Lending activity has continued to operate at a high level across all industries. Re-financing remained a common theme reflecting the ever-increasing competitive environment in Ireland and across Europe. There was a notable increase in project finance activity in Ireland, particularly in the renewable energy industry. As a result of the COVID-19 pandemic and the imposition of Government restrictions, there was a notable decrease in real estate finance activity during the course of 2021 but this is an area that is now returning to pre-pandemic levels.
The impact of Brexit has not resulted in significant changes in the Irish loan market, with Ireland still having close economic and political ties to the United Kingdom.
One positive consequence of Brexit for the Irish loan market is that there has been a noticeable increase in Irish law being the governing law for international finance transactions and, in particular, in relation to project financing.
The COVID-19 pandemic has, as expected, had a significant impact on the loan market in Ireland. Initially, the pandemic caused immediate cashflow and liquidity issues for borrowers in certain industries. Certain of these borrowers were quick to act to utilise headroom under their existing facilities, exercise accordion and extension options together with seeking uplifts to existing credit lines. Conversely, borrowers in certain other industries have exceeded performance expectations during the pandemic and, as a result, we have seen some borrowers entering into refinancings or negotiating more favourable terms with their existing lenders.
The COVID-19 pandemic had a particularly significant impact on SMEs and retail customers. In response, last spring 2020, the Banking and Payments Federation of Ireland (BPFI) announced on behalf of certain retail banks, non-bank lenders and credit servicing firms that a six-month payment break was to be made available to certain mortgage-holders, personal borrowers and SMEs.
This scheme was not extended and closed on 30 September 2020. Instead, the focus shifted to putting supports in place for customers coming off payment breaks, with an emphasis on active lender-borrower engagement and tailored solutions to reflect individual circumstances.
In May 2021, the BPFI published a guide for SMEs outlining the supports available to them as they work towards recovery post COVID-19, including information on dealing with existing credit facilities, the provision of new or additional credit facilities available, the credit application process and other sources of non-bank financial supports.
The Irish government’s COVID-19 Credit Guarantee Scheme is also available to SMEs on a first-come, first-served basis until 31 December 2021. The scheme facilitates up to EUR2 billion in lending to eligible businesses that have been negatively impacted as a result of COVID-19 in Ireland. It offers a partial government guarantee (80%) to participating lenders against losses on qualifying finance agreements to eligible SMEs, small Mid-Caps and primary producers. With the easing of restrictions it is hoped this scheme will help ease the return to business for many of these companies.
Changes as a Result of COVID-19
On 1 August 2020, the Companies (Miscellaneous Provisions) (COVID-19) Bill 2020 was signed into law. The Bill makes temporary amendments to the Companies Act 2014 and the Industrial and Provident Societies Acts 1893 – 2018 to address issues arising as a result of COVID-19.
It makes provision in respect of business solvency by increasing the period of examinership to 150 days and increasing the threshold at which a company is deemed unable to pay its debts to EUR50,000. The Bill also allows for documents which are required to be executed under seal to be executed in counterpart, as well as certain flexibilities around the holding of creditor and shareholder meetings, including annual general meetings (AGMs) of Irish companies, by electronic or hybrid means. The amendments currently apply for an interim period up to 31 December 2021, with a possibility for extension by way of government order.
Irish entities in various industry sectors may be involved in high-yield bond transactions; often as borrowers and guarantors, and in certain circumstances as high-yield bond issuers.
Irish incorporated special purpose vehicles (SPVs), often referred to as "Section 110 companies", are normally used as high-yield bond issuers in certain European high-yield transactions, often to avoid covenant breaches or local law restrictions on guarantees of securities. Section 110 companies are named as such because Section 110 of the Taxes Consolidation Act 1997 allows for special tax treatment for "qualifying companies".
Favourable tax laws allow these structures to be, in most cases, tax neutral (with no annual minimum profit or "spread" required at the SPV level) and a "quoted eurobond" exemption. This, together with numerous double taxation treaties, allows interest on securities to be paid gross. A minimal share capital requirement makes incorporating an Irish SPV an easy and attractive process.
European High-Yield Bonds
European high-yield bonds are normally marketed as private placements, primarily to attract US investor interest as well as participation from European investors. These transactions are usually led through London or the USA, and New York law or English law are typically the governing laws of such transactions. We are unaware of any high-yield bonds which have been governed by Irish law to date.
Whereas lenders in loan financings would tend to be traditional banks and other financial institutions, investors in high-yield bonds would typically be institutional investors (including investment banks, insurance companies, pension funds, hedge funds, investment managers and mutual funds) looking for higher rates of return through more aggressive lending practices.
There has been a continued increase in the prominence of alternative credit providers in the Irish market since the financial crisis. The alternative credit providers group include a diverse collection of direct lenders, debt funds and debt arms of hedge funds and buyout houses. This allows borrowers to be more selective when choosing lenders and results in greater liquidity as well as more competitive pricing and terms.
In recent years there has been a continued growth in the asset-based lending market. This has been particularly noticeable in the commercial and residential property development industries, especially in Dublin. Asset-based lending has benefited both lenders and borrowers through reduced credit risk and competitive pricing.
Irish-incorporated real estate investment trusts (REITs) can be listed on the main market of a recognised stock exchange of any EU member state, which has had the effect of attracting fresh capital into the Irish property market. In recent years there has been a trend of advancing unsecured debt to REITs which improves their balance sheet strength. To accommodate this, lenders have been making use of covenant packages which limit the amount of secured debt an REIT can issue.
After the economic crash in 2008 there was a noticeable increase in the use in invoice discounting as a financing tool. The Irish Asset and Invoice Finance Association anticipate that Irish businesses will repeat this trend as the economy emerges from the COVID-19 lockdown.
