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Open Panel

Presentation:  Michael Powell Solicitors to Chapter 8, Springhill Hotel, Co. Kilkenny.

Thursday 23rd of February 2012

“Mergers and Shared Services in the Credit Union Sector”

1.  Introduction

The Credit Union Sector is facing a period of challenge and change. Faced with heightened regulation and compliance requirements from the Central Bank, many Credit Unions are facing up to the reality that they may not realistically survive in their current form into the future. Many harbour grave concerns regarding the potential loss of their jobs, the preservation of the community and volunteer ethos that has for so long been epitomised by Credit Unions, the perceived push to eliminate small Credit Unions and also the potential consequences of an ill-fated restructuring plan.

The Credit Union has always been and remains a place to turn to for a helping hand when often the plight of an individual has been left unconsidered by larger financial institutions. Credit Unions have been the pinnacle of financial accessibility for the lay man and woman in our communities for so long, the sensitive management of the future affairs of our Credit Unions should be of paramount importance.

However this period may also be looked upon as an ideal opportunity for growth, expansion and renewal. When one makes a global comparative analysis, it may be seen that substantial restructuring has occurred successfully in countries such as Canada, and New Zealand over the last decade with the emergence there of the “Super” or “Provincial” Credit Union.  New Zealand alone experienced a decrease from 312 Credit Union’s in 1985 to 29 Credit Unions at the end of 2010.

2.  Commission’s Report

The Commission on Credit Unions produced its interim report on October 14th 2011. Engaged to make recommendations in relation to the most effective way to regulate Credit Unions going forward, with regard to their not for profit mandate, volunteer ethos and community focus. The Commission will also address proposals for preserving and protecting the financial viability of Credit Unions and will aim to make recommendations to strengthen the regulatory framework of Credit Unions, including more effective governance and regulatory requirements. Some of the chief recommendations to date include:

  • The establishment of a “Stabilisation Fund” which would be funded by Credit Unions to help secure “viable” institutions.
  • The Central Bank would be granted “resolution powers” which could bring a Credit Union’s existence to an end.
  • Each Credit Union would be obliged to appoint a risk management and compliance officer and develop an internal audit function.
  • A prudential rule book would be introduced with a view of setting out exactly what is required of the Credit Unions.

The Commission on Credit Unions has said that “…in the absence of corrective action by the Central Bank and the Credit Unions the financial position of a significant number of Credit Unions will deteriorate markedly between now and 2012 due mainly to bad debts, poor governance and inadequate buffers of reserves…”. The Commission has endorsed the need for increased regulation of Credit Unions by the Central Bank which will bring the Credit Union movement under the control of the Central Bank in a manner which has never been witnessed before.

The Commission is expected to deliver its final report which will elaborate on the definition of what exactly a “viable” Credit Union is, in March of this year.

With the Registrar of Credit Unions publicly calling for Credit Unions to take action now before mergers or other such measures are thrust upon the sector under the Central Bank and Credit Institutions (Resolution) Act 2011, we believe that knowledge of what is involved in voluntary mergers/transfers of engagements and involuntary mergers under the Central Bank and Credit Institutions (Resolution) Act 2011 is key to individual Credit Unions assessing how best to progress their position.  The following areas will be considered:

  • Transfer of Engagements (Section 130 of the Credit Union Act 1997).
  • Amalgamations (Section 128 of the Credit Union Act 1997).
  • Crucial Considerations on an Amalgamation/Transfer of Engagements.
  • Shared Service Arrangements.
  • Involuntary Mergers: An overview of the provisions of the Central Bank and Credit Institutions (Resolution) Act 2011: Transfer Orders.

3.  Transfer of Engagements

Pursuant to Section 130 of the Credit Union Act 1997 a Credit Union may:-

(a) Transfer its engagements to another Credit Union which in accordance with this rule undertakes to fulfil the engagements, or,

(b) Undertake to fulfil the engagements of another Credit Union.

