An investor who is borrowing to acquire or develop real estate in Ireland will usually be required by the lender to enter into a first ranking fixed security over the real estate asset in question. The form which the security takes is typically a charge.
The beneficiary of the charge, normally a first fixed charge, will obtain the right to enforce its security by taking possession of the real estate and/or appointing a receiver over it and/or managing it and/or disposing of it. The beneficiary of the first fixed charge will have priority over preferential creditors (such as the Revenue Commissioners (the tax authority) and employee claims), floating charge holders and unsecured creditors. A first fixed charge holder will also have priority over second ranking or subsequent fixed charges.
The terms “mortgage” and “charge” are often used interchangeably in relation to security over real estate. In general, references to mortgages and charges are to fixed security over the real estate asset in question. The differing terminology arises from the fact that, historically, there have been two different land registration systems in Ireland, the Registry of Deeds and the Land Registry. Security was created over real estate registered in the Registry of Deeds by way of a mortgage and over real estate registered in the Land Registry by way of a charge.
Legislation introduced on 1 December 2009, means that all security over real estate is created by means of a charge. This legislation facilitated a wide-ranging update to, and reform of, Irish land law generally and it also covered the creation of, and enforcement of, security. Mortgages and/or charges which were created before 1 December 2009 are still subject to the pre-1 December 2009 rules. The Land and Conveyancing Law Reform Act 2013, introduced in July 2013, clarified an error in the 2009 legislation by providing that lenders under pre-1 December 2009 mortgages would have similar (statutory) enforcement powers to lenders under post-1 December 2009 mortgages.
Depending on the nature of the real estate asset in question, the security required by the lender may need to extend beyond a straight charge over the asset in question. It is common for security to be granted over the rental income where the asset in question generates rents and/or insurances in respect of the real estate asset. This usually takes the form of a charge and security assignment whereby the tenants are directed to pay the rental income directly to the lender (often via a management agent) and/or the insurer is directed to pay any insurance proceeds directly to the lender, so that the rental income and/or insurance proceeds do not pass into the hands of the borrower.
A corporate borrower can also create a floating charge. This is a general charge over a class of assets which is not (in the normal course) affixed to a specified asset. A floating charge is usually used where, in the course of the borrower's business, the borrower needs the flexibility to deal with the secured assets from time to time, as it usually allows the borrower to dispose of the assets the subject of the floating charge without the consent of the lender. In relation to real estate, a floating charge can be used with regard to large property portfolios where the borrower requires maximum flexibility and the lender is willing to allow the borrower to manage the portfolio without the need for a specific consent each time an asset is to be disposed of, however, it is more typical for a lender to take a fixed charge when lending against real estate.
A fixed charge over real estate can be granted by anyone, including a corporate entity, a limited liability partnership, a traditional partnership or an individual. A floating charge cannot be granted by an individual.
Last modified 22 Mar 2024
Real estate is not a defined term under Irish law but it is broadly equivalent to the concept of land/immovable property. The assets and rights which constitute land are defined under Irish legislation. Real estate will include the land itself, rights and easements, mines and minerals, buildings erected on the land (and fixtures which form part of those buildings) and the airspace above and subsoil below the land.
Fittings, furniture and moveable objects are not usually considered part of land but it is also possible to take security over such assets.
Title to land can either be freehold or leasehold and land is either registered in the Registry of Deeds or in the Land Registry. The Land Registry system of title registration is the more modern. A process of re-registering all land with the Land Registry is ongoing but as the usual trigger for re-registration is a change of ownership this process will take time.
Last modified 22 Mar 2024
The key characteristic of a trust is that it allows legal and beneficial interests to be separated. The trustees become the legal owners of the trust property as far as third parties are concerned, and the beneficiaries can expect the trustees to manage the trust property for their benefit. The trust concept is long established and well recognized under Irish law.
Irish legislation provides that the entire beneficial interest in property passes to the buyer on the making of an enforceable contract for sale or other disposition of land.
Last modified 22 Mar 2024
Debt is commonly traded between lenders. In Ireland, syndicated lending transactions are commonly carried out using the standardized syndicated loan documentation prepared by the Loan Market Association (LMA), adapted for Irish law purposes. The LMA documentation comprises procedures around the transfer of debt between lenders. LMA-style documentation is also well used in Irish lending transactions for bilateral loans. In addition, lender-specific facility letters (with general terms and conditions attached) and facility agreements are also often used, particularly for smaller bilateral loans. Typically, the terms of most loans made in Ireland allow for the lender to freely assign the debt without the consent of the borrower.
There are several ways of transferring debt:
Assignment – this involves the transfer of all of the lender’s rights and benefits to the transferee (but not any obligations, as obligations would have to be transferred by way of novation.