The effectiveness of contractual automatic crystallisation clauses appears to have been affirmed in a High Court case from November 2020. In Latzur Ltd (in receivership) v Companies Act 2014  IEHC 592, the High Court held that “there is no rule of law precluding parties to a debenture creating a floating charge agreeing, as a matter of contract, that the floating charge will crystallise on the happening of an event, or a particular step taken by the chargee". It also confirmed that while a crystallised floating charge will de-crystallise during an examinership in order to allow the statutory scheme to operate, once the examinership period of protection ceases without the court having approved proposals for the survival of the company, the charge will re-crystallise once again. However, this decision is currently being appealed.
In recent years, there has been a push towards the filing and maintaining of beneficial ownership details for certain entities and arrangements. This is driven by EU anti-money laundering directives that have been transposed into Irish law by way of regulations.
Typically what we have seen to date is the provision of green loans and sustainability-linked loans.
Green loans have been seen being made available in the property finance and development finance space together with individual large corporates where they have specific green projects as part of their overall ESG strategy. This is expected to continue, but largely in relation to property finance and development finance.
There has been a noticeable increase in the introduction of sustainability-linked indicators and targets in term and revolving credit agreements. To date, the underlying borrowers have been limited to the PLC market and large corporates and there has yet to be an extension into the mid-size corporate market or small and medium size enterprises. It is an area that is expected to develop further over the next 12–24 months and anticipate that borrowers who have not introduced this concept into their loan agreements will be an outlier in the loan market.
In relation to the contractual terms contained in loan agreements it will be interesting to see how this develops and where the market ends up in relation to:
The Central Bank of Ireland is responsible for prudential regulation and supervision of credit and financial institutions. Wholesale lending to companies generally does not require authorisation, provided the lender does not take deposits, carries on investment services or provides services to consumers. Traditional banks, those which create securities and fall within the definition of a banking business, are required to hold a banking licence.
A bank authorised in another EEA member state (the home state) can passport its services through establishing a branch in Ireland, or by providing its services in Ireland (the host state) on a cross-border basis.
At a high level, there are no restrictions on the granting of loans in Ireland by foreign lenders. However, there may be restrictions on loans for certain purposes (eg, mortgage lending) and to certain persons (eg, consumers or SMEs).
There are no specific restrictions under Irish law on the granting of security or guarantees to foreign lenders.
There are no restrictions, controls or other concerns on and regarding foreign currency exchange, save that a person (legal or natural) shall not operate as a Bureau de Change Business in the absence of an authorisation from the Central Bank of Ireland under Part V of the Central Bank Act 1997 (as amended from time to time).
Ireland is required to comply with UN and EU sanctions law. In addition, lenders regularly require contractual assurances from borrowers in order to comply with such sanctions law, together with all applicable anti-corruption, anti-money laundering and counter terrorism laws.
The agent concept is well recognised and established in Ireland. The role of the agent is governed by the loan documentation.
The concept of a trust is also recognised in Ireland. The security trustee is a trustee of the syndicate members with fiduciary duties to the syndicate members for the duration of the loan contract. The role and rights of the security trustee is governed by the loan documentation and may also be subject to legislative or other public policy considerations.
Secured debt is traded in Ireland, usually by means of assignment, transfer or novation. An assignment of security should be notified to the security provider (or in accordance with the terms of the underlying security document). A transfer or novation can be effected with the security provider as a party to the transfer or novation.
In the case of a transfer or novation, appropriate registrations should be carried out in the Irish Companies Registration Office (CRO) and/or Land Registry and/or Registry of Deeds (as applicable). Typically, Loan Market Association standard documentation is relied on, which contains standard language in relation to novation and transfer.
This will depend on what is commercially agreed between the lender(s), borrower(s) or sponsor(s), but there is no restriction under Irish law to agree terms relating to the buy-back of debt. However, there could be restrictions contained within the loan agreement in relation to the ability for a borrower or sponsor to buy-back debt.
Certain funds provisions in credit agreements originate from the requirements of the Irish Takeover Rules which govern the takeover of any public limited company incorporated in Ireland. The Irish Takeover Rules require that a bidder must announce a bid only after ensuring that it can fulfil in full any cash consideration (if any is offered) and after taking all reasonable measures to secure the implementation of any other type of consideration. A financial advisor also must stand behind any bid and confirm that the relevant bidder has certain funds – ie, that the funding will be available on the completion of the acquisition of the securities to pay the full amount due. This position must be confirmed in the Rule 2.5 announcement and the offer document.
Certain fund provisions are specifically negotiated for the relevant public acquisition finance transaction and tend not to be standard provisions contained in other acquisition finance transactions. Whether short or long form documentation is to be used will normally depend on the credit requirements of the relevant lenders. Although the main provisions of finance documents are set out in the offer document, such details are not required to be publicly filed or registered in Ireland.
A company making a payment of yearly interest which has an Irish source is subject to withholding tax at a rate of 25%. There are, however, a number of exemptions under Irish law with respect of withholding tax, which would need to be assessed on a case-by-case basis.
Stamp duty for mortgage deeds executed on or after 7 December 2006 is now abolished.
When a charge is created over most types of assets in Ireland, details of the charge must be filed with the CRO within 21 days of the creation of the security (the main exceptions to this are shares and cash). While the introduction of the Companies Act 2014 saw the introduction of mandatory e-filing for certain forms such as Form C1s (Registration of a Mortgage or charge created by Irish company), many forms could not be filed online. The CRO online portal received an overhaul in December 2020 and as a result, most forms can now be filed online, including:
There is no fee payable in relation to a section 1001 notice to the Irish Revenue Commissioners.
In relation to intellectual property, as trade mark attorneys are used to make the registrations, their costs differ quite substantially depending on whether local as well as international filings are to be made.
The cost of registering the security in the Registry of Deeds is EUR50 for each deed registered. The cost of registering security in the Land Registry is EUR175.
There is no set fee for the services of a notary in Ireland. A proper professional fee is usually paid dependent on the time spent, the skill of the notary in question and the level of responsibility.
Protection against excessive interest rates in Ireland is afforded to borrowers and consumers by the Consumer Credit Act 1995, as amended by Section 35 of the Central Bank and Financial Services Authority of Ireland Act 2003.