For ease of reference and for the purpose of this paper the Credit Union seeking to transfer its engagements to another Credit Union will be called “the transferor” and the Credit Union seeking to undertake to fulfil the engagements of another Credit Union shall be called “the transferee”.

i.  The initial approach

A Credit Union may approach or be approached by another Credit Union with a view to either “taking over” or being “taken over”. This non-committal stage allows Credit Unions considering whether to acquire another Credit Union or be acquired by another Credit Union to “sound out” a potential opportunity based on close demographic and geographic similarities among other factors. We recommend that at an early stage the representative body of the Credit Unions involved, be it the Irish League of Credit Unions or the Credit Union Development Association, are consulted so that proper advice and support may be given throughout the crucial formative stages of the restructuring plan.

ii. Committee/Merger Panel

A committee/panel is usually formed to informally review and make decisions on how they wish for certain core issues to be addressed. This panel may be composed of the Board of Directors and the manager of the transferor and the transferee Credit Unions together with key consultants such as HR consultants, auditors and solicitors. The purpose of this committee is to flesh out all of the various operational issues which will be impacted on by the Transfer of Engagements and how they will be dealt with. The committee will consider the benefits of a transfer, the effect on the existing culture and personality of their Credit Union, any change in geographical location and/or premises, the budget for the transfer and how it is to be funded, the financials and of course whether or not in practical terms it is viable for such a significant change in the personality and staffing make-up of the Credit Union to occur. 

The committee may also identify the following:-

  • The proposed consideration (if any) and how it is to be paid subject to proper Due Diligence and the Instrument of the Transfer of Engagements.
  • Proposed timelines for completing the transfer.
  • Confirmation that the transferee Credit Union has the exclusive right to conduct Due Diligence and negotiate completion of a Transfer of Engagements for a particular period (a period of exclusivity) and a commitment may be secured from the transferor Credit Union not to enter into negotiations with or furnish information to any other Credit Union interested in taking them over during this period and perhaps the transferee may seek an indemnity from the transferee if this exclusivity agreement is breached so that the Due Diligence costs may be met.
  • How the costs will be distributed.
  • Any confidentiality terms.

iii. Due Diligence: Financial and Legal

Due Diligence essentially is a process or series of enquiries made by the transferee to the transferor and is usually conducted before a binding document effecting the transfer i.e. the Instrument of the Transfer of Engagements is signed. The process is based on the principle “caveat emptor” or “let the buyer beware”. Due Diligence is of course an essential component in any Transfer of Engagements; the transferee must ensure that they are fully briefed as to the assets and liabilities, financial and legal, which they are acquiring. The scope of Due Diligence will vary depending on among other factors the size of the credit institution involved and the liabilities attached to the transferor. An important aspect of Due Diligence is that full and proper disclosure must be made so that the transferee may obtain all the necessary information concerning the business, assets and liabilities of the transferor. Due Diligence will identify problem areas in the transfer that may concern the transferee to such a degree so as to cause them to withdraw from the arrangement or alternatively to seek adequate protection in the Instrument of Transfer of Engagements by way of warranty or indemnity.

The Due Diligence process typically would amount to the transferee preparing a Due Diligence questionnaire containing a number of questions about the transferor to which the transferor would reply and disclose all relevant supporting documentation. The Due Diligence Report is a crucial document in the process. The Registrar of Credit Unions provides a guidance note to transferor and transferee Credit Unions wishing to engage in a Transfer of Engagements process. This guidance note contains a sample Due Diligence Questionnaire which sets out the basic components however we would anticipate that this could in fact be extendable to include other issues.

a. Financial Due Diligence

The financial advisors/auditors to the transferee will carry out financial Due Diligence on the transferor and conduct a review of their tax position. Details of the following will be disclosed and considered:

  • Financial accounts.
  • Fixed assets & other assets.
  • Share accounts.
  • Liabilities & loan book review.
  • Reserves.
  • Dividends.
  • Investments & securities.

 b. Legal Due Diligence

The solicitors for the transferee should carry out a legal Due Diligence on the transferor placing particular emphasis on the following areas:

