Tommy Broughan (Dublin North East, Independent)
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Question 140: To ask the Minister for Finance if he will specify where under Irish law it is mandated that senior bondholders have the same status as depositors or holders of Irish sovereign debt; and if he will make a statement on the matter. [41811/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As the Deputy is aware I set out in my statement of 30th September 2010 that the position is that senior debt obligations of financial institutions rank equally with deposits and other creditors under Irish law. I indicated that I have no plans to change this position. This position was confirmed by the NTMA in a statement on 7th October 2010 a week later. The legal position is that in the absence of a subordination agreement, where a financial institution is being wound up the principle that applies is pari passu, meaning all unsecured creditors have equal ranking to be repaid by the financial institution. So, where there is a shortfall in assets all unsecured creditors are entitled to an equal dividend. The principle of creditor equality is also enshrined in the Credit Institutions Winding Up Directive 2001/17/EC.

In the context of a company that is continuing in business as a going concern the principle of pari passu does not apply although the effect is similar. Where a company has debts, they are liable to pay those debts and each debtor has an equal right to be repaid whether that person's debt arises on foot of a bond or a deposit. In either case the terms of the repayment will obviously be determined by the instrument creating or evidencing the debt - repayable on demand or at a certain future time. I would add that the principle of equal entitlement to be repaid their debts as amongst unsecured creditors is subject to the absence of one of them being obliged by contract to be postponed in favour of another.

It must also be remembered that depositors who suffer a loss in the event of a financial institution being wound up insolvent are entitled to compensation up to a certain amount under the Deposit Guarantee Scheme and/or the Eligible Liabilities Guarantee Scheme.