COVID-19: How are Lenders’ Rights Affected in Ireland?
This briefing considers the extent to which lenders’ rights under Irish law have been affected by Irish legislative and industry initiatives arising from COVID-19.
Are there Legislative Restrictions on a Lender’s Right to Enforce?
While a range of emergency legislation has been passed in response to COVID-19, to date that legislation has not expressly restricted a lender’s right to take enforcement action against a defaulting borrower. See below, however, our comments on the regulatory and industry reaction; restricted access to the courts; and legislation restricting lessors’ rights.
What has the Regulatory and Industry Reaction Been?
Each of the Irish Government and the Central Bank of Ireland (“CBI”) has engaged with the Banking and Payments Federation Ireland (an industry body representing Irish and international banks, non-bank mortgage lenders and certain credit servicing firms and other regulated financial services providers) (the “BPFI”). The BPFI confirmed that its members are “…fully committed to working with the Irish Government, the Central Bank of Ireland and other key stakeholders during this extraordinary time to provide financial support to customers affected by COVID-19”.1
This co-operation is evidenced by three key elements of financial support offered by relevant BPFI members:
- Temporary payment breaks for personal and business customers, including those already in arrears. The payment breaks were originally offered for three months and were subsequently extended to a six month period.
- Adjournment of court repossession proceedings, initially for three months and subsequently extended to a six-month period (from mid-March 2020).
- Making available various working capital facilities and supply-chain supports to businesses.
It should be noted that the above measures are offered by members of the BPFI on a voluntary basis and do not amount to a legally binding requirement to offer a payment moratorium to affected customers. An affected customer must make an application to its lender for the payment break. A payment break may take a different form depending on the relevant customer’s capacity to pay – it can be a full postponement of principal and interest or can be a temporary interest-only period. Importantly, a payment break is a deferral of the payment obligation and will not result in debt-forgiveness or write-off. Any deferred amounts of interest or principal are expected to be capitalised or re-scheduled, resulting in a modified payment obligation for the customer after the end of the payment break period.
The above support measures are available for business and personal customers. For buy-to-let mortgage loans, the temporary statutory restrictions on a lessor’s enforcement rights will also be relevant (see “Restrictions on Lessors’ Rights and “Stay-at-Home” Legislation – Real Estate” below).
The CBI has also indicated that it:
- expects all regulated firms to take a consumer-focused approach and to act in the best interests of their customers. All existing protections for customers who face actual or potential financial difficulties continue to apply. The CBI has also helpfully published COVID-19 FAQs for regulated firms (here) which provide guidance on a number of matters, including the CBI’s expectations on how temporary payment breaks should operate; and
- is accommodating credit reporting to the Central Credit Register in a manner that ensures that a temporary payment break provided to a customer affected by COVID-19 is not reflected as a default in the relevant customer’s file.
While some retail credit firms/credit-servicing firms active in the Irish market have not been included in the BPFI announcement, it is expected that the relevant firms will encourage affected customers to engage with them in relation to payment difficulties, and afford them all of the existing regulatory protections (see above).
Is Access to the Courts Restricted?
Yes; initially, the courts significantly reduced their operations and dealt only with essential and urgent business. In addition, regulated lenders indicated that they would defer court enforcement proceedings for a period, as part of a wider package of financial support measures (see “What has the Regulatory and Industry Reaction Been?” above). The courts are steadily increasing the scope and volume of matters that they can hear, emphasising remote work where possible and also actively testing the functionality of virtual hearings (further details available here).
Restrictions on Lessors’ Rights and “Stay-at-Home” Legislation
While not directly affecting a lender’s ability to exercise its rights, two pieces of emergency legislation are particularly worth noting:
- Real Estate: the Emergency Measures in the Public Interest (COVID-19) Act 2020 (i) prohibits residential rent increases, and (ii) prevents lessors from terminating residential tenancies during the COVID-19 crisis. A late amendment to the Act raises the possibility of an argument that the restriction on termination of tenancies extends to commercial tenancies (though this seems unlikely to have been intended). These measures are to last for the duration of the “emergency period”, described as a period of 3 months commencing on 27 March 2020. This period may, however, be extended by Ministerial order. For more detail, see our briefing here.
- Non-Essential Travel and Activities: like other affected countries, Ireland put in place a series of restrictive measures to curtail the spread of COVID-19. The restrictions are being carefully unwound with the most recent legislation – the Health Act 1947 (Section 31A - Temporary Restrictions) (COVID-19) (No. 2) Regulations 2020 (as amended) – changing the original general prohibition on a person leaving his or her place of residence without “reasonable excuse” to a prohibition on a limited set of “relevant activities” and restrictions on travel outside of that person’s county (or 20 kilometres away from their place of residence, whichever is greater). These measures have severely curtailed the ordinary functioning of business and the economy in Ireland, with a consequent impact on a borrower’s ability to meet its repayment obligations. The current restrictions are due to expire on 29 June 2020 but may be extended by Ministerial order.
Have there been any Amendments to Insolvency Legislation?
To date, Irish insolvency legislation has not been amended.
Have Directors’ Duties been Amended?
Ireland has not enacted legislation to modify the duties owed by the directors of a company which is in financial difficulties as a consequence of COVID-19 trading difficulties. For a consideration of directors’ duties and compliance obligations in the context of COVID-19 see our briefing here.
While the COVID-19 related legislation enacted to date has had a wide-ranging and significantly restrictive effect on most aspects of business and life, to date, the legal measures do not specifically curtail a lender’s rights to take enforcement or other protective action. Instead, the relevant forbearance measures are being offered by regulated lenders on a voluntary basis as part of a broader industry effort to support customers. However, the cumulative effect of these forbearance measures, restricted access to the courts, the CBI and industry’s expressly pro-customer approach and the other matters discussed above, is that it is far from business-as-usual for lenders.
- https://www.bpfi.ie/key-topics/banking-payments-industry-covid-19-support-faqs/ (accessed 17 April 2020).
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.