Lenders should be aware of the treatment of default interest under Irish law. The judgments handed down by the Court of Appeal in July 2018 (Sheehan v Breccia/Flynn and Benray v Breccia) address whether under Irish law an obligor’s agreement to pay default interest was unenforceable because it was not a “genuine pre-estimate of loss caused by such default”. Essentially, the Court held that if a default interest provision is contained in the lender’s standard terms and conditions, it will be considered to be a penalty and therefore unenforceable. It would, therefore, be pragmatic for lenders to include a tailored, negotiated term in the credit agreement relating to default interest (rather than relying on the default interest provisions contained in the standard terms and conditions) in order to give the lender the best chance of such provisions not being considered a penalty.
Leave to appeal to the Supreme Court was granted in Sheehan v Breccia/Flynn  IESCDET 118, on the basis that the established Irish penalty rules should be reconsidered in light of refinement to the equivalent rules in the UK. The decision will be worth monitoring because if the Court of Appeal’s decision is not upheld, it may have a knock-on effect on how default interest clauses are dealt with in Ireland.
Real estate includes real, “immovable” property as opposed to personal property. It includes:
Common forms of security
The following forms of security can be taken over real estate.
It is generally agreed that registration is the “operative perfection mechanism in respect of security interests in land”. The specific formalities in relation to real estate in Ireland depend on whether the land is registered or unregistered. There are no specific time limits in respect of registration in the Registry of Deeds or Land Registry. The 2009 Act introduced compulsory first registration in respect of sales of interests in unregistered land, applicable to all counties as of 1 June 2011.
As mentioned in 4.2 Other Taxes Duties, Charges or Tax Considerations, registration requirements with the CRO also exist in respect of Irish corporate bodies. If a company has created a mortgage or charge over real estate, a relevant filing must be lodged with the CRO within 21 days of the creation of the security. Section 412 (3) of the Companies Act 2014 provides that the priority of a charge will be determined by the date and time of receipt by the registrar of a fully filed charge submission, not the date of the creation of the charge, therefore timely filings are of significant importance. Failure to register the charge, by delivering details to the CRO within 21 days of the creation of the charge or notice to create the charge, will result in making the charge void against a liquidator of the company and any creditors.
If a company has failed to comply with Section 409 of the Companies Act 2014, an application can be made under Section 417 of the Companies Act 2014 to the High Court for an order requesting an extension of the time afforded to effect registration of the charge. If the registration requires amending, based on an omission or misstatement, an order of rectification can be applied for under these provisions too.
When the CRO is satisfied that the statutory requirements have been met, a certificate of charge is issued. The certificate is conclusive evidence that the requirements of the Companies Act 2014 have been complied with.
Tangible Movable Property
Tangible movable property in Ireland could include trading stock (inventory), agricultural stock, goods, plant, machinery and vessels such as aircraft or ships.
Common forms of security
The following forms of security can be taken over tangible movable property: a fixed charge and a floating charge.
A fixed charge attaches to a specific asset or class of assets on creation. With a floating charge, the security “floats” over the asset and remains dormant until some further step is taken by or on behalf of the chargee. This enables the borrower to deal with the asset over which the charge is created in the ordinary course of business, until the floating charge crystallises into a fixed charge.
Crystallisation of a floating charge into a fixed charge may occur on the happening of a specified event or on insolvency of the borrower. These could be such as when a receiver is appointed, or a winding up commences, or if the chargee intervenes when entitled to do so. An automatic crystallisation clause is one stipulating that a floating charge will crystallise on some specific event occurring. The introduction of the Companies (Accounting) Act 2017 clarifies that crystallised floating charge holders will not take priority over certain preferential creditors such as claims of employees and certain taxes on a winding-up.
Note that floating charges have certain weaknesses, including:
In relation to general registration requirements, see above. Specific formalities apply in relation to different categories of assets.
A fixed and or/floating mortgage can be created over agricultural stock provided the chattels in question comply with the terms of the Agricultural Credit Act 1978 (as amended) and are the absolute property of the mortgagor. Specific rules apply in relation to registration. If capable of being registered, and in order to be effective, the security interest must be registered in accordance with the terms of the Agricultural Credit Act 1978. Essentially, the security must be registered within one month of creation with each Circuit Court in each district where the mortgagor’s land on which the chattels are situated, is located.
A mortgage or fixed charge can be created over aircraft. The registration requirements in respect of aircraft are twofold:
Movable plant and machinery
Security over a movable plant and machinery would typically be done by way of a fixed or floating charge. Registration should be made at the CRO and notification by affixing the security interest to plant or machinery.
Security over a ship must be done by way of statutory ship mortgage. Any security created over a vessel must be registered with the appropriate Registrar for Shipping. The Registrar for shipping registers statutory ship mortgages on a priority basis. Notice of the security interest should also be affixed to the vessel.
Financial instruments are defined in Directive 2002/47/EC on financial collateral arrangements (Financial Collateral Directive), as amended by Directive 2009/44/EC and Directive 2014/59/EU, which has now been transposed into Irish law as including:
Common forms of security
Common forms of security are:
Note that there are certain advantages (and disadvantages) of creating a legal mortgage as opposed to an equitable mortgage in the creation of security under Irish law.
In general, note that any ancillary documentation should be sought in connection with any security over shares. This may include stock transfer forms and the original share certificates. An affidavit and stop notice can also be served on the company whose shares are being charged to put them on notice that the shares have been charged.
Claims and Receivables
The most common types of claims and receivables under Irish law over which security is granted include bank accounts and rent.
Common forms of security
It is generally not common to take security over receivables in Ireland except by way of floating charge. However, security can also be created by way of a:
The parties must ensure that the contract creating the trade receivable does not contain a prohibition on assignment. A security assignment over receivables is registrable as a fixed charge over book debts and must be registered with the CRO within 21 days. Note that a Section 1001 filing should be made with the Irish Revenue Commissioners within this 21-day period, in accordance with the terms of Section 1001(3) of the Taxes Consolidation Act 1997.