Sub-participation – where the economic benefit of the loan is transferred to the transferee without affecting the original loan contract between the original lender and the borrower: the original lender remains the lender of record and the buyer of the debt takes the credit risk on the borrower.
It should be noted that where debt is assigned stamp duty may apply. Usually where one lender is assigning debt to another lender (whose business activities include the buying or selling of loans) there is an exemption from stamp duty. The availability of the exemption would need to be examined on a case-by-case basis.
Last modified 22 Mar 2024
There are no restrictions on granting security to foreign lenders.
Last modified 22 Mar 2024
There is no stamp duty or other tax payable on the creation of a security interest. Nor are there any mandatory notary/authentication fees (documents are generally only notarized in connection with the authentication procedures for foreign jurisdictions).
In accordance with section 409 of the Companies Act 2014 (as amended) (the “2014 Act”), for an Irish incorporated company, details of security taken should be registered at the Companies Registration Office within 21 days of its creation in order to preserve enforceability. The fee for the registration of security at the Companies Registration Office is €40.
Where a parcel of real estate which is registered in the Land Registry is charged, the charge can also be registered at the Land Registry. There is a fee payable but it does not generally exceed €175.
A charge in relation to real estate registered in the Registry of Deeds can be registered at the Registry of Deeds. There is a fee payable but it does not generally exceed €50.
Enforcement of the security does not create a taxable event in itself although tax issues may arise in the context of the enforcement process, particularly on the sale of real estate assets.
Last modified 22 Mar 2024
Yes, there are both financial assistance rules and corporate benefit rules which must be complied with in relation to Irish incorporated companies:
Section 82(2) of the 2014 Act creates a general prohibition on the provision of financial assistance (the “Section 82 Prohibition”). The Section 82 Prohibition states that the provision by a company (either directly or indirectly) of financial assistance – whether in the form of loans, guarantees, the provision of security or otherwise for the purpose of, the acquisition of its own shares or the shares in its holding company - is unlawful. In certain circumstances it is possible to carry out a "Summary Approval Procedure" to approve an otherwise prohibited transaction.
Under the 2014 Act, an Irish incorporated company limited by shares has the same unlimited capacity as an individual. The 2014 Act however also introduced a new type of private company under Irish law, a Designated Activity Company (DAC), (similar to the old form of private company limited by shares as provided under the Companies Act 1963). Such a company must have specific powers under its Constitution allowing it to purchase real estate and to enter into security. If these specific powers are not contained in its Constitution, then purchasing real estate and granting security by the company may be subject to challenge.
Directors of Irish incorporated companies must comply with both general rules of law and provisions under the 2014 Act. The 2014 Act codified the existing common law fiduciary duties of directors and sets out eight duties of directors. To summarize, a director of an Irish incorporated company must only act in a way that he considers, in good faith, is most likely to promote the success of the company for the benefit of its members as a whole. Further, a director must exercise independent judgment and the care, skill and diligence which would be exercised in the same circumstances by a reasonable person having: (1) the knowledge and experience that may reasonably be expected of a person in the same position as the director, and (2) the knowledge and experience that the individual director has. Since 2022, the 2014 Act provides that directors must have regard to the interests of creditors where the directors believe or have reasonable cause to believe that the company is, or is likely to be, unable to pay its debts
There are other company law issues which apply to Irish incorporated companies. These include rules relating to capital maintenance, restrictions on transactions between a company and its directors (or persons connected with its directors) and provisions relating to transactions which take place within certain periods (often referred to as the “hardening period”) prior to a company entering into an insolvency process (eg the fraudulent preference rules).
Last modified 22 Mar 2024
There are no restrictions on payments made to foreign lenders under a security document or loan agreement.
A borrower may be required to deduct withholding tax in respect of interest which is payable to a foreign lender, or its agent, in certain circumstances.
Last modified 22 Mar 2024
A lender can agree to subordinate/postpone its debt and any related security to that of another lender (even where the second lender is subsequent). This is usually done by means of an agreement called an intercreditor agreement. The intercreditor agreement will regulate the interaction between the lenders and their respective debts (including how repayment of those debts is dealt with) and how their respective security interacts (including on enforcement). A borrower will usually join into the intercreditor as a party to acknowledge the terms of the agreement between the lenders and to abide by them.
Last modified 22 Mar 2024
European Union Regulations in relation to choice of law apply in Ireland. In general, if a choice of law is a sensible choice (ie not chosen to deliberately avoid a national law or policy) the Irish courts will give effect to it.
