True Sales Under Irish Law – Market Approach Confirmed

The Irish High Court has recently ruled on the test for determining whether the transfer of a debt is a "true sale" or is by way of a charge. It has, helpfully, adopted the well-established test taken in a long line of English cases which emphasises that the legal form of the contract adopted by the parties will determine its nature, provided the contract is not a "sham".

Re Eteams (International) Limited (in voluntary liquidation) is the first Irish High Court decision dealing with these issues in the context of debt sales or invoice discounting ([2017] IEHC 393). To date, Irish lawyers advising on whether a transaction is a "true sale" have had to base their advices on an assumption that the Irish courts would take a similar approach to those English cases. The decision means that this assumption is no longer necessary. His decision confirms that Irish law is effectively the same as English law on this issue.

The claim involved in Eteams was relatively modest. However the decision is important in the context of analogous transactions typically involving significant sums of money, such as the outright transfer of debt portfolios in structured finance and securitisation transactions or the correct characterisation in Irish law of securities sale/repurchase transactions where Irish counterparties are party to these structured products.

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