Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

On 7 February 2013, the Oireachtas passed the Irish Bank Resolution Corporation Act 2013, appointing joint special liquidators to the IBRC with immediate effect to wind up its business and operations. Under the IBRC Act the special liquidators are obliged to independently value all the assets of the IBRC and to engage in a sales process which will maximise the return for its creditors including the State. The matter 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. Development bonds have traditionally been required as a condition of planning permission by local authorities. The developer must provide a bond, set out as a planning condition, which is then called upon in the event that the developer does not complete his or her development in accordance with the plans and particulars, the conditions of planning and relevant codes and regulations.

I understand that the IBRC had in the past issued such bonds to local authorities in regard to loans outstanding to the institution and I am advised that there are a number of development bonds in favour of the various county councils or local authorities which are in place with the IBRC in special liquidation. It should be noted that it is likely that any liabilities which may arise in regard to any bonds, guarantees or indemnities under these arrangements will most likely rank as unsecured claims in the special liquidation. However, it must be stressed that these bonds are contingent liabilities and therefore 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.

I am aware of the problems facing local authorities, and in particular with regard to unfinished housing estates, as a result of developers not complying with the terms of their planning permissions. Both the special liquidators and officials from my Department have, as a matter of concern, recently met with the Department of the Environment, Community and Local Government, local authorities and the Housing Agency concerning this issue.

While it is likely that there will be some level of exposure for local authorities as a result of this issue, the Department has confirmed that they are not yet in a position to confirm what the full extent of the exposure may be. It was agreed that work currently being conducted to confirm the actual level of exposure should be continued. It was also agreed that each local authority should consider if, following a cost-benefit analysis, a claim should be submitted to the special liquidators in order to rank as an unsecured creditor for the purposes of the liquidation. It is understood that the Department of the Environment, Community and Local Government will consider an appropriate response for local authorities who are faced with the problem of unfinished housing estates once the full extent of that exposure is known.

Throughout the liquidation process it has been acknowledged that there are, unfortunately, unavoidable costs which are associated with the agreement in regard to the promissory notes and the subsequent liquidation of the IBRC. The Deputy has identified just one category of possible creditor that may become unsecured creditors through the liquidation process.

There are amounts owed by the IBRC to a range of creditors, including contractors, trade creditors and other service providers, many of which are unsecured. The proceeds from the disposal of the IBRC's assets will be used to repay creditors in accordance with normal Companies Acts priorities and, consequently, preferred creditors will be paid first and then the debt which 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.

The Government is aware of the difficulties the liquidation may cause for unsecured creditors, including local authorities. However, it is important to remember the overall benefits to the State from eliminating the cost of the annual promissory note. We have reduced the State's cash borrowing requirement by €20 billion over the next ten years; we have brought the State €1 billion closer to meeting our deficit targets; and Anglo Irish Bank and Irish Nationwide have been consigned to history.

I would advise any local authority to contact the business management team, the IBRC, Grand Parade, Dublin 6, directly in respect of any claims as they are established. It must be stressed that these bonds are contingent liabilities and therefore will only be called upon where developers breach planning conditions and are not in a position to meet any liability should it arise.

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