with
respect to residential mortgage loans, it will need to be authorised to
perform such role by the CBI. Any standby or replacement servicer
would require the same licences and authorisations.
8.3 Data Protection. Does your jurisdiction have laws
restricting the use or dissemination of data about or
provided by obligors? If so, do these laws apply only
to consumer obligors or also to enterprises?
The Irish Data Protection Act, 1988 and the Irish Data Protection
(Amendment) Act 2003 (the DPAs) restrict the use and
dissemination of personal data in relation to “data subjects”, which
are “individuals” (i.e. natural persons and not corporate entities).
The DPAs regulate the collection, processing, use and disclosure of
data and provide, inter alia, that such data must be kept for one or
more specified and lawful purposes only, that it must be used and
disclosed only in ways compatible with those purposes, and be kept
safe and secure.
8.4 Consumer Protection. If the obligors are consumers,
will the purchaser (including a bank acting as
purchaser) be required to comply with any consumer
protection law of your jurisdiction? Briefly, what is
required?
If the obligors are “consumers” then a bank acting as purchaser will
need to comply with the terms of its authorisation and the applicable
codes of conduct/advertising rules (e.g. the CPC) or other Irish
consumer protection laws, including the CCA, the CCA Regulations
and the UTCCR Regulations.
The CCA imposes a number of obligations on credit intermediaries
and also provides protections to consumers (e.g. by regulating the
advertising of consumer credit, and by bestowing a “cooling-off”
period in favour of the consumer after signing an agreement).
The CCA Regulations apply to loans to consumers where the
amount lent is between €200 and €75,000. The main provisions of
the CCA relate to, inter alia: (i) standardisation of the information
to be contained in a credit agreement; (ii) standardisation of precontractual information; and (iii) a full 14-day “right of withdrawal”
for consumers from the relevant credit agreement.
Where there is a significant imbalance in the parties’ rights and
obligations under a consumer contract to the detriment of the consumer,
the UTCCR Regulations may apply. The UTCCR Regulations contain
a non-exhaustive list of terms which will be deemed “unfair” and the
list includes terms which attempt to exclude or limit the legal liability
of a seller in the event of the death of, or personal injury to, a consumer
due to an act or omission by the seller, or, require any consumer who
country) distributing payments to an Irish company’s creditors in
a certain order. However, in an insolvency of an Irish company,
certain creditors are given preferential status by statute and so the
contractual priority of payments provision could be altered.
7.6 Independent Director. Will a court in your jurisdiction
give effect to a contractual provision in an agreement
(even if that agreement’s governing law is the
law of another country) or a provision in a party’s
organisational documents prohibiting the directors
from taking specified actions (including commencing
an insolvency proceeding) without the affirmative
vote of an independent director?
An Irish court should give effect to such a provision or article in an
Irish company’s articles of association.
However, any provision which purports to restrict or limit the
directors’ ability to bring insolvency proceedings may be invalid
on public policy grounds or as incompatible with the directors’
statutory duties.
8 Regulatory Issues
8.1 Required Authorisations, etc. Assuming that the
purchaser does no other business in your jurisdiction,
will its purchase and ownership or its collection
and enforcement of receivables result in its being
required to qualify to do business or to obtain any
licence or its being subject to regulation as a financial
institution in your jurisdiction? Does the answer to
the preceding question change if the purchaser does
business with other sellers in your jurisdiction?
If the underlying obligors are consumers, the CCA (and the other
consumer protection legislation and codes discussed in question
1.2 above and question 8.4 below) may be applicable (irrespective
of whether the purchaser is dealing with one or more sellers in
Ireland). The CCA provides for the licensing of three categories of
activity, acting as: (i) a moneylender; (ii) a credit intermediary; or
(iii) a mortgage intermediary. If the underlying obligors are natural
persons and there is any form of credit being provided, consideration
should be had to the retail credit firm authorisation requirements of
the CBI under the Central Bank Act 1942 to 2013 (the CBA). In
addition, under Irish data protection legislation, the purchaser might
need to register with the Irish Data Protection Commissioner as a
“data controller” or a “data processor”.
If a purchaser holds the legal title to a credit and (i) where that credit
was advanced by an Irish bank or a EU regulated entity authorised
to provide credit in Ireland, (ii) is advanced to one or more natural
persons within the state or with certain micro, small or medium
sized enterprises, and (iii) chooses to service the loan itself, it may
be required to be authorised as a “credit servicing firm” as defined
in the Consumer Protection (Regulation of Credit Servicing Firms)
Act 2015 (the Credit Servicing Act) by the CBI and will be subject
to the CBI’s various codes (as discussed in question 1.2 above and
question 8.4 below). If, however, the relevant purchaser appoints
a credit servicer who is either (i) a regulated financial services
provider authorised to provide credit in Ireland, or (ii) an authorised
“credit servicing firm” itself, (whether incorporated in Ireland or
elsewhere within the EEA) to service the loans/credit, the purchaser
will not be required to be authorised under the Credit Servicing Act.