Common forms of security
The most common forms of security over cash deposits are:
Where a fixed charge or assignment has been created by a company, a section 1001 notice in relation to book debts must also be filed with the Irish Revenue Commissioners, under Section 1001(3) of the Taxes Consolidation Act 1997. The Irish Revenue Commissioners must be notified of the creation of the charge over book debts within the same 21-day period, and acknowledgement received from the Irish Revenue Commissioners that they have received the notification and updated their records accordingly.
For a security assignment, to create a legal as opposed to an equitable security interest, a notice of the assignment of the bank account must be served on the account holding bank informing it that the account has been assigned. There is no timeframe within which this notice must be served and the bank need not acknowledge the notice for it to be valid.
Fixed charges on bank accounts can be re-characterised as floating charges if the requisite prohibition on dealing with the account and the monies in the account is not adequately provided for in the security document notice to the account bank.
Under the Companies Act 2014, a charge created over an interest in cash or money credited to an account of a financial institution or any other deposits does not require registration with the CRO.
The most common types of intellectual property over which security is granted in Ireland include:
Common forms of security
The most common forms of security granted over intellectual property are:
For example, in relation to patents, a mortgage and/or charge may be taken.
Registration is required at the CRO within 21 days of creation. Registration can also be required with the following entities, where relevant:
Certain local laws may take precedence over Irish law when it comes to fulfilling registration requirements. In addition, note that both patents and trademarks can be registered, however copyright arises automatically and is not registerable.
A floating charge over all present and future assets is a commonly accepted by lenders as a form of security in Ireland.
It is possible for an Irish incorporated entity to provide such guarantees, provided that the provision of such guarantee does not breach any constitutionally enshrined terms or limits on guarantees, Section 239 of the Companies Act 2014 (Prohibition of loans, etc, to directors and connected persons) or Section 82 of the Companies Act 2014 (Financial assistance).
In respect of any constitutionally enshrined terms or limits on guarantees, a shareholder’s special resolution must be executed amending the constitutional prohibition/limit and filed in the CRO with a Form G1 (Amending the Constitution). In respect of Sections 239 and 82 of the Companies Act 2014, the relevant obligor will need to conduct a “Summary Approval Procedure” (SAP). SAPs are discussed in 5.4 Restrictions on Target.
Under Irish law, it is unlawful for a company to give any financial assistance for the purpose of an acquisition made or to be made by any person of any shares in that company, or, where the company is a subsidiary, in its holding company (Section 82 of the Companies Act 2014). The statutory prohibition is broadly drafted, with the main rationale being the preservation of a company’s capital and shareholder/creditor protection.
Financial assistance may only be given in limited circumstances, such as where it falls within one of the legislative exceptions or where a SAP has been followed under Section 202 of the Companies Act 2014.
A SAP is a means by which companies can engage in certain restricted activities by ensuring that the persons those restrictions protect, consent. There are seven “restricted activities” for which the SAP can be used to validate otherwise prohibited transactions, including financial assistance. The directors are required to set out the circumstances in which the transaction or arrangement is entered into and the benefit that will accrue to the company. The directors are required to swear a 12 month look forward declaration of solvency. Failure to deliver the directors’ declaration to the CRO within 21 days invalidates the activity in question.
The Companies Act 2014 amended the previous regime in relation to financial assistance in that the prohibition against it has been narrowed, such that the giving of financial assistance is not prohibited if the acquisition of shares is not the principal purpose of the financial assistance. The Companies Act 2014 also provides for the giving of assistance for the purpose of acquiring the shares where it is only an incidental part of some larger purpose of the company, and the assistance is given in good faith and in the interests of the company.
The various restrictions (and related costs, if any) in relation to the granting of security or guarantees has been set out above.
In the case of fixed security, the chargee executes a deed of release. In the case of floating security, the security giver can deal with the secured assets in the ordinary course of business until such time as the floating security crystallises into a fixed charge.
A Form C6 (full release) or Form C7 (partial release) needs to be registered with the CRO. This can be completed by the chargor and on receipt, the CRO practice is to notify the person(s) entitled to the charge that a memorandum of satisfaction has been received for registration. The person(s) entitled to the charge then has 21 days to lodge an objection to the registration of the memorandum of satisfaction. If no objection is received, the satisfaction is registered and the security released. Alternatively, Form C6 or Form C7 can be completed by the chargee and no notification is necessary, and the satisfaction is simply registered.
If security was granted over real estate located in Ireland, it will also be necessary for the charge to execute a Land Registry discharge document, in addition to the deed of release, in the form of a Form 57A. This discharge document is then registered with the Property Registration Authority to release the security over underlying real estate.
Contractual subordination is possible and common in Ireland. It occurs where the senior lender and the subordinated lender enter into an agreement as a result of which the subordinated lender agrees that the senior debt will be paid out in full before the subordinated lender receives the payment of the subordinated debt, creating a contractual subordination.
Structural subordination is also possible depending on the particular terms of a transaction. Structural subordination arises where one lender (the senior lender) lends to a company in a group of companies which is lower in the group structure than another lender (the subordinated lender).
Intercreditor arrangements are common in Ireland. Typical parties include a senior lender, a junior lender, inter-group lender and a borrower. Typical terms in an intercreditor agreement include provisions as to priorities, standstill, representations and warranties, covenants and other standard clauses.
The circumstances in which a lender can enforce its loan, guarantee or security interest under Irish law are largely dependent on the terms of the underlying loan and as set out in the security documentation. Typical events of default that are often contained in loan agreements in Ireland might include:
The normal methods of enforcement are for the security holder to appoint a receiver, pursuant to the terms of the charge deed, or for the charge-holder to become a mortgagee in possession of the charged asset. Generally speaking, court order is not necessary to appoint a receiver, although in the case of real property, it may be necessary to obtain a court order for possession if the security holder intends to go into direct possession. Once possession is obtained it is not generally necessary to get a court order for sale.
