As everyone is aware in February 2013 the Irish Bank Resolution Act 2013 was enacted and a Special Liquidation Order was signed by the Minister for Finance placing IBRC ( a merger of Anglo Irish Bank and Irish Nationwide Building Society) into Special Liquidation. The Special Liquidators of IBRC then had the monumental task of trying to sell the Anglo and Irish Nationwide Building Society loans. The success of the Special Liquidation is well documented but it is not without its own issues.

One such issue which can arise is when the loans are sold to a third party and the third party wants to call in the loan and sell the secured asset.

This issue came to light recently in the case of Michael Harrington and Anthony (otherwise Tony) Harrington –v- Gulland Property Finance Limited and Stephen Tennant [2016/2445P].

The background to the proceedings was that certain loans were sold to Gulland Property Finance Limited (“Gulland”). Amongst those loans were the loan facilities of Michael Harrington and Anthony Harrington (“the Borrowers”).

A deed of transfer was made on 6 February 2015 whereby the Special Liquidator transferred the interest in their charge over the secured properties of the Borrowers to Gulland. The Special Liquidators informed the Borrowers that the loans had been sold by way of letter dated 6 February 2015. Gulland, through its Agent Pepper, also notified the Borrowers that their loan had been transferred to Gulland by a letter dated 16 February 2015.

Gulland appointed a Receiver over the secured assets of the Borrowers by Deed of Appointment dated 10 February 2016. The Deed of Appointment was made in pursuance of the power contained in a mortgage deed dated 18 October 2000 between the Borrowers of the one part and Anglo of the other part and the Deed of Appointment recited that the interests of Anglo in the indebtedness and other obligations of the Borrowers to Anglo was now transferred and acquired by Gulland.

The Borrowers applied for an interim injunction on 18 March 2016 restraining the Receiver from acting as Receiver over the secured assets, being two commercial units in County Cork. A charge in favour of Anglo was registered on each Folio pursuant to the mortgage dated 18 October 2000 which was secured by a loan in the amount of €761,842.00 advanced to the Borrowers  and also in pursuance of a later facility granted to the Borrowers in the amount of €465,797.00. The first facility was repayable on an interest only basis and was to be cleared from the proceeds of sale of the secured assets as they were released from Anglo’s charge. The second facility was also an interest only facility and was stated to be repayable in full on or before July 2012.

The Borrowers were successful and the interim injunction was granted. The interim injunction stated that the Receiver was restrained from acting as Receiver over the assets until 11 April 2016.

The Borrowers then applied for an interlocutory injunction again restraining the Receiver from acting as Receiver over the secured assets.

Clause 9 of the mortgage deed provided that the Lender, at any time after liabilities secured had become repayable, could appoint a Receiver. However, the Borrowers argued that although the facility and the mortgage deed was transferred from IBRC to Gulland on 6 February 2015 this deed of transfer had not been registered in the Land Registry and therefore Gulland did not have the power to appoint a Receiver as no interest in the charge had become vested in Gulland. The Borrowers were relying on the wording of Section 64 of the Registration of Title Act 1964 (“the 1964 Act”), and in particular Section 64(2) which states until the Transferee is registered as owner of the charge, that instrument shall not confer on the Transferee any interest in the charge. Gulland argued as the power to appoint a Receiver is derived from the terms of the mortgage deed that no frailty could be found in the appointment and same was valid.

Baker J in handing down her decision, on 29 July 2016, stated that the provisions of Section 64 (2) were unambiguous in that the Instrument of Assignment does not confer on the Transferee (i.e. Gulland) any interest in the charge until the Transferee is registered as owner of the Charge. Baker J stated that the statutory provisions are clear and the Transferee does not take any interest in the charge be it as a security interest or contractual entitlement. Baker J held that the Borrowers had made out an arguable case, that in the absence of registration, that the contractual interest in the mortgage deed has not been transferred and therefore Gulland may not in pursuance to the contractual power contained in that mortgage deed appoint a Receiver. Baker J concluded that the power to appoint a Receiver had not vested in Gulland at the date of the Deed of Appointment.

The Borrowers made some further arguments, inter alia, that the letters of demand issued were inadequate to call in the loans and that as a result no default, entitling Gulland to appoint a Receiver, had arisen. Baker J did not consider these arguments as she stated that it was sufficient at that juncture that the Borrowers had raised an arguable case that the appointment of a Receiver was not effective and that the Receiver must therefore be seen as a trespasser.

Baker J stated that the Court would view fairly the granting of an injunction in relation to claims where the Plaintiff would allege an infringement of their property rights. Baker J stated that in the present case that the interest to be protected was the undisputed title of the Borrowers to the land to which they were registered as owners. Baker J concluded that the Borrowers had established, to her satisfaction, an arguable basis on which the Receiver was considered to be a trespasser with no right to possession of the secured assets. Baker J held that damages would not be an adequate remedy for the Borrowers. Baker J advised Gulland that as the transfer had not yet been registered or sent for registration that they were not in a position to make title to the secured assets should they want to sell same and they could not do so until registration was complete. Baker J pointed out that Gulland may register the charge in the Land Registry and therefore would have the means by which it could rectify the problem identified.

The above decision highlights the importance of undertaking legal due diligence prior to Receivers being appointed over properties. It is imperative that the entity who makes a demand on a loan is the correct entity which is owed the money and also that any Receiver appointed is  appointed by the correct entity who has an interest in the charge registered against the properties.

Breda Sheahan is a Solicitor in the Commercial Litigation Department of FitzGerald Solicitors, 6 Lapps Quay, Cork. Breda advises Financial Institutions in relation to all areas of debt recovery and legal proceedings in the Circuit Court, High Court and Commercial Court. Breda has also extensive knowledge in advising Receivers in relation to Deeds of Appointment and their associated powers.



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