This article considers the decision in the case of Healy & Ors. v McGreal (Unreported, High Court, Donnelly J., 29 February 2016) and the validity of Receiverships following a loan sale.
Ben Healy, Miriam Healy and Seamus Spillane had significant borrowings with Anglo Irish Bank Corporation, which were secured by mortgages against several residential and commercial premises. In or around 2011, Anglo was nationalised and subsequently renamed Irish Bank Resolution Corporation Limited (in Special Liquidation) (IBRC).
By Deeds of Appointment dated 12 September 2013, the defendant, Robert McGreal, was appointed to act as Receiver and Manager in respect of several secured assets by IBRC.
In 2013, Ben Healy, Seamus Spillane and Miriam Healy, either jointly or individually, issued 3 sets of High Court plenary proceedings. The facts of each case and the issues raised were almost identical which allowed Ms. Justice Donnelly to deliver a composite judgment in the High Court.
Prior to the High Court hearing, IBRC assigned all its rights, title and interest in the loans and related security of the plaintiffs to Kenmare Property Finance Limited (Kenmare). Subsequently, IBRC, Kenmare and Robert McGreal executed two Deeds of Novation of Receiver dated 23 May 2014 and 28 May 2014 whereby Kenmare was substituted into the place of IBRC as the original party to the Deeds of Appointment with the Receiver, Robert McGreal.
The Plaintiffs' Claim and the Defence
The plaintiffs' claim appears to have evolved over the course of the proceedings and the High Court allowed them the opportunity to amend their statement of claim, which was delivered to the defendant on 7 January 2015. The High Court's decision to allow the statement of claim to be amended late in the proceedings was on an exceptional basis because they were litigants in person and because it was viewed as being necessary in the interest of justice.
The main argument at the outset of the proceedings centered on, amongst other things, securitisation, however the plaintiffs' arguments shifted to a challenge to the validity of the appointment of the Receiver. In particular, the plaintiffs focused on challenging the Deeds of Novation of the Receiver despite this not being pleaded in their amended statement of claim.
The plaintiffs did not dispute their borrowings, nor did they deny entering the mortgages with Anglo. Arguing that the appointment of the Receiver could not continue to be valid post loan sale, the plaintiffs relied upon Section 58 of the Asset Covered Securities Act, 2001 (the 2001 Act), which states:
"(8) A transfer of a business or assets under this section takes effect – (a) subject to any conditions imposed on the approval of the transfer, and (b) on the date or dates specified in the scheme.
(9) On the transfer of a business or assets under this section – (a) the transferee credit institution has the same rights (including priorities) and obligations in respect of that business or those assets as the transferor credit institution had immediately before the transfer took effect, and (b) the transferor ceases to have those rights and obligations." [Emphasis added]
The plaintiffs argued that on the date of the Loan Sale Deed IBRC ceased to have any rights or obligations as regards their mortgages and did not therefor have any standing to enter into the Deeds of Novation.
The determination in the High Court and the Court of Appeal
The Court found that the Receiver was still "…duty bound to act as receiver and to realise the assets… if an issue arises as to who is entitled to the benefit of the realised assets, that is a matter between the original lender and any party claiming to have bought those loans." The Court rejected the plaintiffs’ submissions that IBRC should have discharged the Receiver at the time of the Loan Sale and that Kenmare should have reappointed the receiver. The High Court judge concluded that the sale of the plaintiffs’ loans by IBRC to Kenmare did nothing to invalidate the Receiver’s appointment.
On appeal, the Court of Appeal held that Mr. McGreal's appointment as receiver prior to the Loan Sale to Kenmare, was valid and ongoing pursuant to the original deeds of Appointment. The fact that IBRC entered into the Loan Sale with Kenmare and was no longer a party to the loan did not affect the validity of the Receiver’s appointment or the ongoing nature of the receivership. The Court said that the only question arising as a result of the Loan Sale was to whom the Receiver would remit any sums recovered in the course of the receivership, and that was a matter between the receiver, IBRC and Kenmare and had nothing to do with the plaintiffs. The provisions of section 58(9) of the 2001 Act did not provide any basis for plaintiff's challenge to the lawfulness of the Receiver’s appointment.
The judgment of Donnelly J., which was upheld in the Court of Appeal by Irvine J., demonstrates that a Receiver continues to be validly appointed post loan sale and prior to the execution of a Deed of Novation of Receiver. Indeed, Deeds of Novation serve to regularise the position between the transferee, the transferor and the Receiver post loan sale and they have no bearing either on the validity of the receivership or on the realisation of the assets over which the receiver is appointed.