Securitisation 2023

• Jurisdiction: European Union
• Author: Mr Andrew Traynor, Aisling Burke, Ian McNamee and Sinéad Gormley
• Law Firm: Walkers
• Published date: 03 March 2023

1. Structurally Embedded Laws of General Application

1.1 Insolvency Laws

Ireland is a leading domicile within Europe for securitisation activity and the leading European jurisdiction by value for securitisation special purpose entities (SPEs). While the legislative regime incorporates a number of supportive taxation measures, no equivalent measures exist in the area of insolvency law. Issuers and originators in Ireland are subject to the general insolvency law and utilise well-established structures to insulate the underlying assets from the balance sheet (and insolvency estate) of the originator. See 1.3 Transfer of Financial Assets.

While there has been an increase in synthetic securitisations in recent years, an Irish securitisation of receivables is typically structured as a "true sale" via an assignment from the originator directly, or through an intermediary vehicle, to the issuer. True sale transactions are subject to two principal risks in an originator insolvency: recharacterisation of the sale as a secured loan and claw-back on originator insolvency. Both true sale and synthetic securitisations may be impacted by rules on consolidation of assets, avoidance of certain contracts and examination of companies.

Recharacterisation as Secured Loan

True sale

A transfer of assets purporting to be a true sale may in certain circumstances be recharacterised by an Irish court as a secured loan. In determining the legal nature of a transaction, a court considers its substance as a whole, including economic features and the parties' intention; and irrespective of any labels

Recharacterisation was considered by the High Court in Bank of Ireland v ETeams International Limited [2017] IEHC 393 (subsequently upheld by the Court of Appeal in Bank of Ireland v ETeams (International Ltd) [2019] IECA 145), which endorsed the principles set out in the English cases of Re: George Inglefield [1933] Ch.1, Welsh Development Agency v Export Finance Co. Limited [1992] BCLC 270 and Orion Finance Limited v Crown Financial Management Limited [1996] BCLC 78.

Re: George Inglefield prescribed three indicia distinguishing a sale from a security transaction.

• Return of the asset - a security provider is entitled until the security has been enforced, to recover its secured asset by repaying the sum secured; whereas a seller is not entitled to recover sold assets by returning the purchase price.
• Sale at a loss - if a secured party realises secured assets for an amount less than the...