Appointing an Examiner
Enforcement may be prevented by the appointment of an examiner to the company (that has created the security). The examiner is appointed by the court where a creditor, shareholder or the company petitions the court and the court is satisfied that there is a reasonable prospect of the company’s survival as a result of this appointment.
The examiner is typically appointed for 70 days (this could be extended to 100 days in exceptional cases and as a result of COVID-19, the extension currently stands at 150 days – see 1.2 Impact of the COVID-19 Pandemic), during which time the examiner will endeavour to put a scheme of arrangement, subject to approval by the interested parties and the court, in place where the company’s creditors write off part of the amounts owing to them and the company continues to trade. Under the Companies Act 2014, the proposed examiner must be qualified for the purposes of Section 519 of the Companies Act 2014.
Choice of Foreign Law
The Rome I Regulation and Rome II Regulation have force of law in Ireland and the purpose of both regulations is not to harmonise the actual law of EU states that applies to contractual and non-contractual obligations respectively, but to harmonise the rules that determine what law applies to contractual and non-contractual disputes, with the aim of ensuring that the courts in the European Union are uniform in their application of laws in international disputes, thereby reducing the risk of forum shopping. The choice of foreign law as the governing law of the contract, will therefore be upheld by the courts of Ireland, provided that the relevant contractual or non-contractual obligation is within the scope of the relevant regulation.
Submission to a Foreign Jurisdiction
Pursuant to the provisions of the Brussels Regulation Recast (Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast)) the submission by an Irish natural person, or a company incorporated in Ireland to the jurisdiction of the courts of another EU member state, will be upheld in the Irish courts.
Waivers of immunity are effective under Irish law.
Provided that neither Article 45 (Refusal of recognition) or Article 46 (Refusal of enforcement) of the Brussels Regulation Recast is applicable, and subject to general compliance with the Regulation, any judgment given by a foreign court or an arbitral award against a company would be recognised and enforced in Ireland, without a retrial of the merits of the case.
There are no other matters under Irish law which might impact a foreign lender’s ability to enforce its rights under a loan or security agreement.
As mentioned above, there are two main company rescue procedures: examinership and company voluntary arrangements (CVAs).
Examinership is the main rescue procedure for companies nearing insolvency. The emphasis is on introducing a scheme of arrangement that assists the survival of the company as a going concern. To aid this process, the company is granted court protection so that, in effect, the rights of the creditors and other third parties against the company are frozen for a period of time (which is currently a maximum of 150 days, plus the time required by the court to make the decision). It is commenced by a petition to the court by any of the directors, creditors or shareholders.
A CVA is a court-sanctioned procedure to enable a company in financial difficulty to reach a compromise or arrangement with its creditors and avoid liquidation. It is rarely used in practice as a secured creditor is free to enforce its security while the CVA is pending.
Making Examinership Accessible
Section 509(7)(b) of the Companies Act 2014 provides for what is colloquially referred to as “examinership-lite”. Small private companies that meet certain criteria can apply directly to the Circuit Court to have an examiner appointed, rather than applying to the High Court. While the measure was intended to make examinership more accessible for small private companies, there has not been much uptake. As a result, the Companies (Rescue Process for Small and Micro Companies) Act 2021 was signed into law on 22 July 2021 (but has not yet been commenced). This provides for a new rescue process to be made available to small and micro companies. While it adopts some of the key examinership principles. the process is more administrative, rather than Court-led in order to make it more cost-effective. Applications can still be made for Court protection orders.
Security may be set aside in certain circumstances at the beginning of insolvency procedures. There will also be a stay of execution concerning the appointment of an examiner.
The priority in which claims are paid is generally as follows:
Regarding Section 16(2) of the Social Welfare (Consolidation) Act 1993 mentioned above, any sum deducted by an employer from the remuneration of an employee in respect of an employment contribution due by the employer and unpaid by it does not form part of the assets of a limited company in a winding-up. Further, a sum equal to that deducted is paid into the Social Insurance Fund ahead of all preferential debts (super preferential claim).
Within each ranking, all claims in one category receive full payment before any remaining proceeds are distributed to creditors in the following category. When proceeds are insufficient to meet claims of one category in full, payments thereon are paid pro-rata.
Note that it is possible for the secured creditors to agree among themselves, where desired, the order of application of the proceeds of the enforcement of their security so far as their secured claims are concerned.
There is no concept of equitable subordination in Ireland. It is almost exclusively a US doctrine, although it has been adopted in other jurisdictions in the EU in special situations, including, but not limited to, Austria and Germany.
The following are some potential risk areas from the Lender’s perspective, should a borrower, security provider or guarantor become insolvent.
See 5.4 Restrictions on Target.
As part of their fiduciary duties the directors of an Irish company have an obligation to act in what they consider to be the best interests of the company they direct. The transaction must be for the company’s commercial benefit and these requirements should be recorded in the board minutes of the company.
Directors must ask whether they can justify their company providing security for another company’s obligations (in terms of corporate benefit). The risk of giving third-party security must be balanced against the actual or potential rewards. A parent company might justify giving security for a subsidiary’s borrowings (downstream security) because it will, directly or indirectly, hope to receive dividends from the subsidiary or will benefit from any enhanced commercial value in their role as shareholder.
Alternatively, a subsidiary might justify supporting its parent (upstream security) because of the support it receives from its parent in, for example, its marketing terms.
However, there are authorities to suggest that:
Additionally, the granting of security, and the liability incurred in respect of which the security was given, must be within the objective of the company as set out in its memorandum of association, otherwise it will be ultra vires and therefore void. However, this is no longer a requirement for limited companies under the Companies Act 2014, which has abolished the ultra vires doctrine in respect of such companies.
Interests of employees and directors' duties
It is now also a requirement for the directors of an Irish company to consider the interests of its employees (Section 224, Companies Act 2014). Under Section 1112 of the Companies Act 2014, there is an obligation on the directors of private limited companies to ensure that the person acting as company secretary has the necessary skills and resources to discharge his or her statutory duties.
