Saturday 21 October 2017

Vulture funds ramp up number of debt chase cases tenfold

Foreign firms stay silent as they move to pursue borrowers' assets

There have been 517 cases taken against debtors so far this year. Stock photo: PA
There have been 517 cases taken against debtors so far this year. Stock photo: PA
Shane Phelan

Shane Phelan

Foreign vulture funds that bought up large swathes of distressed Irish loans have significantly ramped up their pursuit of borrowers.

A tenfold increase has been noted in the number of debt enforcement cases being taken in the High Court by major funds.

The surge in legal actions is likely to create further anxiety over tactics employed by the funds to maximise their investments in Ireland.

Previous concerns led to the introduction of laws protecting renters from eviction, and the closing of loopholes that allowed some entities to pay little or no tax on their Irish profits.

An analysis of High Court data revealed 517 cases had been lodged by companies affiliated with CarVal, Cerberus, Goldman Sachs, Deutsche Bank, Apollo and Oaktree so far this year - compared to just 53 in the same period last year.

The vast majority of these cases involve applications for summary judgment against debtors, after which the funds can then seek to pursue borrowers' assets to clear the debt.

An analysis of new cases being filed with the High Court reveals enforcement activity by vulture funds began to ramp up significantly in the final third of 2016 and that trend had continued this year.

The figures come amid ongoing concern about how debtors are treated by vulture funds, with some debtors complaining about difficulties encountered engaging or negotiating with such companies.

Many of the cases brought over the past year involve commercial debts, but the cases also involve buy-to-let mortgages and potential home repossessions.

CarVal, the US investment fund that bought distressed loan books once held by Anglo Irish Bank, Lloyds and Bank of Scotland Ireland, has been the most prolific this year.

Its Irish affiliates have initiated at least 240 sets of High Court proceedings since January. In comparison, the fund initiated just 20 High Court actions in the first eight months of 2016 and 70 in all of last year.

A CarVal spokesman declined to comment.

One CarVal affiliate, Launceston Property Finance, was embroiled in a high-profile dispute earlier this year with the Firstwood property partnership, involving television presenter Gay Byrne.

The matter was eventually settled amid allegations Launceston appointed a receiver even though the partnership's loans were fully performing.

The next most prolific fund has been Goldman Sachs, with two of its affiliates, Ennis Property Finance and Kenmare Property Finance, filing 146 High Court actions between them so far this year, compared to just 16 in the same period last year and 48 in all of 2016. The fund declined to comment.

A Goldman Sachs affiliate was at the centre of the infamous Tyrrelstown controversy after its deal with a developer resulted in eviction letters being sent to dozens of tenants.

Landlord

The controversy prompted the so-called Tyrrelstown amendment, a law allowing tenants to remain in situ where a landlord is planning to sell 10 or more units in a development.

Affiliates of Cerberus, the US fund that bought Nama's Project Eagle portfolio, the sale of which is being investigated by authorities in the UK and the US, have lodged 79 sets of High Court proceedings this year.

This compares to just seven in the same period last year and 24 in all of 2016.

A Cerberus spokesman said it would not be commenting.

A source working with one fund said that having had possession of loans for two to three years, the funds were now dealing with the portions of portfolios where they believe they are getting no engagement or repayment.

"Where they believe the person is in a position to repay all or part of a loan but is choosing not to they will in the final instance take the legal route as they feel they have no alternative," the source said.

The rise in vulture fund cases was described as "entirely predicable" by Jim Stafford, managing partner of corporate recovery and insolvency firm Friel Stafford.

He said banks such as ACC and Danske Bank had been "first out of the blocks" with cases in 2011 and these were later followed by Bank of Ireland and then AIB.

Now the vulture funds were issuing proceedings after spending time "to get their feet beneath the table and understand what they are dealing with".

Mr Stafford said the process has involved the appointment of management agents such as Capita and Pepper to engage with debtors.

"If they get engagement back you will get some type of deal done," said Mr Stafford.

"But in some cases you don't get engagement or there might be no resolution."

He said a lot of cases had reached this point, leading to the glut of proceedings currently being witnessed.

Mr Stafford advised anyone dealing with a fund to seek to do a deal with it rather than ignoring the issue, saying funds were pragmatic, commercial and seeking to do deals.

"They have no morality hang-ups about debt forgiveness. Give them a deal and they will move on," he said.

Irish Independent

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