  • Employee considerations: to include all contracts of employment, any historic or potential claims, and any share options or bonus schemes which may have been put in place or promised. Such issues must be identified early in the process to ensure that the Transfer of Engagements is conducted in a streamlined manner with the full co-operation and goodwill of the staff of the Credit Union.
  • Litigation: Is there any current litigation pending or where there has been a historic successful claim have all costs and court orders been discharged and complied with? An assessment may be made of future possible claims.
  • Contracts: A thorough review of all of the contractual documentation of the transferor must be undertaken to include third party contracts, consultancy agreements, supplier agreements, promissory contracts, loan agreements , guarantees , hire purchase/leasing agreements, etc. A third party contract may contain a provision that that contract may or may not simply pass over on a change of control of the transferor.
  • Property & Premises: to include a review of any lease terms which may be of relevance on a change of ownership together with a consideration of mortgages on title.
  • Health & Safety: The health and safety record of the transferor should be considered. Past breaches of the health and safety legislation may indicate fundamental systematic problems with compliance in the transferor. Breaches of this legislation can result in substantial penalties so a detailed review should be undertaken as to any present or past penalties in this regard.
  • Securitisation: Are the outstanding loans of the transferor adequately secured?. Where there are solicitor’s undertakings in the transferors safe, have these been followed up on by the solicitor involved and the charge registered in the land registry/registry of deeds? Has the transferor pursued a good enforcement policy on bad debts?
  • Insurance: The insurance policies which the transferor has in place should be reviewed by brokers if required. It will be necessary to review both present and past claims; past claims may provide a useful insight in to the problems arising.
  • Information technology

iv. Regulatory Approvals and Procedural Requirements

Once the Board of Directors have agreed to proceed with the Transfer of Engagements an application must be made to the Registrar of Credit Unions to approve the transfer. The Registrar of Credit Unions, if consenting to the transfer, may do so by allowing the Credit Union to proceed by way of special resolution of the members or by Board resolution if he deems it expedient to do so.

If proceeding by way of members resolution the transferor and the transferee must send to each of the members entitled to notice of a general meeting of the Credit Union and also to the auditor of the Credit Union a statement, in such form as the Registrar may direct, showing the matters specified below together with a copy of the annual accounts for the most recent financial year.

If proceeding by way of Board resolution within seven days of that Board meeting, the secretary of the Credit Union must send to every member and to the auditor of the Credit Union:

  • A notice of the resolution passed by the Board of Directors and
  • A statement in such form as the Registrar may direct, showing the matters specified below.

In all cases, i.e. if proceeding by way of members resolution or by way of Board resolution the following matters must be provided in a statement to the members:

  • The financial position of each Credit Union concerned (as appearing from the most recent unaudited monthly statements).
  • Details of any payments proposed to be made to members of each Credit Union concerned in consideration of the proposed transfer.
  • Any changes to be made in connection with the transfer in the terms governing outstanding loans.
  • The details of any arrangements proposed in relation to employees of each Credit Union, and,
  • Any other matters which the Registrar may require.

This statement to the Registrar must be approved by the Registrar. The member must receive the notice no later than the date on which he receives notice of any resolution which:-

  • Is in favour of the proposal concerned, and,
  • Is to be moved at a general meeting of the Credit Union.

v. Certificate of Confirmation

 The Registrar of Credit Unions if consenting to the transfer will issue a certificate of confirmation of the transfer.

Prior to this, the Credit Union must within seven days of having applied for the certificate of confirmation of the transfer, publish in at least two daily newspapers published in the State and circulating in the areas in which the registered offices of the transferor and the transferee are located, a notice giving particulars of the application and indicating any representations relating to the transfer may be made in writing to the Registrar within a period not less than 21 days after the date of publication of the notice as may be specified. If any representations are made, the transferor or transferee will be entitled to comment on same to the Registrar. The Registrar shall have regard to such comments before confirming the transfer or refusing to confirm the transfer. The Registrar may refuse to confirm the transfer if he is satisfied that:-

  • Confirmation would be contrary to public interest or the Registrar’s functions.
  • In the case of a transfer the subject of a special resolution, some information material to the member’s decision about the transfer was not made available to all of the member’s eligible to vote, or, 
  • Some relevant requirement of the Act or the rules of any of the Credit Unions participating was not fulfilled.

vi. The Instrument of Transfer of Engagements

This document is the binding document recording the terms of the Transfer of Engagements. It is a binding document and will set out among other matters:

  • The agreement for transfer.
  • The effect of the transfer on depositors, investors and borrowers.
  • Employee issues.
  • Commencement date for the transfer.
  • Any warranties, or indemnities provided by the transferor to the transferee.
  • Covenants by the transferor.
  • Covenants by the transferee.
  • Statement of compliance with statutory and regulatory requirements.
  • Consideration for the transfer (if any).
  • Will provide for the dissolution of the transferor.

