Statutory Loan Transfers – A Missed Opportunity

There are a number of legal techniques in the Irish loan market for transferring a portfolio of loans and underlying security. These include assignment, novation and transfer under a bespoke statutory process.

An assignment is only effective to transfer rights. If liabilities are also to be transferred this requires a novation - which is effectively a new contract between the transferring bank, the obligor and the transferee bank. Where a large pool of loans and security is transferred the novation route is unworkable.

Bespoke transfers include transfer schemes under Part III of the Central Bank Act 1971 ("CBA 1971"), and under the Asset Covered Securities Act 2001 ("ACSA 2001"). These schemes provide a legally secure method of transferring rights and liabilities without having to put in place a novation with each customer. If available, therefore, a statutory scheme can be particularly useful where a large portfolio is transferred.

In AIB Mortgage Bank v Thompson [2017] IEHC 515 the High Court (Baker J) considered the ability of the transferee of a loan book under ACSA 2001 to recover on foot of a transferred loan where the transferor bank was not a party to the claim. While the court ultimately held that the transferee bank could bring an action for repayment without joining the transferor, the process by which the court reached that conclusion did not give the statutory scheme under ACSA 2001 the prominence it deserved. Instead, the court engaged in a close analysis of the law relating to legal assignments holding that there was no transfer of the legal interest - albeit ultimately holding that ACSA 2001 meant that joining the transferor to the litigation would achieve nothing.

We respectfully suggest that the analysis could have started and finished with a consideration of ACSA 2001. This provided that an in-scope transfer is effective to transfer assets and liabilities comprised in the loan portfolio. We also suggest that the decision is not authority for the proposition that even where ACSA 2001 (or CBA 1971) applies, the court must nonetheless analyse whether a full legal assignment has taken place. A legal assignment is a different mode of transfer to a statutory transfer process. An ACSA 2001 or CBA 1971 transfer does not require a legal assignment: in each of those cases the transfer is effective because the statute says so.

The Facts in Brief

The case involved the transfer of a portfolio of loans by Allied Irish Banks plc to AIB...