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47 2001

ASSET COVERED SECURITIES ACT, 2001

PART 7

Effect of Potential Insolvency Process on Designated or Formerly Designated Credit Institution

Application and operation of this Part.

81. —(1) Except as provided by section 87 , the following enactments do not affect the application and operation of this Part in respect of designated and formerly designated credit institutions:

(a) the Companies Acts;

(b) the Bankruptcy Acts, 1988 and 2001;

(c) the Taxes Acts;

(d) the supervisory enactments;

(e) any other enactment or any rule of law relating to an insolvency process.

(2) For the purposes of subsection (1), “Taxes Acts” has the same meaning as is given to the expression “the Acts” in section 811(1)(a) of the Taxes Consolidation Act, 1997 .

(3) This Part does not apply to a cover assets hedge contract that has been removed from the relevant register of mortgage covered securities business, or register of public credit covered securities business, in accordance with this Act.

Existing rights of certain persons not affected by insolvency or potential insolvency of designated credit institution.

82. —The fact that a designated or formerly designated credit institution, or its parent entity or any company related to the institution, has become insolvent or potentially insolvent does not affect—

(a) the claims and rights of holders of asset covered securities issued by the institution,

(b) the claims and rights of persons referred to in paragraph (b) of the definition of “preferred creditor” in section 3 ,

(c) the claims and rights that the other contracting party has under any cover assets hedge contract entered into by the institution,

(d) the appointment of a cover-assets monitor in respect of the institution under Part 5 and the claims and rights of the monitor in so far as those claims or rights relate to the appointment or arise under this Act,

(e) the appointment of a manager in respect of the institution under Part 6 and the claims and rights of the manager in so far as those claims or rights relate to the appointment or arise under this Act, or

(f) the functions of the NTMA under Part 6 and the claims and rights of the NTMA in so far as those claims and rights relate to those functions.

Rights of preferred creditors in relation to cover assets.

83. —(1) If a designated credit institution, or its parent entity or any company related to the institution, becomes subject to an insolvency process, preferred creditors are, for the purpose of satisfying their claims and rights under this Part, entitled to have recourse to the cover assets that are included in the relevant cover assets pool ahead of members of, and contributories to, the institution and all other creditors of the institution, parent entity or company. This section applies irrespective of whether the claims of creditors other than preferred creditors are preferred under any other enactment or any rule of law and whether those claims are secured or unsecured.

(2) Subject to subsection (3), the claims of preferred creditors of a designated or formerly designated credit institution rank equally among themselves but if those claims cannot be fully satisfied they are to abate in proportion to the amounts of those claims.

(3) The claims of super-preferred creditors rank ahead of those of any other preferred creditors and equally among themselves, but if the first-mentioned claims cannot be fully satisfied, they are to abate in proportion to the amounts of those claims.

(4) Subject to section 87 , subsections (2) and (3) have effect irrespective of—

(a) when the security, contract or appointment giving rise to a claim was issued or made, and

(b) when a claim of a preferred creditor arose,

and irrespective of the terms of that security, contract or appointment.

(5) If the claims of all preferred creditors are not fully satisfied from the proceeds realised from the disposal of cover assets that are included in the relevant cover assets pool of a designated or formerly designated credit institution, those creditors are, with respect to the unsatisfied parts of their claims, to be regarded as unsecured creditors whose claims, subject to subsection (3), rank equally among themselves in any insolvency process relating to the institution.

Obligations of designated credit institution to continue despite insolvency process.

84. —(1) The obligations of a designated or formerly designated credit institution—

(a) arising under or in respect of an asset covered security issued by the institution,

(b) arising under or in respect of any cover assets hedge contract entered into by the institution,

(c) towards the cover-assets monitor appointed in respect of the institution,

(d) towards any manager appointed to manage affairs of the institution, or

(e) towards the NTMA under Part 6,

continue to have effect in relation to the institution, and be enforceable, despite the institution, or its parent entity or a company related to the institution, becoming subject to an insolvency process.

(2) If a designated or formerly designated credit institution, or where the institution has a parent entity or a company is related to the institution, the parent entity or related company, becomes subject to an insolvency process, the obligation of the institution to appoint and maintain a cover-assets monitor, and the powers of the Authority and the NTMA arising under this Act with respect to the appointment of a manager, continue to have effect until—

(a) the claims of all preferred creditors have been fully satisfied, and

(b) the functions of each cover-assets monitor and manager appointed in respect of the institution have been fully discharged.

Effect of insolvency process on asset covered securities and cover assets hedge contracts of designated credit institutions.

85. —(1) If a designated or formerly designated credit institution, or where the institution has a parent entity or a company is related to the institution, the parent entity or related company, becomes subject to an insolvency process—

(a) all asset covered securities issued by the institution remain outstanding, subject to the terms and conditions specified in the security documents under which those securities are created,

(b) every cover assets hedge contract relating to those securities continues to have effect, subject to the terms and conditions of the contract,

(c) each cover-assets monitor or manager appointed by or in respect of the institution continues to hold office as such in accordance with the terms and conditions applicable to the appointment, and

(d) the institution's obligations under those securities, or any such contract or appointment, continue to be enforceable.