4.  Amalgamations

Any two or more Credit Unions may amalgamate by forming a Credit Union as their successor pursuant to section 128 of the Credit Union Act 1997. In order for a Credit Union as their successor, the amalgamating Credit Unions shall;

  • Agree on the rules for the regulation of their successor.
  • Each approve the terms of the Amalgamation by a special resolution which also approves the rules of their successor, and,
  • Jointly make an application to the Registrar of Credit Unions for the confirmation of the Amalgamation.

If the Registrar is satisfied with the Amalgamation and the proposed new rules he will register the rules of the successor Credit Union and issue to it a certificate of confirmation of his approval of the Amalgamation and specify a date from which the Amalgamation will take effect (“the commencement date”).

On the commencement date each of the two Credit Unions which preceded the successor Credit Union will officially be dissolved and all of the property rights and liabilities of each of the Credit Unions whose Amalgamation was confirmed will vest in the successor Credit Union.

The Amalgamation process is similar to the Transfer of Engagements process outlined above, with the initial approach taking place, the formation of a committer/merger panel, regulatory, representative and expert involvement, the Due Diligence process, the member notification requirements (which are in fact a prerequisite to the Registrar confirming an Amalgamation) and the confirmation of Amalgamation issued by the Registrar.

5.  Crucial Considerations on an Amalgamation/Transfer of Engagements

i. Distribution to the members

Where the terms of an Amalgamation/Transfer of Engagements between Credit Unions include provision for the distribution among any of the members of the participating Credit Unions of part of the funds of one or more of those Credit Unions in consideration of the Amalgamation or transfer, then in the case of each of the Credit Unions concerned in the Amalgamation or transfer;

  • That provision must be approved by a special resolution, or,
  • The Registrar must give consent.

In a Transfer of Engagements situation if the terms of the transfer provide for a distribution of funds to the members as above and the Registrar is considering whether to consent to the transfer proceeding by way of Board resolution as opposed to special resolution, the Registrar shall not consent unless he is satisfied that the distribution proposed is in all of the circumstances justified and reasonable.

ii. Employee considerations

The potential for employee related problems to emerge on an ill prepared Amalgamation or Transfer of Engagements is enormous. It is not proposed to deal with this area in depth herein as the issues are plentiful, however from the very beginning of the process, employees should be engaged and consulted with in a meaningful way and dealt with on a case by case basis. To that end, the engagement of a HR consultant is desirable from the outset and the conducting of sound legal Due Diligence on the employee’s contractual terms and conditions is essential. Any proposed changes to an employee’s terms and the implications of that change should be properly considered and dealt with.

The Transfer of Undertakings and Protection of Employees Regulations 2003 (TUPE) provide in broad terms that on the transfer of the whole or part of an undertaking, the rights and obligations of the transferor arising from a contract of employment existing on the date of the transfer shall, by reason of such transfer, be transferred to the transferee’.

There may be redundancies, or a collective redundancy situation, pension issues and all of these issues and more need to be dealt with in conjunction with specialist employment law advisors.

6.  Shared Service Arrangements

Shared service arrangements may provide an attractive alternative to an Amalgamation or a Transfer of Engagement for a Credit Union. There is no change of control or to the composition of the Board of Directors, no effect to employees, and it will provide for a better, more cost efficient utilisation of resources.

Such arrangements may be viewed upon as incremental change but it is important that a good contract is drawn up containing all the necessary provisions to properly effect the arrangement between the parties.

7.  Analysis of the Central Bank and Credit Institutions (Resolution) Act 2011

The Central Bank and Credit Institutions (Resolution) Act 2011 (“the Act”) was enacted on the 20th of October 2011. The objective of the Act is to provide “…an effective and efficient…” resolution regime for dealing with credit institutions which are failing or which are likely to fail.