Under the Companies Act 2014 the duties of a director have been codified to reflect common law principles. The principal fiduciary duties have been listed in Section 228 of the Companies Act 2014. Under Section 233 a director is now required to make a statement acknowledging their duties under the law and Section 225 requires a director to make a compliance statement when the company’s balance sheet total for the year exceeds EUR12.5 million and the amount of its turnover for the year exceeds EUR25 million.
Loans to Directors
Under Section 239 a company is prohibited from providing security in favour of a person who makes a loan (or a quasi-loan) to, or enters into a credit transaction with, a director of that company or its holding company, or a person connected to that director (as defined in Section 220). There are a number of exceptions, including where the transaction occurs with a member of the same group. These transactions can sometimes be summarily approved, but caution must be exercised as the Summary Approval Procedure is limited and is not intended to be deployed as a "catch-all" mechanism.
The outcome of the Breccia case was discussed above.
Other laws to consider include the following.
Section 610 of the Companies Act 2014
Section 610 of the Companies Act 2014, which relates to fraudulent or reckless trading. Fraudulent trading essentially means the carrying on of the business of a company with intent to defraud creditors or for any fraudulent purpose.
If, in the course of a winding up, it appears that any person was knowingly a party to the carrying on of any business of the company with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose (fraudulent trading), that person may be exposed to personal liability for all or any part of the debts or other liabilities of the company. Fraudulent trading can attract both civil and criminal liability.
Civil liability can be imposed on any person for “reckless trading” where it appears, in the course of winding up or examinership proceedings, that while an officer of a company, they were knowingly a party to the carrying on of any business of the company in a reckless manner or were engaged in fraudulent trading. Such a person may also be held personally responsible for all or part of the debts and liabilities of the company.
Section 238 of the Companies Act 2014
Section 238 of the Companies Act 2014. Subject to certain exceptions, it prohibits a company from acquiring assets from, or disposing of assets to, a director of the company, or of its holding company, or to a person connected with such a director, unless the company’s shareholders and, in some cases, the shareholders of its holding company approve the acquisition or disposal. The consequences of a breach of Section 238 are that:
Project finance as a financing technique has been used to finance large capital-intensive energy and infrastructure projects in Ireland since the early 1970s. Project finance is a loan arrangement whereby finance is raised on a non, or limited, recourse basis by a special purpose vehicle, with the repayment of the financing dependent on the cash flows generated from the project post-completion. It is underpinned by a robust legal framework in which sponsors, lenders and government parties rely on both the appropriate level of regulation as well as certainty regarding contract law. Ireland has recently seen a large amount of interest from investors on both the sponsor and equity side.
Such financing is now being offered by non-bank lenders, thus making the availability of credit to fund such projects more accessible. Project finance in Ireland is not subject to any specific legal framework, but will primarily depend on the sector within which the project falls (different regulations for healthcare, education, highway construction, etc).
The public-private partnership (PPP) is the most widely used project finance infrastructure model in Ireland. Essentially, this involves a public service or asset being funded and operated by the private sector under a long-term concession granted by the relevant public authority.
The government or public authority may provide certain advantages to the project company by way of a guarantee, a grant or use of a state asset for free or below market value. It should be noted that, in certain circumstances, such arrangement may be prohibited by the State Aid Rules.
The relevant government approvals, licences and statutory controls required for a project will depend on the specific nature of each project. The tax regime governing project finance transactions is generally the same as for other commercial loan transactions. Certain tax exemptions do apply in respect of certain sectors, but again this is based on the specificity of the transaction.
The transaction documents do not need to be registered or filed with any governmental body, save to the extent that such documents create security. In that instance, the relevant security filings will need to be made (as outlined above). The governing law of the transaction documents will, in the vast majority of cases, be the laws of Ireland, however, depending on who the lending pool are, the transaction documents may be governed by English law.
With respect to natural resources, the Natural Resources Section (NRS) of the Department of the Environment, Climate and Communications is the relevant authority in Ireland. There is specific primary legislation in Ireland regarding mining, including, but not limited to, the Planning and Development Act 2000, the Minerals Development Act 1940 and the Minerals Development Act 1979. As regards oil and gas, the primary legislation is the Petroleum and Other Minerals Development Act 1960, the National Oil Reserves Act 2007 and the Petroleum (Exploration and Extraction) Safety Act 2015.
A project finance deal will normally involve a number of lenders that provide funds to the project. Any potential issues which may arise will be dependent on the type of project that is being financed, so any risk should be assessed and allocated between the parties involved.
The project company will be required to adhere to both Irish and EU laws and regulations (including, but not limited to, competition law) which are specific to the sector in which the project is centred. There are no particular restrictions on foreign investment in Ireland, however, restrictions may apply to foreign investors in relation to certain regulated sectors, but this would need to be assessed on a case-by-case basis.
The typical source of financing for PPPs in Ireland would be bank financing and bond issuances.
As mentioned previously, the NRS is the relevant authority in Ireland which deals with natural resources and any policies relating to the acquisition and export of natural resources. The objective of the NRS is to sustainably exploit and manage Ireland inland fisheries, geological resources and oil and gas reserves. Any potential issues or considerations would need to be assessed on the basis of which natural resource is being extracted and comply with the primary legislation outlined in 8.4 The Responsible Government Body.
The Health and Safety Authority is the main body in Ireland responsible for health and safety laws. The primary legislation includes the Safety, Health and Welfare Act, 2005 (as amended from time to time), Chemicals Acts, 2008 and 2010, Safety Health and Welfare (Offshore Installations) Act 1987, Safety in Industry Act, 1980, Factories Act, 1955, and the Dangerous Substances Act, 1979 and 1972. The Health and Safety Authority also ensure that various regulations and orders are adhered to and have issued various codes of practice (for example, in relation to chemical agents, working on roads, safety in roof work).
As regards the environment, the national statutory body in Ireland is the Environmental Protection Agency (EPA). The EPA is an independent public body established under the Environmental Protection Agency Act, 1992.
