Investment Structure The price the investor pays for their shareholding proportion is a critical commercial term that will likely be subject to negotiations. Entrepreneurs usually aim for the highest cash input for the least shares, while investors seek a fair share of the equity and other share capital. The ultimate valuation depends on an assessment of the company’s prospects, which involves considerable uncertainty and risks. […]
Overview The primary agreement in a venture capital investment comprises a shareholder’s subscription or investment agreement, delineating the future operation of the company during the investment period. This process is similar to that applied when purchasing a private company—refer to the section on share purchase agreements. The agreement may specify the application of the subscription fund, sometimes mandated for specific purposes as a precondition. The […]
Nature of Venture Capital Venture capital represents long to medium-term finance, primarily directed at high-growth potential companies for substantial capital growth over a period. Returns typically come from capital growth rather than long-term holding and dividends. The investor will usually seek to liquidate its investment within a number of years, commonly three to five. Due to its nature, venture capital entails high risk, consequently demanding […]
Drag Along and Tag Along The most commonly found mechanisms for exit are so-called drag-along and tag-along rights. In the case of a drag-along right, a party shareholder who wishes to sell its interest to a third-party has the right to require other shareholders to join in the sale to a third-party on the same terms as it sells for that. The objective is to […]
Realising Return The venture capitalist’s objective is to realise its investment. Generally, it will require a relatively high capital profit to compensate for the risk, time, and other resources associated with the financial investment. The initial investment will contemplate a timeline and horizon for realization. It may be between two to three to seven to ten years. Obligations may be provided in the agreements to […]
Terms of Agreement Modern consumer protection legislation effectively requires the terms of the bank customer relationship to be set out in writing. It is particularly so in the case of loans and facilities where specific consumer protection provisions apply. The written terms are presumed to be the complete agreement. See generally the sections on contract law. A verbal side agreement, side letter or collateral contract […]
Overview There is an EU-wide directive on bank recovery and resolution designed to resolve issues with failing banks without the use of taxpayers’ money. This legislation applies to credit institutions established in Ireland, including subsidiaries of EU credit institutions. Shareholders and bank creditors, except for protected depositors, may potentially lose part of their funds held by the bank. The Central Bank has authority in Ireland […]
Regulator Credit unions are now regulated by the Central Bank. Originally they were regulated by the Registrar of Friendly Societies. The 2003 plus 2004 reforms place the registrar of credit unions under the umbrella of the financial regulator. It is now under the umbrella of the Central Bank under the 2010 reform. The Registrar of Credit Unions regulates credit unions on behalf of the Central […]
Background A credit union is, in principle, a voluntary organization run for the benefit of its members rather than for profit. Credit unions initially developed in Ireland as agricultural-based land banks. Land banks fated away in the 1930s. The first modern credit union commenced operations in the late 1950s. At that time, credit unions were governed as industrial and provident societies. Following a government-appointed committee’s […]
Board of Directors Each credit union must have a Board of Directors which has responsibility for the control direction of its affairs funds and records. They are elected by secret ballot by the members. The directors have a range of powers and responsibilities, including key decision-making, recommending dividends, fixing interest rates, fixing maximum loans, decisions on investment borrowing, AGM matters, and submission of accounts for […]
Other Services 1997 Act Credit unions may provide additional services for members in accordance with ministerial regulations. Formerly, the registrar may approve additional services being provided. The application was made to the registrar for the approval of the provision of different services. Credit unions may not offer loans on terms of other services or provide linked services. There is a right of appeal to the […]
Taking Shares The subscription for credit union shares is the basic method of saving. Shares in credit unions do not have the characteristics of company shares. They may not be preference shares. Bonus shares may be issued from reserves, but statutory reserves may not be used for this purpose. There are no share certificates as such Passbooks and records show the value of shares and […]
