Seán Sherlock (Cork East, Labour) | Oireachtas source

The purpose of these amendments is to provide for a modification of the rules governing priority of charges. "Priority of charges" refers to where two or more successive mortgages are created over the same property.

The current rule of priority is that the first mortgage has priority over the subsequent mortgage, subject to an exception where the second mortgagee gives notice to the first of the creation of the second mortgage, in which case the second mortgage will have priority over amounts secured by the first mortgage advanced after the date of such notice. This is known as the tacking of further advances. As far as charges on land are concerned, the exemption is contained in section 111 of the Land and Conveyancing Law Reform Act 2009 and section 75 of the Registration of Title Act 1964. However, there is no equivalent legislation which governs assets other than land, rather the same result is arrived at under common law.

As the Bill stands, section 412 provides that unless their priority is otherwise governed by another enactment, charges will rank in priority in accordance with their date of registration in the CRO and makes no provision for the tacking of further advances. Accordingly, if the section is enacted in its current form, the position on the tacking of further advances will vary, according to whether the assets charged are land or assets other than land. The holder of a second charge over land will be able to get priority over further advances, whereas the holder of a second charge on other assets will not as there is no legislative provision for it. This would not be a desirable outcome.

The purpose of the further amendments is to bring the chapter in line with the recommendation made in the CLRG's second report to exclude a notice of crystalisation of a floating charge, events giving rise to crystalisation or provisions for dealing with payments of proceeds to be made into a special designated account from the particulars of a charge received by the registrar and entering into the register. Subsection (5) sets out provisions filed in form C1 which should not be taken for filing to cut down on the work of the CRO in preparing the form while retaining the requirement to file details of charges. Negative pledges are excluded under section 412, but notice of crystalisation events, a floating charge, events giving rise to crystalisation or provisions dealing with payments or proceeds to be made into a special designated account should also be excluded. This was recommended in the CLRG's second report.

The section contains various transitional provisions relating to priorities and ensures priority as between charges created just before commencement but not registered until after and charges created just after commencement will be determined according to the rules of sections 412 and 413, not according to existing law.