Two recent judgments have brought further clarity in relation to the rights acquirers of loan portfolios to enforce against borrowers:
In AIB Mortgage Bank -v- O'Toole & anor [2016] IEHC 368 the High Court determined that a bank was not prevented from relying on a mortgage as security for all sums due by the defendants, despite issuing a redemption statement which omitted this fact.
In order to understand this case, it is necessary to set out the chronology of events:
Hungarian insolvency law provides for a right of the liquidator to terminate, with immediate effect, contracts concluded by the debtor, or – in case neither of the parties rendered any services – to rescind the contract. This applies even in cases where contractual provisions or relevant legislation would otherwise prohibit the termination of the given contract.
Bankruptcy law in Ireland is now, broadly speaking, in line with that of the United Kingdom.
In particular, for bankrupts who cooperate with the bankruptcy process:
- bankruptcy will end in one year; and
- their interest in their family home will re-vest in them after 3 years.
Notably however, the courts will have discretion to extend the period of bankruptcy for up to 15 years for non-cooperative individuals and those who have concealed or transferred assets to the detriment of creditors.
With the effect of 1 September 2015, Hungary introduces legal provisions on personal insolvency. Such procedure is reserved for private individuals (may they be entrepreneurs or consumers), who have debts between HUF 2 mln (approx. EUR 6,500) and HUF 60 mln (approx.EUR 195,000).
The Supreme Court has held that a floating charge, crystallised by notice, prior to the commencement of a winding up, ranks ahead of preferential creditors. However, the Court expressed the view that the relevant legislation needs to be amended to reverse the “undoubtedly unsatisfactory outcome”.
Background
On 13 May 2015, the Government announced that it intends to give the courts the power to overrule the rejection by secured creditors of arrangements under the Personal Insolvency Act 2012 (the “Act”).
There is scant detail in the announcement save that it is intended to “support mortgage holders who are in arrears” and that legislation is to be brought forward before the Summer recess. How is such legislation likely to work and what potential frailties could it have?
The Issue
Under Hungarian insolvency law, creditors secured by mortgages or pledges are entitled to privileged satisfaction of their claim, meaning concretely that they are entitled to receive the whole proceeds reached in the course of the realization of the pledged property after deduction of the (i) cost of keeping the property in good repair and of maintenance, and costs of selling the pledged property; and (ii) the liquidator’s fee up to 5% of the net purchase price.
Insolvency practitioners often encounter difficulties when trying to sell properties in residential developments because an original management company has been struck off the Register of Companies. The standard approach can be laborious and costly. A more cost efficient alternative is often available.
Potential liability for wrongful trading
In Hungary the Act no. XLIX of 1991 on the insolvency and compulsory winding up procedure (hereinafter referred to as “Insolvency Act”) established the term “wrongful trading”. Under section 33/A of the Insolvency Act a manager of a company shall be personally liable if after the occurrence of threatening insolvency (i.e. when the company is unable to settle its liabilities when due) the director’s duties have not been fulfilled based on the priority of the company’s creditors’ interest.