Restructuring Board The Credit Union Restructuring Board was established under the 2012 Act. The function of the Board includes developing provisional proposals and plans for restructuring in the credit union sector, assisting credit unions in the preparation of restructuring plans, considering and assessing restructuring plans submitted by credit unions, approving conditionally or unconditionally or objecting to restructuring plans, advising the Central Bank of its recommendations […]
Strategic & Risk Management The board of directors must prepare a strategic plan setting out the strategy and objectives of the credit union. The board must ensure that the credit union has the resources, both financial and otherwise, to undertake the activities provided for in the plan. A credit union must develop and maintain a risk management system to allow it to identify and manage […]
Terms of Loans 1997 Legislation The 1997 legislation capped loans at the greater of £30,000 or 1.5% of the total assets of the credit union. The limits may be adjusted by ministerial order.Loans may be made to members only. They may be secured or unsecured. Security may be by way of a guarantee, pledge of shares, deposits, insurance policy, or real property security. Terms and […]
Revised Prudential The Credit Union Act 2012 amended the regulatory framework for certain prudential requirements for credit unions. It made significant amendments regarding the governance of credit unions, stemming from the financial crisis that left many credit unions oversized and insolvent. It amends governance and provides for the separation of functions of the management and the board of directors. It also establishes a stabilization mechanism […]
Directors A credit union must have a board of directors responsible for its general control and management. The board should be sufficiently sized and possess adequate expertise to carry out its role effectively. Specific requirements are detailed regarding the composition of the board, including maximum and minimum numbers of directors (from 7 to 11), stipulating an odd number. Directors are mandated to dedicate certain time […]
Background Building societies started life as friendly societies which are corporate entities designed to provide benefits for their members in sickness and old age. They encouraged small savings for such purposes. Each user of services became a member of the Society and had shares. However, the shares were not transferable and not convertible into cash. Building societies in the strict sense were mutual societies whose […]
Nature of Building Society Building societies are bodies corporate with their own regulatory regime equivalent to those for companies. They are most similar to friendly societies and industrial and provident societies. Building societies may be formed with the object of permitted activities under the Act. It must include the objective of raising funds for making housing loans. A building society is formed in accordance with […]
Powers A Building Society must act within its functions. Actions outside the functions are presumptively valid in the same manner as with a company. There was a similar protection for outsiders dealing with the Building Society to that applying with companies. Acts lawfully and effectively done in favour of persons dealing with the Society in good faith are valid notwithstanding the absence of a power […]
Enhanced Central Bank Powers The Building Society Act transferred regulatory powers and the register of Building societies to the Central Banks. These powers were then transferred to the financial regulator and then back to the Central Bank under the 2010 act. The Central Bank is obliged to administer societies with a view to the protection of the funds of shareholders and depositors and the maintenance […]
Amalgamations & Transfers There are provisions for amalgamations and transfer of engagements of a Building Society. Amalgamation is by formation of a Building Society as successor. The amalgamating Societies must agree on the rules, objects of the successor Society and make joint application to the Central Bank for confirmation. If the Central Bank confirms the amalgamation, it is to take effect on the specified date. […]
Company Standstills Where a borrower is in financial difficulty, it is likely that there will be simultaneous triggering of default clauses across facilities with most or all of its lenders. Even if the borrower has not ceased payments on a facility, the default under one facility is usually a default under other facilities, thereby accelerating the obligation to pay (automatically or on demand) and allowing […]
Forbearance and Variation Agreements Apart from issues which might arise from bankruptcy law, there is very little constraint on what might be provided for in a forbearance or variation agreement in relation to an existing loan agreement. The existing loan agreement should be reviewed to ascertain the current position. Care should be taken to ensure that the new agreement does not inadvertently weaken the lender’s […]