The Act replaces the emergency legislation, the Credit Institutions (Stabilisation) Act 2010 (“the Stabilisation Act”) which lapses on the 31st of December 2012, unless extended and which only applies to certain credit institutions in any case.  Once the Stabilisation Act has expired, the new legislation will apply to all credit institutions, including Credit Unions and will give the Central Bank sweeping powers to intervene where a credit institution is failing.

Normal insolvency procedures are inadequate when it comes to Banks because the procedures can only be implemented when the entity is entirely solvent. The Act is designed to create a wider range of options for dealing with distressed credit institutions that are not in receipt of State support.

i. General Matters

The Act provides that the Governor of the Central Bank is responsible for the exercise of the functions of the Central Bank under the Act.  This may be contrasted with the Stabilisation Act where the resolution powers are vested in the Minister.  However it must be noted that under the new legislation, the Minister still maintains certain powers.

Under the legislation, the Central Bank can intervene to assist a failing credit institution under any one of a number of mechanisms provided that one of a number of conditions termed (“the Intervention Conditions”) are fulfilled.

The Intervention Conditions are fulfilled in relation to a credit institution if either condition A or condition B is fulfilled, conditions C and D are both fulfilled and the Bank has consulted the Minister.

  • Condition A is that the Bank has serious concerns relating to the financial stability of the credit institution concerned;

Directs that credit institution to take particular action to address the Banks concerns and the Bank is satisfied that;

i. The credit institution has failed to comply fully with the direction under this paragraph.

ii.The credit institution in incapable of taking the necessary action to comply within the period specified by the Bank in that direction.

  • Condition B is to satisfy that having regard to the urgency of the situation or for any other reason, serious concerns could not be adequately addressed by such a direction.  Condition B is that there is a present or imminent serious threat to the financial stability of the credit institution concerned or the financial system in the State.
  • Condition C is that the Bank is satisfied that the authorised credit institution concerned has failed or is likely to fail to meet a regulatory requirement enforced by law or a requirement or a condition of its licence or authorisation.
  • Condition D is that having regard to the purposes of the Act and any guidelines issued by the Bank as appear to be relevant in the circumstances, the immediate winding up of the credit institution concerned is not in the public interest.

 ii. Credit Institutions Resolution Fund

The Act also provides for the creation of a Credit Institution Resolution Fund that can be accessed by a distressed credit institution for the resolution or prevention of financial instability of a credit institution. Credit institutions shall contribute to the fund and it will be an offence to carry on the business of a credit institution unless a contribution to the fund is made.

Contravention of this section is an offence and a credit institution is liable on conviction on indictment to a fine not exceeding €250,000.00. However given the woeful state of most of the credit institutions in Ireland, it remains to be seen whether meaningful contributions are a realistic prospect. Certainly the fear would be that the taxpayer would have to pick up the tab.

iii. Bridge-Banks

Section 16 of the Act provides for the Bank’s power to create/set up Bridge-Banks.  Accordingly for the purpose of holding assets or liabilities transferred pursuant to a transfer order, the Central Bank may cause to be formed and registered under the Companies Act, a private company limited by shares, wholly owned by the Central Bank or a nominee or nominees of the Bank.  A Bridge-Bank will allow for the normal functioning and servicing of the assets and liabilities of a failed institution before a buyer can be found. This should allow for the swift and orderly resolution of the failed institution while transfer negotiations are on-going.

iv. Transfer of Assets and Liabilities

Provided that the intervention conditions are satisfied and that the transfer is necessary in all the circumstances, the Central Bank may make a proposed transfer order in relation to a credit institution, or a subsidiary or holding company of an credit institution.

Prior to making a proposed transfer order, the Bank shall deliver written notice to the transferor and afford that transferor 48 hours or a shorter period in which the Bank and that credit institution agree in which to make a written submission to the Bank.   Under the Act, the Central Bank must apply to the High Court for an order in the terms of the proposed order.  The transferor or a member of it may apply to the High Court within a specified period for the setting aside of the transfer order.  They must do so no later than 14 days after the publication of the transfer order. The Act also provides that the High Court may in specified circumstances amend or vary the content of the High Court order from the proposed order, and that the High Court will, if satisfied that it is necessary in all of the circumstances, direct that the High Court order (or in the case of a transfer order, all of the order or a particular term) will have immediate effect.  In situations where all of the assets and liabilities of the credit institution are transferred to a Bridge-Bank or a suitable transferee credit institution a “forced merger” takes effect.