(2) Cover assets that are included in a cover assets pool do not form part of the assets of a designated or formerly designated credit institution or, where the institution has a parent entity or a company is related to the institution, of the parent entity or related company, for the purposes of any insolvency process until the claims secured by this Part have been fully satisfied.

(3) Cover assets that are included in a cover assets pool are not liable to attachment, sequestration or other form of seizure, or to set-off by any persons, that would, but for this subsection, be permitted by law so long as claims secured under this Part remain unsatisfied.

Designated or formerly designated credit institution not to be dissolved unless claims of preferred creditors have been satisfied.

86. —A designated or formerly designated credit institution may not be dissolved under an insolvency process unless the claims and rights of all preferred creditors have been fully satisfied. However, the High Court may make an order dissolving the institution if it is satisfied that the institution has no assets capable of meeting the claims and rights of those creditors.

This Part not to prevent application of enactment or rule of law relating to fraud, misrepresentation, etc.

87. —(1) Nothing in this Part affects the application to—

(a) an asset covered security issued by a designated or formerly designated credit institution,

(b) a cover assets hedge contract entered into by such an institution, or

(c) a contract relating to the appointment of a cover-assets monitor in respect of the institution,

of any enactment or rule of law that would (with respect to circumstances existing at the time when the security was issued or the contract was entered into) render the security or contract void or unenforceable on the ground of fraud or misrepresentation or because of the operation of an enactment specified in subsection (2).

(2) The following enactments are specified for the purpose of subsection (1):

(a) section 57, 58 or 59 of the Bankruptcy Act, 1988 ;

(b) section 286 of the Companies Act, 1963 ;

(c) section 139 of the Companies Act, 1990 .

Designated credit institution not to create security interest in cover assets if claims of preferred creditors would be adversely affected.

88. —(1) If asset covered securities are outstanding, or a cover assets hedge contract is in existence, in relation to a designated credit institution, the institution shall not create a security interest in respect of any cover assets that are included in a cover assets pool if the interest would, but for this Part, adversely affect the priority conferred by this Part of preferred creditors in respect of those assets. If the institution creates any such security interest, the interest is void and any money secured by it is repayable immediately.

(2) Subsection (1) does not prevent a designated credit institution from creating a security interest in respect of cover assets included in a cover assets pool maintained by the institution if—

(a) the relevant assets are located outside the State, or are financial obligations of an entity referred to in section 5 (1)(e), and

(b) the person who, directly or indirectly, has the benefit of the interest is the same person as the person who is entitled to security over those assets in accordance with the order of priority prescribed by this Part.

(3) If a cover asset included in a cover assets pool maintained by a designated credit institution is subject to a security interest and the creation of the interest would contravene subsection (1), the institution shall, in accordance with section 35 or 50 (as appropriate), replace the asset with one or more assets that are not subject to such a security interest.

(4) In this section—

“security interest” includes mortgage, charge, pledge, lien and encumbrance.

Certain directions not to apply unless rights of certain persons have been satisfied.

89. —(1) This section applies to the following directions:

(a) a direction given under section 20 or 21,

(b) a direction given by the Central Bank under section 11 or 21 of the Central Bank Act, 1971 , section 26 of the Trustee Savings Banks Act, 1989 , section 27(3) of the Investor Compensation Act, 1998 , or section 40(2) of the Building Societies Act, 1989 .

(2) Unless the Authority has given a notice to the institution under subsection (3), a direction to which this section applies does not have effect with respect to a designated or formerly designated credit institution, its parent entity or any other company related to the institution as regards—

(a) any cover assets that are included in a cover assets pool maintained by the institution,

(b) any asset covered securities issued by the institution, or

(c) any cover assets hedge contracts entered into by the institution,

until the claims and rights of the holders of those securities, the claims and rights of the other parties to those contracts, and the claims and rights of every cover-assets monitor, and any manager, appointed in respect of the institution, arising out of the performance of their functions, have been fully satisfied.

(3) If satisfied on reasonable grounds that a designated or formerly designated credit institution is carrying on its business relating to asset covered securities or a cover assets hedge contract, or the relevant cover assets, so as—

(a) to adversely affect the security of holders of those securities or the other party to the contract, or

(b) to jeopardise the making of payments by the institution in respect of those securities in accordance with the terms of the relevant security documents, or the making of payments by the institution under the contract,

the Authority may, by notice in writing given to the institution, declare that a direction to which this section applies has effect in respect of the institution, its parent entity or any other company related to the institution.

Provisions applicable where credit institution is both designated mortgage credit institution and designated public credit institution.

90. —(1) If a credit institution that is or was formerly both a designated mortgage credit institution and a designated public credit institution has—

(a) issued mortgage covered securities, or

(b) entered into a cover assets hedge contract relating to mortgage covered securities issued by the institution,

the rights of the holders of those securities, or the other party to the contract, are secured only on the cover assets that comprise the relevant cover assets pool.

(2) If a credit institution that is or was formerly both a designated mortgage credit institution and a designated public credit institution has—

(a) issued public credit covered securities, or

(b) entered into a cover assets hedge contract relating to public credit covered securities issued by the institution,

the rights of the holders of those securities, or the other party to the contract, are secured only on the cover assets that comprise the relevant cover assets pool.