Statutory Purpose of NAMA The purpose of NAMA is to address the serious threat to the economy, to secure the stability of credit institutions and to deal with the need for the maintenance and stabilisation of the financial system in the State. In doing this, its further purposes are to address the compelling need:- to resolve the financial crises and achieve a recovery in the […]
Deemed Rights and Mortgagor Restrictions The NAMA legislation includes novel legal provisions which are designed to reduce the risk of mortgagors and other transferors unreasonably frustrating the development potential of the mortgaged property. The provisions are aimed at limiting claims of “ransom” strips and equivalent rights over adjoining land. or otherwise asserting rights which There is deemed to be included in transfers of lands, for […]
Purpose of Security The purpose of security is to ensure that the creditor acquires the right to assets, to which recourse may be had in the event of non-payment. On bankruptcy, all of the debtor’s assets vest in the Official Assignee for the benefit of his creditors generally. Security entitles the creditor to look to the secured assets to satisfy his debt in whole or […]
Charge over Stock The Agricultural Credit Acts were introduced in the early years of the State to facilitate the granting of security principally by farmers over stock, produce and agricultural machinery. In the absence of the legislation, the Bill of Sale (Ireland) Act would have made the creation of a charge over agricultural chattels impractical. Stock includes animal and birds of every kind and their […]
Bank Stability Bank stability is absolutely critical to an economy. Banks are usually private organisations, whose principal purpose is making profits for shareholders. From the late 1980s forward, banks diversified into a wide range of financial services products. Various sections of banks engaged in more complex merchant banking-type transactions. Historically, banks funded their loans through retail deposits. However, following the introduction of the euro and […]
Wholesale Markets Over the last 30 to 40 years, there has been much greater level of intermediation in relation to savings and money markets. Most banks are unable to fund more than half of their lending from deposits. They accordingly need to source monies on money markets from other banks and through other intermediaries by whom monies and money like (highly liquid investments) are held. […]
Netting Netting is a crucial protection against default. Close-out netting applies on the occurrence of an event of default. All transactions under a single master agreement are accelerated and terminated, and a single net sum is payable by one party to the other. Accordingly, insolvency is a risk only in respect of the net amount due and not the gross amounts due. Ireland’s Netting of […]
Nature Strictly speaking, a guarantee is an agreement to meet the obligations of another person. Where that other person’s liabilities do not, for some technical reason, arise or are legally invalid, then the guarantee would not apply. Standard bank guarantees take many of the rights that might otherwise be available to the guarantor against a bank and against the guaranteed party. For this reason, many […]
Assets & Possession When an order of appointment of a receiver is made, the court assumes control of the assets. The parties retain possession only as custodians for the court. Monies that would otherwise come into the hands of the receiver may be paid into court. An application may be made to reduce the security proportionately. Similarly, where the scope of the receivership is extended […]
The receiver is entitled to an indemnity against liabilities incurred by him properly. This ranks as the first charge on the assets subject to the cost of realisation and to the receivers’ costs, charges and expenses, including remuneration. Creditors of the receiver are entitled by subrogation to be paid out of assets in priority to pre-appointment creditors. The receiver is liable in respect of pre-appointment […]
A receiver appointed by court is an officer of court. He derives his authority from the court order. The appointment of a receiver by a court does not constitute the appointee an agent of the mortgagor. A receiver appointed by court does not represent the mortgagor in the same way as a receiver appointed out of court, who is deemed agent. Where an order requires […]
In a mortgage of unregistered title land, the mortgagee has a right to take possession. In practice, the mortgagor is generally left in possession. In the case of registered title and post-2009 unregistered title mortgages, the mortgagor has a right to possession unless and until displaced under the terms of the charge. Notwithstanding that in an unregistered title mortgage, the mortgagee is subject to the […]
Interpretation The general principles of interpretation of contracts apply to guarantees. The courts seek to give effect to the intention and the understanding of the parties as expressed by them in the guarantee. Difficult questions of interpretations may arise, particularly in relation to the scope of the guarantee and the debts intended to be covered. Where a surety gives a continuing guarantee, limited in amount […]