FIXED CHARGE RECEIVERSHIP – A NEW CONCEPT IN IRELAND

By Paul McDowell
Managing Director, Knight Frank Ireland
NAMA appointed Fixed Charge Receiver

The role of Fixed Charge Receiver (FCR) is a new concept in the context of property in Ireland.  It is a form of receivership commonly used in the UK for nearly a century and codified by legal statute in that jurisdiction since 1925.  This has not been the case in Ireland and, in fact, ‘Fixed Charge Receiver’ is a relatively unfamiliar term here.

So what is it and how does it arise?

Firstly, and most importantly, it is a very different and complimentary form of receivership to the more traditional appointment of an insolvency practitioner as receiver, with which we are all too familiar recently.  The FCR role is specifically designed to take receivership of fixed assets, such as vacant property, land or investments that are leased.

It is designed to administer and manage all normal property functions to include collections of rents, payments of bills and so forth, with a view to preparing the propertyfor eventual sale at the opportune time in order to redeem as much of the outstanding borrowings as possible.

However, it is not a suitable form of receivership where there is any element of running a business or a company.  This would include enterprises such as hotels, pubs and similar businesses that involve the management of staff, buying and selling of stock etc. This remains clearly the preserve of the insolvency practitioner who has those requisite skills.

Therefore, the FCR has to be an experienced property expert who is skilled in the asset management of real estate and has all the necessary support and management capabilities at their disposal.  His or her task is to consider and implement a strategy that maximises the eventual sale value for the benefit of both borrower and lender.

In Ireland, the appointment of the FCR is usually legislated for under the respective Loan document/Mortgage Deed and it is critical that any FCR appointee ensures that their appointment is legally compliant as there is no specific legislation.

However, NAMA, under the 2009 NAMA Act, was granted extended and wide powers for the appointment of FCRs, allowing the FCR much greater discretion.

So what are the challenges for the FCR?

Perhaps the most fundamental principle of this appointment is that the FCR has a legal duty of care to maximise the outcome for the borrower, although appointed by the lender.  In reality the interests of the two parties are aligned in that the best result for the borrower is also the best result for the lender.  The FCR acts in an independent capacity for both of these parties. 

When I was appointed by NAMA over a portfolio of Dublin properties, there were some interesting challenges as I was one of the first such appointees, which meant there was little in the way of previous experience to rely upon, other than that of the UK.

A major challenge for the FCR is that the appointment is probably as a consequence of the fact that the relationship between the borrower and the lender has largely failed.  Therefore, in taking up the role one can be largely blind as there may be little in the way of documentation or supporting facts about the buildings, other than the information in the lender’s possession.  At this point, a detective style process commences in order to gather this information, such as who are the tenants, are there any leases, what are the rents and so forth.

Tax Issues

One of the more interesting and evolving issues has been the treatment of taxation in Ireland.  Under UK legislation, the FCR has no responsibility for taxation.  That is not the case here, where the FCR is deemed to step into the shoes of the borrower under Irish taxation legislation.

This was a steep learning curve for all parties, including the Collector-General’s Office.  However, the protocols have now largely evolved and accounting for tax has just become one of the many practice duties for the FCR. 

To sum up

It is a challenging and demanding role as the FCR must act as if the property were his or her own. The consequence of decisions must be properly thought through to ensure that the aim of maximising value is paramount and is the central responsibility, whatever difficult  decisions or otherwise that may require.  It is not a role to be taken on lightly.

I believe that this form of FCR receivership will become as common in the Irish market as it is currently in the UK due to its effectiveness in asset managing distressed properties and preparing them for eventual sale.