Banking and Finance in Ireland Over the Last 12 Months
As 2020 drew to a close, lenders, borrowers and other finance professionals had well and truly adjusted to the "new normal" and remote working lockdown restrictions had very little noticeable impact (in certain sectors, at least) on deal size or volume, which continued at pre-pandemic rates into Q1 and Q2 2021.
Now, as vaccination rates across the world continue to rise and as lockdown restrictions are lifted, it will be interesting to see if there will be a return to "business as usual" or whether the COVID-19 pandemic has changed the market irreversibly.
Impact on the economy
There were 169 corporate insolvencies in first half of 2021, a decrease of 38% on the same period last year so, on the face of it, a more positive outlook for the year ahead. These figures likely do not tell the whole picture, with rating agencies forecasting an increase in non-performing loans for the rest of 2021 and the true scale of the impact of COVID-19 on the economy only to be revealed as the government phases out their pandemic-related supports over Q4.
Certain sectors of the economy were more insulated from the COVID-19 pandemic than others and during 2021, there have been many new financings provided by the Irish pillar banks, international funders and alternative lenders in, amongst others, the real estate investment sector as well as in the development finance space and, in particular this year, the leveraged acquisition market. The latter has experienced high volumes of activity since the beginning of 2021, as a result of, amongst other reasons, pent-up investor appetite to invest capital and take advantage of new opportunities arising as a result of the COVID-19 pandemic.
Against this backdrop, the government published its Economic Recovery Plan (ERP) on 1 June 2021 wherein it outlined its plans to achieve rapid job creation and economic growth after the pandemic. In addition to the existing pandemic supports set out below, the ERP set out a range of new supports for the next stage of recovery, including a small company administrative rescue process (SCARP) discussed in detail below.
Existing COVID-19 pandemic supports
The largest state-backed loan guarantee scheme in the history of the Irish state, the Strategic Banking Corporation of Ireland's COVID-19 Credit Guarantee Scheme (the "Guarantee Scheme"), which offers an 80% guarantee to facilitate up to EUR2 billion in lending to participating small and medium sized enterprises is scheduled to end on 31 December 2021 having already been extended from its original end date of 31 December 2020. As at the time of writing some 6,200 loans representing 20% of the EUR2 billion fund, have been granted and drawn down to date.
The figures reveal that, of the loans drawn under the Guarantee Scheme to date:
Though the Guarantee Scheme offers much needed support for those businesses, global ratings agency Fitch Ratings has sounded a more cautious note saying uptake has been “extremely low" and was “unlikely to increase significantly”.
Despite the low figures, Minister for Finance Paschal Donohue commented that the low uptake in the Guarantee Scheme is in fact a sign of the success of the government's other pandemic supports. He also said that the low demand for debt is a consistent feature of the Irish SME (small and medium enterprises) environment and that he expected an increase in application to the Guarantee Scheme once restrictions are lifted.
The SBCI's COVID-19 Working Capital Scheme, which provided loans from EUR25,000 to EUR1.5 million, closed to new applications with effect from July 2021. This scheme was one of the first supports to be introduced in March 2020 as an immediate response to the impact of COVID-19 on SMEs in Ireland and was phased out in light of SMEs’ preference for the Guarantee Scheme.
Continuation of pandemic support
However not all pandemic supports are ceasing, with no strict end date to Microfinance Ireland's (MFI) COVID-19 Business Loan, which provides loans from EUR5,000 to EUR25,000 to micro enterprises. MFI was the first support to market in March 2020 with a EUR20 million COVID-19 loan fund of initially offering loans of up to EUR50,000. This initial loan fund was fully utilised by midsummer but following the receipt of additional EUR15 million in funding, a new fund was launched with a reduced loan limit of EUR25,000 in late August 2020. Over EUR21.8 million in loans have been approved since its introduction to 848 businesses representing four times its normal annual lending rate.
The Irish Strategic Investment Fund's (ISIF) EUR2 billion Pandemic Stabilisation and Recovery Fund continues to make capital available to medium and large enterprises on commercial terms. In contrast to the other supports mentioned above, in 2020 the ISIF made a small number of overall loans, just twenty in total, but accounting for over EUR400 million of lending to Irish enterprises in a wide range of sectors. There is a further EUR600 million of potential lending in the pipeline for 2021 across approximately six transactions concentrated in the aviation and tourism/hospitality sectors.
It seems as though many businesses are wary of taking on further debt in the hope of riding out the storm. But with the horizon for reopening the economy by no means clear, many SME's may be forced to rethink this strategy.
The Companies (Miscellaneous Provisions) (COVID-19) Act 2020 (the "Covid Act")
Like the Guarantee Scheme, the application of the Covid Act was extended from 31 December 2020 to 31 December 2021. The Covid Act amended Irish company law that had created challenges for Irish companies following the onset of the pandemic. The main changes provided was to increase the protection period in an examinership up to 150 days (up from a maximum of 100 days) in exceptional circumstances and to increase the threshold at which a company is deemed unable to pay its debts to EUR50,000 (up from EUR10,000, or EUR20,000 where two or more creditors are acting together).
The examinership process has traditionally experienced very low levels of uptake and only three petitions made in the first half of 2021 (compared to seven on the same period in 2020). There is a considerable amount of work involved prior to any court application and though the increased thresholds are a welcome development one wonders if more could be done to encourage uptake of this proven corporate rescue option. The introduction of the Rescue Act for small and micros companies (SMCs) as discussed below might help to chance the mind set on availing of a corporate rescue plan.
The Companies (Rescue Process for Small and Micro Companies) Act 2021 (the "Rescue Act")
The Rescue Act came into force in July 2021 and provides for a SCARP, which is a dedicated framework for the rescue of SMCs that, with some key distinctions, effectively mirrors the existing examinership process used by the larger Irish corporates from an administrative perspective.
The Rescue Act aims to deal with some of the main hurdles to examinership for smaller companies highlighted by the Company Law Review Group in their 2020 report, the primary barrier being costs. SMCs account for 98% of all enterprises in the state, so the Rescue Act and SCARP are a welcome reform and all the more important in light of the ongoing pandemic.
