Vulture funds do not generally receive good press. However, when it comes to doing deals, we prefer to deal with vulture funds as they have no moral hang ups about debt forgiveness, they act commercially and they give fast decisions.
I set out below an example of a deal that we recently agreed with a vulture fund, which illustrates their commerciality and decisiveness.
The core facts were that a debtor owed €443,000 to a bank and €8.3 million to the fund. Both debts were unsecured, meaning that the debtor was eligible to do a Debt Settlement Agreement (“DSA”). The debtor’s only substantive asset was a 50% share in the unencumbered family home with a value of €900,000. The debtor had monthly income of €3,111 over and above his Reasonable Living Expenses. A key fact was that the bank was just about to obtain judgment in the High Court, and proceed to register a judgment mortgage against the debtor’s interest in the family home. Whilst the fund had served legal demands on the debtor in respect of the debt of €8.3 million, it had not yet issued proceedings.
The debtor approached us for advice. When we heard that the bank were about to obtain judgement we called the vulture fund and made the following case;
Within 2 days the agents and solicitors for vulture fund evaluated the proposal and agreed to support it.
We then prepared a DSA. The key objective, given that the fund had committed to accepting a dividend of €54,500, in the DSA was to ensure that the bank was not “unfairly prejudiced” by the DSA. If the bank could demonstrate to the High Court that they were unfairly prejudiced, then the DSA would not be approved. We prepared a “Statement of Estimated Outcome” comparing the proposed DSA with the expected outcome in a bankruptcy. See Statement below.
50% share of house – 405,000
Other Assets 9,882 9,882
Income Payments Order – 112,012
Contribution from spouse 78,065 –
Gross Realisations 87,947 526,894
Less Costs (6,150) (89,236)
Net Realisations 81,797 437,658
Payable to bank on claim of €443,891 27,297 22,297
Payable to fund on claim of €8,261,532 54,500 415,361
We proceeded with the DSA. The bank voted no against the proposal but the fund voted in favour. As the DSA only needed a 65% vote to get it over the line, the fund’s vote of 95% was overwhelming. The DSA was subsequently approved by the High Court.
Obviously, what helped in this case was that we were presented with a “perfect storm” i.e. the pending registration of the judgment mortgage, which would have meant that there would be virtually no assets left for the vulture fund. Thus the vulture fund acted commercially and decisively, and obtained a dividend of €54,500.
If you have any clients facing a registration of a judgment mortgage against their family homes, and if they have other creditors, they should immediately contact a Personal Insolvency Practitioner to determine what settlement options might be navigated. As can be seen from the above, a pending judgment from one creditor can actually create a “perfect storm” that would allow a PIP to navigate a very cost effective solution.
(The debtor provided his permission to share the above case.)