Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

On 7 February last the Oireachtas passed the Irish Bank Resolution Corporation Act 2013, appointing joint special liquidators to IBRC with immediate effect to wind up its business and operations. At this early stage of the special liquidation the liquidators are engaged in intensive processes which involve, inter alia, asserting control over the businesses, processes, systems and personnel of IBRC. The issue of development bonds issued by the bank is one of a number of important issues that they must consider in exercising their statutory duties under the Act.

In general, development bonds have traditionally been required as conditions of planning permission by local authorities. As a condition of planning permission the developer must provide a bond, set out as a planning condition, which is called upon in the event that the developer does not complete the development in accordance with the plans and particulars, the conditions of planning and relevant codes and regulations. I understand that IBRC had in the past issued such bonds to local authorities in respect of loans outstanding to the institution.

Following the enactment of the IBRC Act the special liquidators' primary function is the orderly wind up of IBRC. I am advised development bonds that were previously entered into by IBRC in favour of the various county councils or local authorities remain in place. However, it should be noted that it is likely that any liabilities arising under these arrangements, if called upon, will most likely rank as unsecured claims in the special liquidation. It must be stressed that these bonds are contingent liabilities and will only be called upon where developers breach planning conditions and are not in a position to meet any liability that arises as a result. Any local authority should contact the special liquidators directly in respect of such claims should they arise.

Throughout the liquidation process it has been acknowledged that there are, unfortunately, unavoidable costs associated with the recent agreement relating to the promissory notes. The Deputy has identified two categories of possible creditors that may become unsecured creditors through the liquidation process, but the normal Companies Acts priorities will apply in this liquidation process. Amounts owing by IBRC to a range of creditors, including, contractors, trade creditors and other service providers, are unsecured. The proceeds from the disposal of IBRC's assets will be used to repay creditors in accordance with normal Companies Acts priorities. Consequently preferred creditors will be paid first and then the debt which the National Asset Management Agency, NAMA, will have purchased from the Central Bank will be paid. If there are proceeds available after repayment in full of the NAMA debt, these proceeds will be applied to remaining unsecured creditors.

These costs must be taken in context. We have now rid Ireland of the annual promissory note repayment, reduced the State's cash borrowing requirement by €20 billion over the next ten years, brought the State €1 billion closer to meeting our deficit targets and Anglo Irish Bank and Irish Nationwide Building Society have been consigned to history. That said, the Government is aware of the difficulties the liquidation may cause for all those parties affected, including the local authorities. It must be highlighted that the key objective of the special liquidators is to maximise the value of IBRC's available assets to meet IBRC's liabilities to its creditors. If the renewal of these development bonds is required to protect, maintain or enhance the value of the loan or development, the special liquidators will consider each case on a individual basis and if the powers afforded to them under the IBRC Act permit them to do so. If the special liquidators are permitted to extend bonds they will consider a range of criteria, including the cost-benefit analysis in respect of each bond and the impact on the value of the loan or development of not renewing the arrangement.

Again, it must be stressed that while these are unfortunate consequences of the IBRC liquidation, they must be considered in light of the considerable benefits that have been achieved as part of this arrangement, which represents a major step forward for our financial system. The substantial benefits of this arrangement flow from the exchange of the promissory notes for far more efficient financing from the State's perspective. In real terms, the benefits are considerable when compared with the existing costs associated with the promissory notes.

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