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Ir el an d (b) the payment is made by or through a person in Ireland, and
either:
(i) the quoted eurobond is held in a recognised clearing
system (Euroclear and Clearstream SA are so recognised);
or (ii) the person who is a beneficial owner of the quoted
eurobond and who is beneficially entitled to the interest is
not resident in Ireland and has made a declaration to this
effect.
A quoted eurobond means a security which:
(a) is issued by a company;
(b) is quoted on a recognised stock exchange; and
(c) carries a right to interest.
In the case of a sale of trade receivables, deferred purchase price
should not be recharacterised in whole, or in part, as interest. It
should be considered to be a payment made for the acquisition of
the receivables, and not a payment of interest. Likewise a sale
of receivables at a discount should not of itself result in amounts
subsequently paid on the receivables being treated as annual interest
subject to withholding tax.
9.2 Seller Tax Accounting. Does your jurisdiction require
that a specific accounting policy is adopted for tax
purposes by the seller or purchaser in the context of a
securitisation?
A company qualifying for the favourable Irish tax treatment
provided for by Section 110 of the TCA will be, subject to certain
adjustments required by law, subject to Irish corporation tax on its
profit according to its profit and loss account prepared in accordance
with generally accepted commercial accounting principles in
Ireland as at 31 December 2004 (i.e. before the introduction of
IFRS), unless it elects otherwise.
9.3 Stamp Duty, etc. Does your jurisdiction impose
stamp duty or other documentary taxes on sales of
receivables?
An agreement for the sale of, or an instrument effecting the sale of,
debt having an Irish legal situs may be chargeable to Irish stamp
duty absent an exemption. An instrument effecting the transfer of
debt having a non-Irish situs may also be chargeable to Irish stamp
duty, absent an exemption, if it is executed in Ireland or if it relates
to something done or to be done in Ireland. There are certain
exemptions from Irish stamp duty that may be relevant, such as the
debt factoring exemption or loan capital exemption. A transfer by
way of novation should not give rise to stamp duty.
9.4 Value Added Taxes. Does your jurisdiction impose
value added tax, sales tax or other similar taxes on
sales of goods or services, on sales of receivables or
on fees for collection agent services?
Ireland does apply VAT on the sale of goods and services. The
standard rate of VAT is 23 per cent.
A purchaser will be required to register and account, on a reverse
charge basis, for Irish VAT at the rate of 23 per cent on the receipt
by it of certain services from persons established outside Ireland.
These services would include legal, accounting, consultancy and
rating agency services and also financial services to the extent that
those financial services are not exempt from Irish VAT.
The sale of receivables should be exempt from VAT. The services of
a collection agent would normally qualify for exemption.
fails to fulfil his obligation to pay a disproportionately high sum
in compensation. If a term is unfair it will not be binding on the
consumer. However, the contract should continue to bind the parties,
if it is capable of continuing in existence without the unfair term.
The CPC imposes general obligations on “regulated entities”
dealing with “customers” in Ireland (primarily “consumers”),
to act honestly, fairly and professionally and with due skill, care
and diligence in the best interests of their customers and to avoid
conflicts of interest.
If there is no obligation on a non-bank purchaser to provide any
funding to a consumer, then it should not need to be licensed, but
might still need to comply with the CCA, the UTCCR Regulations,
the CPC and the CCA Regulations (if applicable).
8.5 Currency Restrictions. Does your jurisdiction have
laws restricting the exchange of your jurisdiction’s
currency for other currencies or the making of
payments in your jurisdiction’s currency to persons
outside the country?
Ireland does not have any exchange control laws. Certain financial
transfer orders in place from time to time may restrict payments to
certain countries, groups and individuals subject to UN sanctions.
9 Taxation
9.1 Withholding Taxes. Will any part of payments on
receivables by the obligors to the seller or the
purchaser be subject to withholding taxes in your
jurisdiction? Does the answer depend on the nature
of the receivables, whether they bear interest, their
term to maturity, or where the seller or the purchaser
is located? In the case of a sale of trade receivables
at a discount, is there a risk that the discount will be
recharacterised in whole or in part as interest? In the
case of a sale of trade receivables where a portion of
the purchase price is payable upon collection of the
receivable, is there a risk that the deferred purchase
price will be recharacterised in whole or in part as
interest?
It is usually possible to structure a securitisation (especially when
using a Section 110 SPVs) so that payments on receivables are not
subject to Irish withholding tax.
There is a general obligation to withhold tax from any payment of
yearly interest made by an Irish company. The rate of withholding is
currently 20 per cent. Therefore, in principle, if the debtor is an Irish
person and the receivable has a maturity of more than one year, it is
likely this withholding obligation will arise. Interest paid by Irish
debtors to a Section 110 SPVs should come within an exemption
from interest withholding tax.
