Second Stage Speech by Minister for Finance, Michael Noonan T.D.
6 February 2013
A Cheann Comhairle,
I move this Bill to be read a second time. I would like to thank you all for your attendance at such short notice.
As I have consistently informed this House, the Government has been in ongoing discussions with the European Central Bank to reach an agreed position on resolving the Promissory Note satisfactorily for all sides; the Irish State, the European Central Bank and the Eurozone. As many Deputies will have noted from this evening’s media commentary, the ECB is considering a proposal from the Government as part of these ongoing discussions. In the discussions with the ECB it was envisaged that the first step would be the liquidation of IBRC and the sale of its remaining assets to NAMA or other market purchasers.
As soon as the information relating to the proposal to liquidate IBRC was made public, there was an immediate risk to the bank. Given this position, I as Minister for Finance, took immediate action to secure the stability of the Bank and the value of its assets, valued at €12 billion, on behalf of the State. To this end, I vested the powers of the Board temporarily in an employee of KPMG and a KPMG team is now in control of the Bank on my behalf.
The Government has met in the last hour and approved this proposed legislation for presentation to the Oireachtas.
What will happen to IBRC?
Once the legislation is passed joint Special Liquidators will be appointed to IBRC with immediate effect to wind up its business and operations.
It is intended that the net debt owed by IBRC to the Central Bank and its associated floating charge security will be purchased by NAMA, using NAMA bonds, in a way that ensures that there is no capital loss for the Central Bank. The Ministerial Guarantee underpinning the net debt owed to the Central Bank will also be transferred to NAMA. Eligible depositors, bondholders and counterparties will be repaid under the Deposit Guarantee Scheme and Eligible Liabilities Guarantee Scheme. There is also a Derivatives Guarantee in place. As is common in liquidations, all employment contracts in IBRC are immediately terminated, but the Special Liquidators have indicated that the majority of staff are likely to be re-hired to assist in the liquidation on such terms and for such duration as the Special Liquidators may designate.
As indicated, the IBRC debt to the Central Bank, which is intended to be purchased by NAMA, is secured by a floating charge over the assets of IBRC and a Ministerial Guarantee. Following an independent valuation process, the Special Liquidators will sell the assets of IBRC (which are subject to the floating charge) to third parties at or above their independent valuation and failing that, the Special Liquidators will sell the assets to NAMA at their valuation price. The proceeds of these sales will be used to repay creditors in accordance with normal Companies Acts priorities, so that preferred creditors, including employees would be paid first, and then the IBRC debt to NAMA would be paid under the floating charge. To the extent that there are proceeds available after repayment in full of the NAMA debt, these proceeds will be applied to remaining unsecured creditors who have not been paid under the guarantee schemes (which, for clarity, do not include the Deposit Guarantee Scheme). These remaining unsecured creditors will include the Minister to the extent that he has paid out under guarantee schemes. Similarly, if the proceeds are not sufficient to pay IBRC’s debt to NAMA, the shortfall to NAMA will be met by the existing Ministerial guarantee.
The remaining subsidiaries will be wound up or sold by the Special Liquidators to optimise value, and once all of its obligations are resolved, IBRC will cease to exist.
Main Provisions of the Bill
I will now go through the sections of the proposed Bill.
Section 3 sets out the purposes of the Act.
Section 4 provides that the Minister will make a Special Liquidation Order in respect of IBRC.
Section 5 provides, among other things, for the publication of the Special Liquidation Order.
Section 6 provides, amongst other matters: (i) for an immediate stay on all proceedings against IBRC, (ii) that no further actions or proceedings can be issued against IBRC without the consent of the High Court, (iii) that no action or proceedings for the winding up of IBRC, or the appointment of a liquidator or an examiner can be taken, issued, continued or commenced, (iv) for the removal of any liquidator or examiner appointed prior to the Order, and (v) that the order constitutes notice of termination of employment for each employee with immediate effect.
Section 7 provides for the appointment of the Special Liquidators.
Section 8 limits the power to grant injunctive relief in certain proceedings.
Section 9 provides that the Minister will issue instructions and may issue directions to the Special Liquidators and requires the Special Liquidators to comply with such instructions and directions.
Sections 10&11 deal with the application of certain sections of the Companies Acts and Central Bank and Credit Institutions (Resolution) Act 2011 in the context of the winding up.
Section 12 provides for the sale or transfer of assets and liabilities in IBRC.
Section 13 provides that the Minister may give directions in writing to NAMA in relation to: (i) the acquisition by NAMA of the debt of IBRC to the Central Bank; and (ii) in relation to the purchase of assets of IBRC from the Special Liquidators.
Section 14 provides that the Minister shall direct the Special Liquidators in respect of the independent valuation of the assets of IBRC prior to sale;
Section 17 provides that the Minister may issue securities.
The decision to liquidate IBRC is unique to IBRC and does not affect other banks. In the case of IBRC, the vast majority of IBRC’s deposit accounts moved to AIB and Permanent TSB last year and they are unaffected by today’s announcement. Deposit accounts that were retained in IBRC are generally associated with a wider ongoing relationship with the bank. It is important to state that all eligibledeposits up to €100,000 for an individual and €200,000 for two individuals holding a joint account in IBRC are protected by the Deposit Guarantee Scheme in operation in the State and eligible deposits beyond this limit are guaranteed under the Eligible Liabilities Guarantee Scheme.
It is critically important that deposit account holders, mortgage account holders, and those indebted to IBRC understand that their situation following the liquidation should generally remain unchanged. If deposit account holders have any concerns they should make contact with the operators of the relevant schemes. Contact numbers are available on the Department of Finance website.
I wish to emphasise that the reason these steps are being taken is entirely distinct from the performance or direction of the Board or management of IBRC. It is simply compelling in the larger public interest to now take this action and the Government has made its decision on that basis alone.
I want to acknowledge, with much appreciation, the significant efforts the directors and staff of IBRC have made to the stabilisation of, and maintenance of value in, IBRC. I regret the abruptness of how this decision is communicated to the management and staff, but due to the scale, sensitivity and complexity of the economic issues involved, it was necessary in the public interest to keep the matter confidential until now.
Unfortunately, as is common in liquidations, all employee contracts will be terminated on the winding-up of IBRC. However, it has been indicated to me that the majority of staff will, if they wish, be re-hired for the purposes of the orderly liquidation on such terms and for such duration as may be determined by the Special Liquidators. Employees will rank, in the normal way, as preferential creditors ahead of NAMA and unsecured creditors in respect of certain amounts owing on a winding-up, including accrued wages, salaries, holiday pay, sick pay, statutory redundancy, pensions contributions and claims for damages arising from accidents.
I understand that this announcement will come as quite a shock to employees of IBRC and to some of those who do business with the bank and the Special Liquidators will be instructed to handle that as well as possible in the circumstances.
I would have preferred to be introducing this Bill in tandem with a finalised agreement with the European Central Bank. However, I understand that the European Central Bank will continue to consider the proposals made by the Irish Government tomorrow.
I commend this bill to the House
Department of Finance
Upper Merrion Street