As a general rule, enforcement is more likely to run smoothly if Irish law is chosen to govern a security document under which an Irish person creates security over an Irish asset.
Irish law should be chosen to govern a security document over an Irish real estate asset (whether the charging party is Irish or not). The security document will have to contain the necessary mandatory charging provisions in order to create enforceable security over the Irish real estate asset in question.
Where the assets that are the subject of security include assets situated in another country, a security document governed by the law of that other country will often be appropriate in relation to those assets.
Last modified 22 Mar 2024
The particulars of a security interest created by an Irish incorporated company have to, subject to certain exemptions, be registered at Companies Registration Office within 21 days of creation in order to preserve enforceability. If the security is not registered within the 21-day time limit, it is void against a liquidator or creditor. It is possible to make an application to the High Court for permission to register the security outside of this time limit. Granting an order to permit this is, however, at the discretion of the court and any such order will invariably be made subject to any security interests which have already been registered. Section 412 (3) of the 2014 Act also introduced a priority regime which provides that the priority will be determined by the date and time of receipt by the Registrar of a fully filed charge submission. The date of creation of the deed of charge no longer determines its priority. This is always subject to any interest created in the meantime which has been registered.
Security over real estate assets should also be registered in the Registry of Deeds/Land Registry (as applicable).If, however, security is not registered at the Registry of Deeds/Land Registry (as applicable), it may affect the priority of the security.
Last modified 22 Mar 2024
A holder of security over land is not liable for environmental damage provided it does not take possession of the land and does not itself cause, or knowingly permit, damage to the environment.
Owners of land can be liable for environmental damage on that land or arising from it, even if they did not cause such damage. A mortgagee should not go into possession of land without careful consideration of the implications of potential environmental liability.
Last modified 22 Mar 2024
The key issues in relation to the enforcement of security are the validity of, and terms of, the underlying facility agreement and the security itself. In general, where the debt becomes repayable/due, and is demanded but not repaid, then the terms of the security will allow the lender to enforce its security.
Once the security is enforceable, the lender can usually proceed with enforcement immediately. Depending on the terms of the security and the assets concerned, enforcement will involve the appointment of a receiver, taking possession and selling.
The assets can be disposed of by way of private agreement and there is no requirement for a public auction. However, the a receiver has a duty to obtain the best price reasonably obtainable for the assets. Funds realized from the sale of the assets are used to pay the receiver and other costs associated with the enforcement, the lender’s debt and any remaining balance is returned to the borrower.
If the borrower is co-operative then the enforcement process can proceed smoothly, especially where possession is voluntarily surrendered. If the borrower is not co-operative, however, the process can take time and may involve court applications, particularly if the validity of the security is challenged or if possession is not voluntarily surrendered. In circumstances where a receiver is appointed over the assets of a company, certain statutory filings and advertising requirements must also be adhered to.
Where individuals and borrowings/security relating to their principal private residence are concerned, the situation can be more complex and certain procedures set out in Irish consumer credit legislation and/or by the financial regulator will have to be complied with when enforcing. This should not prevent the lender enforcing its security but it will slow the process down when compared to commercial real estate.
An Irish company (or indeed its directors, creditors and shareholders holding at least 10 percent of the company’s paid-up voting share capital) may petition the High Court to appoint an examiner in circumstances where that company is unable (or is likely to be unable) to pay its debts but where there is a reasonable prospect of the survival of the company and the whole or part of its undertaking as a going concern. During the period while an examiner is enquiring into the affairs of a company, a moratorium prevents secured creditors from enforcing their security without the consent of the court.
Last modified 22 Mar 2024
Schemes of arrangement pursuant to Part 9 of the 2014 Act (“Part 9 Scheme”) exist under Irish law. A Part 9 Sscheme is a court-supervised process whereby a scheme is proposed by a company with its creditors or members which typically involves arrangements for reduced payments to creditors. Part 9 Scheme provisions are largely identical to the English scheme of arrangement provisions contained in Part 26 of the Companies Act 2006.
The principal procedure in Ireland in relation to the rescue/restructuring of Irish incorporated companies is the “examinership” process. An Irish company (or indeed its directors, creditors and shareholders holding at least 10% of the company’s paid-up voting share capital) may petition the High Court to appoint an examiner in circumstances where that company is unable (or is likely to be unable) to pay its debts but where there is a reasonable prospect of the survival of the company and the whole or part of its undertaking as a going concern..
On his appointment, the examiner (who is typically an accountant) will enquire into the affairs of the company, seek fresh investment and look to formulate a scheme of arrangement between the company and its members and creditors. Reference to a scheme or arrangement prepared in the context of an examinership is different from a Part 9 Scheme.