Exemptions also exist for interest payments made by a Section 110
SPVs. There is an exemption for interest paid by a Section 110 SPVs
to a person who is resident for the purpose of tax in an EU Member
State (other than Ireland) or in a country with which Ireland has a
double tax treaty (except in a case where the person is a company
where such interest is paid to the company in connection with a
trade or a business which is carried on in Ireland by the company
through a branch or agency).
There is also an exemption for interest paid on a quoted eurobond,
where either:
(a) the person by or through whom the payment is made is not in
Ireland, i.e. non Irish paying agent; or
A&L Goodbody Ireland
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Ir el an d Peter Walker
A&L Goodbody
25–28 North Wall Quay
Dublin 1
Ireland
Tel: +353 1 649 2202
Email: pwalker@algoodbody.com
URL: www.algoodbody.com
Jack Sheehy
A&L Goodbody
Augustine House, 6A Austin Friars
London EC2N 2HA
United Kingdom
Tel: +44 207 382 0800
Email: jsheehy@algoodbody.com
URL: www.algoodbody.com
Peter Walker is a partner in the banking financial services department
of A&L Goodbody and is head of the Capital Market and Structured
Product group within the firm. His principal practice areas are
asset-backed finance, debt capital markets, structured products and
private equity finance. Recent transactions which Peter has been
involved with include a number of domestic securitisations (RMBS,
auto loan & other asset classes), numerous performing and nonperforming loan portfolio acquisitions and disposals (both secured
and unsecured), trade receivable securitisations (multi-jurisdictional
and purely domestic), CLOs, and the establishment of acquisition
platforms and loan origination platforms. Peter also regularly advises
on application of the Market Abuse and Prospectus Regulations and
netting/insolvency issues.
A&L Goodbody is internationally recognised as a leading Irish corporate law firm. Headquartered in Dublin, with offices in Belfast, London, New York,
San Francisco and Palo Alto, the firm has a total staff of over 600. A&L Goodbody acts for domestic and global corporations, financial institutions,
intermediaries and government. The firm advises on every area of business law including corporate and commercial, M&A, banking and financial
services, taxation, property, as well as litigation and private client work.
The A&L Goodbody Securitisation and Capital Markets Group is one of the largest practices of its kind in Ireland. The Group acts for a range of
institutions including investment banks, retail banks, private equity/hedge funds and corporates. In each case, the group has acted both on the
borrower and lender sides. The sort of transaction the group has advised on include domestic and international securitisations (including RMBs,
CMBs, CLOs and CDOs), debt repackaging, bond issues, EMTN programmes, FRN issues, commercial paper programmes, certificates of deposit
programmes and other debt capital market issuances. In addition, the group has played a significant role in the establishment and operation of a
number of acquisition and origination platforms and loan portfolio acquisitions and disposals.
Jack Sheehy is a partner in the banking financial services department
of A&L Goodbody and resident in our London office. His principal
practice areas are debt capital markets, private equity finance
and general banking and restructurings. Recent transactions
include a number of loan portfolio acquisitions, financings of loan
portfolio acquisitions, high yield bond issues, CLOs, securitisation
restructurings and the establishment of asset acquisition and loan
origination platforms.
would make a claim against would be the seller. However, in the case
of reverse charge services received from abroad, the accountable
person would be the purchaser and the Revenue Commissioners
could claim against the purchaser. In an arm’s length transaction
stamp duty should be for the account of the purchaser only.
9.6 Doing Business. Assuming that the purchaser
conducts no other business in your jurisdiction,
would the purchaser’s purchase of the receivables, its
appointment of the seller as its servicer and collection
agent, or its enforcement of the receivables against
the obligors, make it liable to tax in your jurisdiction?
Liability to Irish corporation tax may arise if the purchaser is
“carrying on a trade” in Ireland. The term “trade” is a case lawderived concept and there is no useful statutory definition of the
term. However, in general, the purchase, collection and enforcement
of the receivable should not be considered as “trading” under Irish
law and the purchaser should not incur any Irish tax liabilities.
Where a purchaser would not be engaged in making VAT taxable
supplies in the course of its business, it would not be able to recover
VAT (1) payable by it in respect of the receipt of services outlined in
the paragraph above, or (2) charged to it by suppliers of VAT-taxable
services (e.g. the provision of legal, accounting and audit services by
Irish providers, the provision of trustee and administration services).
9.5 Purchaser Liability. If the seller is required to pay
value added tax, stamp duty or other taxes upon
the sale of receivables (or on the sale of goods or
services that give rise to the receivables) and the
seller does not pay, then will the taxing authority
be able to make claims for the unpaid tax against
the purchaser or against the sold receivables or
collections?
It depends on the nature of the VAT charge that arose. If the supply
is received from an Irish supplier that should have levied VAT, then
unless there is a contractual provision enabling the seller to claim
the VAT off the purchaser, the person the Revenue Commissioners
A&L Goodbody Ireland
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