On 30 July 2009 the Irish Minister for Finance, Mr Brian Lenihan, TD, (“the Minister”) published the draft text of the proposed legislation relating to the National Asset Management Agency (“NAMA”). He has indicated that the draft legislation will only be formally published as a Bill in September 2009. The Dáil is expected to return on 16 September 2009 to commence the debate on the actual published Bill. By publishing the legislation in draft form, the Minister has indicated that he is keen for interested parties to have an opportunity to contribute to the debate on this legislation and it is anticipated that interested parties will provide detailed submissions on the draft legislation between now and September. By the time the Bill is published in September, it could be substantially amended.
In addition to publishing the draft legislation, the Minister has also issued a press release as well as a document addressing possible questions arising from the publication of the draft legislation. Click here to access.
The following is a brief overview of some of the more important provisions of the draft Bill.
How will NAMA operate?
NAMA will be a statutory body corporate with its own board of directors appointed by the Minister with extensive and far reaching powers to acquire and manage debt facilities and the underlying property and property related assets upon which such facilities are secured. Its remit is to obtain the best achievable financial return for the State having regard to:
- the cost to the Exchequer of acquiring bank assets and dealing with acquired bank assets
- NAMA’s cost of capital and other costs
- certain guidelines or directions issued by the Minister
- any other factor which NAMA considers relevant to the achievement of its purposes
NAMA’s purposes include:
- acquiring certain eligible bank assets from certain credit institutions to be designated by the Minister upon completion of an application process prescribed by the Bill
- effecting the expeditious and efficient transfer of those assets to NAMA
- holding, managing and realising those assets
- performing such other functions relating to the management or realisation of those assets as provided for in the NAMA legislation or as directed by the Minister
- facilitating the restructuring of credit institutions which are deemed by the Minister to be of systemic importance to the Irish economy
- taking all steps necessary or expedient to protect, enhance and better realise the value of assets transferred to NAMA
Which credit institutions will participate in the NAMA arrangements?
The draft Bill contemplates that institutions that wish to participate will need to apply within 28 days of the establishment of NAMA. The legislation, once enacted, will apply only to those institutions which have applied and which the Minister is satisfied are systematically important to the Irish financial system and the acquisition of certain bank assets from them is necessary to achieve the purposes of the Act. It is anticipated that all of the institutions covered by the guarantee scheme will be participating institutions, although the Bill’s potential scope is not limited to these institutions. Where an institution has applied to participate in the NAMA arrangements, it will be deemed to include all its subsidiaries unless certain subsidiaries are excluded by the Minister.
What assets may be acquired by NAMA?
The principal assets which NAMA is established to acquire are non performing development land financing arrangements. The type of financing arrangements is broadly defined and includes all types of debt financing, derivatives and guarantee facilities. It will also be possible for NAMA to acquire loans which are not development loan financing arrangements where they are owed by associated debtors (such as group companies to, or partnerships involving, the principal debtor) and the total amount of indebtedness in respect of such facilities owing to the participating institution is such that, in the opinion of the Minister, acquisition by NAMA is necessary for its purposes. The Bill also contains a further general and broad sweeping “catch all” provision allowing NAMA to acquire “any other class of bank asset” where such acquisition is deemed necessary for its purposes.
Section 66 of the draft Bill provides that the acquisition of an eligible bank asset by NAMA will take effect notwithstanding any “legal (including contractual) or equitable restrictions” in relation to such acquisition or any requirement for “consent, notification, authorisation, licence or document” in each case arising by virtue of law, in equity or in any other way.
Furthermore, under Section 184 of the draft Bill, a charge or security that secures a bank asset that has been transferred to NAMA is not invalidated or rendered void or voidable as against NAMA by virtue of certain statutory provisions. These include the prohibition on companies making loans to directors or connected persons of directors and the requirement to file particulars of charges with the Companies Registration Office. Also such a charge cannot be rendered void or voidable on the grounds that it was ultra vires or on the basis that the provider of it was insolvent at the time that it created the charge or security.
In relation to foreign law governed assets, the Bill provides that participating institutions will do all in their power to give effect to the asset transfers prescribed by NAMA. In the event that the relevant foreign law does not permit the transfer of an asset, the participating institution is required to do all in its power under such foreign law to transfer to NAMA the greatest possible interest in the asset including full beneficial interest.
