Publications

The effective date of this provision requiring prior Ministerial consent is 23 December 2010 in the case of local authorities, and 27^th January 2011 for all other entities named in the statutory instrument. Applications for consent must be submitted to and shall be processed by the Central Capital Unit at the Department of Finance.

A person or body or governmental agency to which Section 67 of the Act applies “shall not mortgage, pledge or encumber its own assets or revenues to secure any present or future indebtedness or any guarantee or indemnity given in respect of such indebtedness, without the consent of the Minister” for Finance (s.67(2) of the Act). And, furthermore the Minister shall not consent unless he or she is satisfied that the relevant borrowing would not give rise to a breach of an obligation to the “facility lenders” (s.67(3) of the Act).

“facility lenders” are defined in s. 67(5) of the Act as (i) the IMF, (ii) European Financial Stabilisation Mechanism, (iii) European Financial Stability Facility, and (iv) the lender under any bilateral loan agreement with a Member State. Ministerial consent is required in order to comply with the EU/IMF support programme and to ensure the information is centrally available and recorded in the Department for all existing and future secured borrowings. Where security is granted in contravention of s.67(2) of the Act, the facility lenders shall be taken to be entitled to share pari passu and pro rata in such security or encumbrance (s. 67(4) of the Act). This will have a significant adverse impact on the value of any such security granted in contravention of the Act.

Circular No. 3/2011 issued by Central Capital Section of the Department of Finance following the implementation of the statutory instrument states that the Department will maintain a register of encumbrances (the “Register”) for historical and new secured borrowing. Circular No. 3 dated 4 February 2011, requests the relevant persons to provide a list of all its current encumbrances, or where applicable confirmation of no encumbrance, for itself and each body under its aegis as specified in the Credit Institutions (Stabilisation) Act by mid-February 2011.

The Circular confirmed that the Register will be maintained in the Central Capital Unit of the Department of Finance, and published contact details include address: Upper Merrion Street, Dublin email: cipu@finance.gov.ie and phone contact information is available. Following an enquiry to CIPU, we were informed that the Register of encumbrances being held by the Department is for internal use only and it is not intended to be made available for inspection or search by the public.

Whereas it is norm in secured financing transactions to inspect all available public registers pertinent to the borrower, as part of initial due diligence and as part of closing procedures. However the Register of encumbrances will not be available to and accessible by the public and interested persons involved in providing funding to relevant State institutions in a manner similar to other public registries operating in the State such as the Property Registration Authority and/or the Companies Office. The utility and functionality of the Register is to ensure compliance with, and to monitor Government secured borrowings in accordance with EU/IMF support programmes and to ensure a level of access, disclosure and transparency of secured borrowings to the facility lenders only. 

Persons and entities coming within the sphere of application of section 67 of the Act will now need to factor in additional time constraints and conditionality associated with obtaining Ministerial Consent in order to access new funding whether under existing loan documents and more particularly any new facilities for all projects.

Attribute to Christine O’Donovan, Partner and Head of the Financial Services Department Mason Hayes & Curran.

Christine is Head of the Financial Services Department at Mason Hayes & Curran. For more information, please contact Christine at codonovan@mhc.ie or + 353 1 614 5082. The content of this legal update is provided for information purposes only and does not constitute legal or other advice. Mason Hayes & Curran (www.mhc.ie) is a leading business law firm with offices in Dublin, London and New York. © Copyright Mason Hayes & Curran 2011. All rights reserved.