The scheme of arrangement must be approved by (1) majority of the voting classes of creditors whose interests or claims would be impaired by the scheme of arrangement have accepted them, provided that at least one of those creditor classes is a class of secured creditors or is senior to the class of ordinary unsecured creditors or (2) where 1 is not met, at least one voting class of creditor whose interest would be impaired by the scheme of arrangement and who would be an “in the money creditor” in a liquidation has voted in favour of the scheme of arrangement. In practice, it is the later provision which is relied upon most commonly.
If approved in accordance with the foregoing, the examiner can place his scheme before the High Court for approval.
During the period while an examiner is enquiring into the affairs of a company a moratorium prevents secured creditors from enforcing their security without the consent of the court. This does not apply to set off.
In 2021 a new administrative procedure for small and micro companies, colloquially referred to as SCARP was introduced. Under the SCARP process, a process adviser is appointed to a company with a view to trying to facilitate the company’s survival by restructuring its debts and seeking new investment. Unlike examinership, there is no automatic moratorium on enforcement but an application can be made to the court to seek that a moratorium is applied.
Last modified 22 Mar 2024
Generally, the onset of a borrower's insolvency does not, in itself, affect security interests although examinership (and potentially SCARP) can impose a moratorium which prevents secured creditors from enforcing their security without the consent of the court.
Security can be set aside in certain circumstances including where its granting constitutes a preference or a transaction at an undervalue. Generally, for this to happen a court order is required and the security must have been created within a certain time period (ie the 'hardening period' referred to in non-solvency procedures – this varies depending on the circumstances) before the commencement of the insolvency process.
In addition, a floating charge granted by a company within 12 months (24 in the case of connected persons) of commencement of a winding up is invalid unless it can be shown that the company was solvent immediately after the charge was created.
Last modified 22 Mar 2024
In relation to Irish incorporated companies, the order of payments on insolvency is set out in the 2014 Act. Assets subject to fixed security fall outside the insolvency process which in effect means that the fixed security holder has direct recourse to those assets and the proceeds of realization.
The order of payments is (generally) as follows:
Personal insolvencies in Ireland are subject to the Bankruptcy Act (which was amended by the Personal Insolvency Act, 2012). The Act represented a radical overhaul and modernization of Ireland’s personal insolvency law. The Personal Insolvency (Amendment) Act, 2015 has made a number of further significant amendments. With regards to the term of bankruptcy, the Act sets a new default term of one year from the date of adjudication. Among other things, it assists cooperative debtors while also providing sanctions with significantly extended terms where debtors seek to abuse the process. Consequently, future attempts by Irish citizens to declare bankruptcy in other jurisdictions may in certain cases be cause for suspicion amongst creditors.
Last modified 22 Mar 2024
When a borrower is in default, are there any formalities required or obstacles to be overcome before the lender is able to enforce its security over real estate?
The key issues in relation to the enforcement of security are the validity of, and terms of, the underlying facility agreement and the security itself. In general, where the debt becomes repayable/due, and is demanded but not repaid, then the terms of the security will allow the lender to enforce its security.
Once the security is enforceable, the lender can usually proceed with enforcement immediately. Depending on the terms of the security and the assets concerned, enforcement will involve the appointment of a receiver, taking possession and selling.
The assets can be disposed of by way of private agreement and there is no requirement for a public auction. However, the a receiver has a duty to obtain the best price reasonably obtainable for the assets. Funds realized from the sale of the assets are used to pay the receiver and other costs associated with the enforcement, the lender’s debt and any remaining balance is returned to the borrower.
If the borrower is co-operative then the enforcement process can proceed smoothly, especially where possession is voluntarily surrendered. If the borrower is not co-operative, however, the process can take time and may involve court applications, particularly if the validity of the security is challenged or if possession is not voluntarily surrendered. In circumstances where a receiver is appointed over the assets of a company, certain statutory filings and advertising requirements must also be adhered to.
Where individuals and borrowings/security relating to their principal private residence are concerned, the situation can be more complex and certain procedures set out in Irish consumer credit legislation and/or by the financial regulator will have to be complied with when enforcing. This should not prevent the lender enforcing its security but it will slow the process down when compared to commercial real estate.
An Irish company (or indeed its directors, creditors and shareholders holding at least 10 percent of the company’s paid-up voting share capital) may petition the High Court to appoint an examiner in circumstances where that company is unable (or is likely to be unable) to pay its debts but where there is a reasonable prospect of the survival of the company and the whole or part of its undertaking as a going concern. During the period while an examiner is enquiring into the affairs of a company, a moratorium prevents secured creditors from enforcing their security without the consent of the court.
Last modified 22 Mar 2024