The Bill does not deal explicitly with syndicated loan assets but the concept of “eligible bank assets” covers all assets in which a participating institution has an interest and therefore a lender’s participation in a syndicated loan would be captured. The questions and answers document referred to above clearly provides that NAMA may only acquire that portion of a syndicated loan which is owned by a participating institution and not a portion of a loan which is held by an institution falling outside the scope of the NAMA scheme.
What outsourcing arrangements will be put in place by NAMA with the participating credit institutions?
The Bill enables NAMA to engage persons or institutions to manage or dispose of assets transferred to NAMA to ensure that assets are dealt with in the most efficient manner possible. The questions and answers document referenced above indicates that where an outsourcing in respect of a loan facility is made back to the bank which has sold the loan facility to NAMA, the staff in the relevant bank who will deal with the loan will not be the original staff who were involved in the provision of the loan facility in the first place. NAMA will not, however, be obliged to outsource functions in relation to loan assets back to the originating credit institutions and is free to use other third party providers.
What valuation methodology will be used in order to determine the price at which assets will be acquired?
The draft Bill sets out some detail on the valuation methodology to be adopted. More detailed regulations on the valuation methodology are anticipated to follow. In line with recent EC guidance on State Aid in the context of the provision of support to the banking industry, NAMA may agree to acquire financing arrangements for an amount determined by reference to its long term economic value, as determined by it. Some of the relevant factors are outlined in the draft Bill, such as the value attributed to the relevant financing arrangement by the relevant participating institution, the credit worthiness of the debtor, the performance history of the debtor in respect of the relevant asset and the valuation methodology adopted for a similar eligible asset.
Will credit institutions be in a position to challenge designations of assets as “eligible bank assets” or to challenge valuations of such assets as determined by NAMA?
The draft Bill contemplates that a participating institution may challenge the designation of a financing arrangement as eligible. A procedure is specified which contemplates the matter being referred to an expert reviewer for review who will report to the Minister with his findings. The draft Bill contemplates that the Minister will ultimately determine whether or not a financing arrangement is eligible.
The draft Bill also contemplates that a participating institution may, within a prescribed time frame, challenge the valuation allocated to a financing arrangement. A participating institution may also challenge the total portfolio acquisition value but only as against the current market value of those assets and on the basis that it has already challenged the valuation allocated to individual financing arrangements which comprise not less than 12.5% by value of the total portfolio acquisition value.The matter is to be referred to a valuation panel which will report to the Minister. The Minister ultimately makes the determination as to the total portfolio acquisition value.
What enforcement powers will NAMA have?
NAMA has been given specific statutory powers in order to facilitate enforcement of security/sale of assets. These include the following:
- NAMA will have the power to obtain a vesting order from the High Court in respect of land charged in its favour. In effect this amounts to a power of foreclosure.NAMA will be able to apply to the High Court for such a vesting order if it has acquired a credit facility that is secured by a charge over land, once its power of sale has become exercisable and once NAMA forms the view that it is unlikely that the sum secured by the charge can be recovered by a sale within a reasonable period.
- NAMA will have the power to appoint a statutory receiver. It will not be possible for a company to seek the appointment of an examiner with a view to displacing the statutory receiver.
- NAMA will have certain compulsory acquisition powers in respect of land. The questions and answers document referenced above indicates that this is primarily directed at resolving difficulties which would arise due to the creation or retention of so called “ransom strips”. In other words where NAMA might require to acquire a piece of land in order to enable access, it would have the power to do so in certain circumstances.
- NAMA will have the ability to dispose of charged assets (or indeed loans purchased by it) to any person notwithstanding any contractual restrictions or other legal restrictions that may apply. Contractual restrictions on disposals contained in loan documents will be disapplied.
- NAMA will have the ability to convey land that has been mortgaged in its favour in such a way so as to extinguish the interest that any other person holding a mortgage or charge on the land – other than a charge which has priority to the interest of NAMA. Where the interest of a chargee or mortgagee is extinguished, their interest attaches in the same order of priority to the proceeds of sale received by NAMA. Also a receiver appointed to the property of a company by NAMA will not be obliged to sell any property at any particular time or at all.
- NAMA will have the ability to apply to the High Court to seek a declaration that a disposition ofany asset of a borrower, associated borrower or guarantor is void if it can show that the effectof the disposition was to defeat, delay or hinder the acquisition by NAMA of an “eligible bank asset” or any associated rights that NAMA would have acquired but for such disposition.