In the recent High Court case of Eileen Courtney v/s OCM EMRU Debtco DAC , a fund has been ordered by the High Court to provide full details of what it paid for the loan of a specific borrower. The judgment dealt with the borrower’s application to see a copy of the loan purchase agreement so that she could, inter alia, see what price the fund had paid for her loans.
In the proceedings the fund had exhibited a very heavily redacted copy of the loan purchase agreement. The fund strenuously argued that what it paid for the loan was confidential. However, the Court stated that “The real test for redaction, however, appears to be whether the information is relevant, rather than confidential.”
What distinguished this case from previous cases seeking disclosure of the purchase price was that the borrower had made a specific offer to the previous loan “owner”, NAMA, to purchase the debt, but the offer was not accepted. Effectively, the borrower is now arguing that she has an equitable right to redeem the loan for what she initially offered NAMA. The court did not rule on that argument, as that case still has to go to full hearing. (The judgment only dealt with the application to see the loan purchase documentation.)
I set out below a link to the case. (The links works best from a Personal Computer.)
New Strategy to force the vulture funds to settle?
Whilst the borrower’s argument that she is entitled to buy the loan for what the fund paid for it has not been properly tested in an Irish Court before, she might win her case.
If the borrower wins her case, it would open up a new front to force the vulture funds to do a deal. It seems to me that for borrowers to strengthen their cases that before their loan is sold, that they should make an “open offer” to redeem the loans at “market value”. If the bank refuses to accept the offer, there is a possibility that the borrowers could subsequently force the vulture fund to accept the offer.
What about loans that have already been sold to a vulture fund? It seems to me that if a borrower had previously made a settlement offer to a bank that they should explore the avenue of the OCM case if the borrower in that case is ultimately successful i.e. redeems the loan at “market value”.
The Spanish Approach
We have had some Irish clients who were able to reach very reasonable settlements with Spanish vulture funds. Some Spanish Regions have passed legislation that gives borrowers a pre-emption right to redeem the mortgage at the price the vulture fund is offering.
In other Regions that have not passed such”pre-emption rights” legislation, the Spanish approach is to have those mortgages ” adjusted” to current market value, or possibly to a much lower level, by trying a procedure called retracto de crédito anastasiano. However, there is no current case law on such cases, as they are settled out of court. It seems to me that a contributing factor to the “settlement” culture in Spain is that Funds know that their rights are possibly questioned more heavily by its Courts and Land Registrars, and thus a settlement is preferable. (It does seem Spanish lawyers are imaginative when it comes to dealing with banks/vulture funds. It was Mr. Aziz who successfully championed the issue of “Unfair Terms” in contracts to the European Courts.)
Applicability of the case to Corporate debt
The case could have obvious applicability to corporate debt. For example, in Corporate Examinerships where a vulture fund creditor might claim that the scheme unfairly prejudices it, the company might now be able to seek details of what the fund paid for the loan to demonstrate that it would actually make a substantial profit on its loan acquisition if the scheme went ahead.
Applicability of the case to PIAs/DSA’s
Similarly, the case could have obvious applicability to determining if Vulture funds are actually prejudiced by a PIA/DSA.
Could this be the beginning of the end for Vulture Funds?
Even if the courts ultimately find that a borrower may redeem their loans at “market value”, the commercial reality is that the majority of people would not be able to raise the level of money required to redeem the loan in the first instance. However, if the Irish Courts find that borrowers may redeem their loans for what the fund paid for them. it would seriously undermine the viability of future loan sales.
If you have clients/friends/family or colleagues who need expert guidance on how to formulate settlement approaches to banks and/or vulture funds, please ask them to contact myself, Tom Murry or Andrew Hendrick.