Irish Bank Resolution Corporation
On 15 January 2009, the Irish Government decided, having consulted with the Board of Anglo Irish Bank, to take steps to enable the bank to be taken into public ownership. The decision was taken after consultation with the Central Bank and the Financial Regulator. The Anglo Irish Bank Corporation Act 2009 was passed and transferred the ownership of Anglo Irish Bank to the Minister for Finance. The State invested €4bn in ordinary shares in Anglo Irish Bank in June 2009 and a further capital injection of €100m in Irish Nationwide Building Society (“INBS”) was made in 2010 in the form of special investment shares.
Additional capital injections into Anglo Irish Bank and INBS were by way of promissory notes. By 31 December 2010 the total promissory notes held by Anglo Irish Bank and INBS was €30.6 billion. In total, therefore, the State invested €34.7bn in Anglo and INBS.
In early 2011 the majority of the deposits held in Anglo Irish Bank and INBS were transferred to Allied Irish Banks and Permanent TSB respectively and in July 2011 Anglo Irish Bank and INBS were merged to form Irish Bank Resolution Corporate (“IBRC”).
In February 2013, following discussions between the Irish Authorities and the ECB, the IBRC promissory notes were exchanged for a portfolio of long-term government bonds which have a weighted average maturity of 34 to 35 years in comparison to the weighted average maturity of the promissory notes of 7 to 8 years. The replacement of the promissory notes with long dated Irish government bonds has significantly smoothed Ireland’s debt profile and reduced near-term borrowing requirements.
In February 2013 the Irish Bank Resolution Corporation Act 2013 was enacted and a special liquidation order was signed by the Minister for Finance placing IBRC into special liquidation. The joint special liquidators, Kieran Wallace and Eamonn Richardson, now control the operations of IBRC pursuant to the IBRC Act 2013.
The Special Liquidation
The success of the liquidation to date has far exceeded expectations at the outset of the Promissory Note transaction in 2013 with IBRC staff along with the Special Liquidators and their advisors having worked tirelessly to plan and execute the liquidation of IBRC.
The Department of Finance has published four Progress Update reports, in May 2017, May 2016, February 2015 and June 2014, which provide a comprehensive overview of the breadth of work performed in conducting one of the most complex and challenging liquidations in Irish corporate history.
The success of the liquidation, along with the numerous benefits obtained through the promissory note transaction itself, are critical to the restoration of confidence in Ireland.
To 6 February 2017 (the 4 year anniversary of the IBRC liquidation), the liquidation had generated €17.134bn of cash inflows. This has resulted in a cash balance of c. €1.92bn which will ultimately be available for distribution to creditors. In December 2016, the Special Liquidators paid an interim dividend of 25% to all admitted unsecured creditors. As part of this process the State received c. €280m in relation to Department of Finance claims. It is the expectation of the Special Liquidators, based on current information, that the eventual unsecured creditor dividend will be in the range of 75% – 100% of all eligible claims. This eventual dividend range is subject to change depending on future events which are outside the control of the Special Liquidators. The likely financial result for the State from the Special Liquidation of IBRC is not yet known as it will be dependent on the ultimate level of dividend available. The ultimate level of dividend paid to each creditor cannot be known until such time as all loan assets are sold, the total level of adjudicated creditors is finalised and the other contingent creditor claims which may crystallise, including those from litigation, are known. As a result of The European System of National and Regional Accounts (ESA 2010), IBRC is classified in government. Any payment from the Special Liquidators of IBRC to the State would be considered an intra-government payment with no impact on the deficit. It would however improve the exchequer borrowing requirement as the cash received would increase the cash balances in the Central Fund and thereby reduce the required level of borrowing.
At this stage, loans with a par value of €21.7bn have been prepared, brought to the market and sold. The success of the loan sales processes negated the need to transfer any assets to NAMA as part of this process and removes any residual risk of further calls on the Exchequer and illustrates the strong confidence of investors in the Irish economy and its future prospects with 355 parties across 13 countries interested in the various portfolios. Among other assets, loans with a par value of €3.7bn remain which the special liquidators continue to manage. These are loan assets which were not included in the original sales processes as they are connected to cases involved in ongoing litigation.
While the bulk of the liquidation proceeds have been realised, there remains a significant amount of work to be completed by the Special Liquidators including the on-going management of c. 175 legal cases to which IBRC (in special liquidation) remains party. The completion of the creditor adjudication process is another key task for the Special Liquidators. The Special Liquidators will continue to work with unsecured creditors who have submitted a claim but have yet to have their claim admitted. Other tasks remaining for the Special Liquidators include their work with the Commission of Investigation, the management of the remaining loan book of c. €3.7bn, the liquidation of the remaining subsidiaries, the realisation of all remaining assets and the completion of various projects which include the Interest Overcharge Remediation Project.