Lending And Taking Security In Ireland: Overview
OVERVIEW OF THE LENDING MARKET
What have been the main trends and important developments in the lending market in your jurisdiction in the last 12 months?
There have been a number of important developments in the Irish lending market in the last 12 months. One of the most significant developments is the divestment of loan portfolios by Irish banks, which are under pressure to deleverage their loan books.
There is growth in lending to certain sectors, notably commercial property. The National Asset Management Agency (NAMA) "bad bank" created to hold non-performing financial assets after the 2008 financial crisis continues to work through the various loan books it has acquired and it has reached a new stage in its development, post loan acquisition. Non-Irish banks continue to lend to Irish-based borrowers.
FORMS OF SECURITY OVER ASSETS
What is considered real estate in your jurisdiction? What are the most common forms of security granted over it? How are they created and perfected (that is, made valid and enforceable)?
Real estate consists of real property, as opposed to personal property, and includes any piece of land and the buildings on it. Real estate also includes the airspace above the land, the ground below it and any natural resources on it. Anything fixed, immovable or permanently attached to land is also included in the real estate.
Title to land can be freehold or leasehold in nature and can be registered or unregistered.
Common forms of security
The following forms of security can be taken over real estate:
Legal mortgage. Before the implementation of the Land and Conveyancing Law Reform Act 2009 (2009 Act), the mechanism for creating a legal mortgage over land varied between registered and unregistered land. However, legal mortgages after 1 December 2009 are now covered by the same rules, irrespective of whether the land is registered or unregistered. Equitable mortgage. The 2009 Act did not affect the creation of equitable mortgages. An equitable mortgage may be created in Ireland in a number of ways: where money is advanced on the assumption that a mortgage has been created; where the mortgagor holds only an equitable interest in the land at the time of creating the mortgage; where there is an agreement for a legal mortgage; the deposit of title deeds. If a mortgagor only has an equitable interest in the land, only an equitable mortgage can be created.
Fixed charge. A fixed charge is a specific charge on specific property, such as on the land and buildings of a company, as security for a loan. A fixed charge can be contrasted with a floating charge. A fixed charge involves the vesting of a legal interest in the vendor of the loan at the time of the transaction. A fixed charge over land prevents the borrower from disposing of the land without the lender's consent or without the discharge of liabilities owed to the lender. Floating charge. A floating charge over land is quite unusual, and is more appropriate or usual in respect of other assets such as stock (see Question 3). Formalities
Registration is required to perfect security interests in land. The specific formalities in relation to real estate 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.
Security interests in registered land must be registered with the Land Registry with any ancillary documentation and a Land Registry Form 17. Different rules apply in respect of fixed and floating charges. Fixed charges must comply with the requirements prescribed under the Land Registry Rules and the 2009 Act, and must be registered at the Land Registry. Conversely, a floating charge over registered land would not be registered until it crystallises.
Where security is being created over property by a commercial mortgage or debenture, a Form 115 should also be filed with the Land Registry. This should technically be registered with the CRO within 21 days, although this is an unsettled practice in Ireland at present and there are differing views on the requirement to register with the CRO.
Security interests in unregistered land must be registered with the Registry of Deeds.
If a company creates a mortgage or charge over real estate, this must be filed with the Irish Companies Registration Office (CRO
within 21 days of the creation of the security. This typically takes the form of Form C1 (or Form 8E in the case of a charge on property in the state created by a company incorporated outside the state).
Tangible movable property
What is considered tangible movable property in your jurisdiction? What are the most common forms of security granted over it? How are they created and perfected?
Tangible movable property
Tangible movable property can 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:
Fixed charge. A fixed charge attaches to a specific asset or class of assets on creation. Floating charge. The security will "float" over the asset and remains dormant until some further step is taken by or on behalf of the lender. 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 takes place on the occurrence of an event specified in an automatic crystallisation clause or the borrower's insolvency. Such specified events may include the: appointment of a receiver; start of a winding-up; intervention of the chargee, when entitled so to do. Floating charges have certain weaknesses, including:
They have weak priority against purchasers (who are not on notice of any negative pledge contained in the floating charge) and chargees of the assets concerned, and against lien holders, execution creditors and creditors with rights of set-off. They rank after certain preferential creditors, such as claims of employees and certain taxes on a winding-up. They rank after certain insolvency remuneration expenses and liabilities. The examiner of a company has certain rights to deal with the property covered by the floating charge. They are affected by section 288 of the Companies Act 1963, which provides that a charge may be held to be invalid if created by the company within the period of 12 months before the commencement of a winding-up, unless it is proved that the company was solvent immediately after the execution of the charge. This is extended to a period of two years where a floating charge on the undertaking or property of a company is created in favour of a connected person. They rank after fixed charges. Formalities
The same CRO registration requirements apply. Specific formalities apply in relation to different categories of assets:
Agricultural stock. 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 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. The security must be registered within one month of creation with each Circuit Court in each district where the chattels are situated. Aircraft. A mortgage or fixed charge can be created over aircraft. Typically, registration is required under the terms of the Cape Town Convention in addition to the regular CRO filings (see Question 2), to ensure that the security is perfected. Registrations are made on a priority basis. Notice of the security interest may also be affixed to the aircraft, in accordance with the terms of the security document. Ships. Security over a ship can only be created by a 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 may also be affixed to the vessel. Movable plant and machinery. Security over movable plant and machinery is typically created by a fixed or floating charge. Registration should be made at the CRO (see Question 2) and notified by affixing notice of the security interest to plant or machinery. Financial instruments
What are the most common types of financial instrument over which security is granted in your jurisdiction? What are the most common forms of security granted over those instruments? How are they created and perfected?
Financial instruments are defined in the Directive 2009/44/ EC on settlement finality and financial collateral arrangements (Settlement Finality and Collateral Arrangements Directive) (amending Directive 98/26/EC on settlement finality in payment and securities settlement systems and Directive 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims). These include:
Shares in companies and other securities equivalent to shares in companies. Bonds and other forms of instruments giving rise to or acknowledging indebtedness, if these are tradable on the capital market. Any other securities that are normally dealt in and that give the...
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