In practice, SCARP aims to come to a conclusion within 70 days being less than half the time currently available to larger companies under traditional examinership. One hopes that the Rescue Act and SCARP can assist in helping SMCs bounce back as quickly as possible over the coming 12 months as various pandemic related supports are removed but only time will tell.
Long awaited reforms to the Investment Limited Partnership Act 1994 (the "1994 Act") intended to align the Irish investment limited partnership (ILP) more closely with the well-established limited partnership structures in other international funds domiciles such as the Cayman Islands and Luxembourg came into force.
The Investment Limited Partnership (Amendment) Act, 2020 (the "2020 Act") was signed into law on 23 December 2020 with all of its provisions having commenced by 1 March 2021. The 2020 Act amended the 1994 Act in a number of important ways that are expected to make the ILP a very compelling regulated EU fund vehicle for private equity/ credit, sustainable investments and other closed-ended alternative funds.
The ability to establish ILPs as umbrella funds, with segregated liability between sub-funds and to migrate partnerships into and out of Ireland on a statutory basis together with the clarification of rights and obligations of limited partners are just some of the important reforms which it is hoped will increase the attraction of ILPs in Ireland to international managers and investors.
The numbers of new ILPs is expected to increase during the year and while the implementation of the 2020 Act will not change the financial landscape overnight, it is worth contrasting the introduction of the updated ILP with that of the Irish Collective Asset-management Vehicle (ICAV) in the Irish market in 2015. Though the overall number of ILPs will be less than ICAVs (because of the broader range of product categories and asset classes that an ICAV can accommodate), it is anticipated that ILPs will have a proportionally bigger impact and create much more downstream work for a range of legal and other professionals across the corporate, tax and finance sectors.
This is welcome news to legal practitioners as, though funds finance work in Ireland has remained somewhat insulated from the effects of the COVID-19 pandemic generally, the 2020 Act sets the foundations for continued growth in this space in the future. With Ireland having positioned itself as one of the major players in the creation and management of investment funds worldwide and with the benefit of the 2020 Act, it is likely that ILPs will be increasingly involved in fund financing transactions.
Though Brexit may have received less column inches over the past 12 months compared to COVID-19, this does not mean the fallout and its unintended consequences from it have abated.
The UK and EU Trade and Cooperation Agreement which came into force on 1 May 2021 was sparse on details when it came to financial services and had no provisions for passporting or an equivalent framework.
However, both sides agreed the terms of a Memorandum of Understanding (MOU) on 26 March 2021 which are to lay the foundations for continued negotiation and cooperation in financial services between the UK and the EU going forward. The text of the MOU is not available for public scrutiny nor has the MOU been signed by the parties, but it is a welcome step in the right direction signalling a strong intention for collaboration in 2021.
On the ground, there has been an influx of financial services firms to Dublin with Barclays, Bank of America and BNY Mellon having announced investments in Ireland which are connected to Brexit. As many as ten UK and international law firms have followed, opening offices in the Irish capital or stating their intention to do so. This is in clear contrast to the years immediately following the Brexit referendum where the Law Society of Ireland saw a huge increase in the number of Brexit refugee solicitors enrolling but not practicing in Ireland.
It is estimated that the total number of job relocations across the financial services sector from the UK since the referendum is almost 7,600, with Dublin being the most popular destination in Europe. No doubt there are more jobs to come and the presence of international banks, assets managers and insurers in Ireland is set to drive competition and propel Ireland to new levels of economic activity.
Environmental, Social and Corporate Governance (ESG)
Reinforced by the impact of the COVID-19 pandemic, 2020 saw the EU continue to push towards a harmonised framework for sustainable finance. The EU Regulation on the Establishment of a Framework to Facilitate Sustainable Investment (which is more commonly referred to as the Taxonomy Regulation), adopted in June 2020, sets out an EU-wide classification system and provides a common method for investors to identify environmentally sustainable economic activities and encourage private investment in those activities.
The Taxonomy Regulation forms part of the EU's Sustainable Finance Action Plan which also includes the Sustainability Disclosures Regulation and the Low Carbon Regulation. These new initiatives will require large listed companies, banks and insurance companies to publish information on how, and to what extent, their activities align with those considered environmentally sustainable in the EU taxonomy. In order for an economic activity to qualify as environmentally sustainable, it has to substantively contribute to at least one of the six environmental objectives set out in the Taxonomy Regulation.
Investors are increasingly looking to align their investment decisions with their personal priorities. Investors are now not only focused on financial returns but also on non-financial outcomes. Asset managers are embracing ESG in order to align stakeholders’ interests and avoid short-term investments and results, in favour of long-term incentives aligning investment practices with social responsibilities and principles in order to meet investor demands.
The move towards sustainable finance in Ireland is particularly important in light of Project Ireland 2040 which sets out the government's long-term strategy for developing Ireland’s infrastructure over the next 20 years, including an investment package of EUR116 billion in the years to 2027 with climate change objectives, supported by, amongst others the recent Climate Action and Low Carbon Development (Amendment) Act 2021, to fundamentally shape public capital investment choices across a range of sectoral areas. The National Treasury Management Agency has raised in excess EUR5 billion through their Irish Sovereign Green Bonds since their initial issue in October 2018.
Irish pillar banks Allied Irish Banks plc and Bank of Ireland have, in recent times, issued their first "Green Bonds" raising eur1 billion and EUR750 million respectively. The proceeds of these Green Bonds are to be exclusively applied to the finance or re-finance of new and/or existing projects that will promote progress on environmentally sustainable activities. The ESG landscape in Ireland is starting to change, and for the better.
Though there has been a very strong start to the year and forecast continued growth throughout 2021, the economic impact of the COVID-19 pandemic will not be truly understood until lockdown restrictions have been lifted, not only in Ireland, but globally, and the dust has settled.
However, in the absence of a crystal ball many finance professionals will be satisfied with the status quo and will continue to "make hay" until the forecast says differently.