If no suitable transferee for some or all of the assets and liabilities can be found by the Central Bank the assets and liabilities will be transferred to a Bridge-Bank but at a later date if a suitable transferee is found the Central Bank may apply to the court to vary the transfer order to allow for the transfer of assets and liabilities out of the Bridge-Bank entity to the credit institution.  An interesting feature of the Act is that the Minister may provide a financial incentive to a credit institution to become a transferee but however if at a later date the transfer order is for any reason set aside, there is a claw back provision allowing the Central Bank to reclaim the financial incentive so given.

v. Consideration

The consideration for the assets and liabilities transferred under the transfer order shall be the aggregate of the market value of all those assets, less the aggregate of the market value of all of those liabilities, as at the time of the transfer order.  The market value of the assets and the liabilities shall be taken to be in the case of assets, the amount that the transferee is willing to pay for those assets and in the case of liabilities, the amount that the transferee is willing to accept in return for assuming those liabilities or the book value of those liabilities, whichever is the lower.  The Bank shall before making a transfer order in so far as is practicable in all the circumstances, carry out a competitive process that allows for the determination of a market value, unless the proposed transferee is a Bridge-Bank.

vi. Special Management Order

Provided that the intervention conditions are satisfied and that the special management order is necessary in all the circumstances, the Act provides that the Central Bank may make a special management order to appoint a person as a Special Manager of a credit institution, or subsidiary or holding company of that credit institution.

This Special Manager would be an individual with extensive experience in the financial services sector and who would be paid out of the Credit Institution Resolution Fund.  This Special Manager would have extensive powers to take over the management of the company, or the relevant part of the business of that company, in accordance with the order. The appointment of a Special Manager would be with the view to preserving or restoring the position of the credit institution, subsidiary or holding company or with the view to managing the credit institution in the run up to the winding down or the acquisition of a business.

A Special Manager has the authority to “…take such steps as he or she considers appropriate to remedy the matters that lead to the making the Special Management Order…”. The Special Manager would have the power to remove directors, employees or others and the Act also provides that the Special Manager shall determine the role (if any) and the remuneration (if any) of the directors and officers of the credit institution during the special management period.

The Bank shall make an ex parte application to the High Court for a Special Management Order. Similar to the provisions relating to the transfer order, the Central Bank shall, as soon as practicable after a Special Management Order is made, publish the order in two newspapers circulating generally in the State.  The credit institution, subsidiary or holding company in relation to which a Special Management Order is made or a member of that credit institution, subsidiary or holding company may apply to the court by motion and notice grounded on Affidavit not later than 14 days after the publication of the making of the Special Management Order for the setting aside of the Special Management Order. The court shall set aside the Special Management Order only if the court is satisfied that there has been noncompliance with any procedural requirement by the Central Bank or that any decision of the Central Bank is unreasonable or vitiated by an error of law. The court may instead of setting aside the Special Management Order, make an order varying or amending that order in the manner it considers appropriate.

Of great importance is Section 52 of the Act, which provides for the effect of appointment of a Special Manager. Accordingly, while a credit institution is under special management, the prior consent in writing of the Bank is required for a number of actions. These actions include:

  • The winding up of the company, 
  • The appointment to it of an examiner, inspector or receiver, or;
  • The enforcement of a judgment against it.

The result is that the appointment of a Special Management Order has a very protective effect on the credit institution involved. A special management period may only last for a period of 6 months.  This period is however extendable upon application to the court.

vii. Bank Powers in Liquidation of Credit Institutions

The Act sets out the grounds on which the Bank may present a petition to the High Court for the winding up of a credit institution. The Bank may be of the opinion that the winding up is in the public interest, that the credit institution is, or in the opinion of the Bank, may be, unable to meet its obligations to its creditors or that the credit institution has failed to comply with a direction of the Bank etc.

A person other than the Central Bank shall not present a petition to the Central Office of the High Court, advertise such a petition, or take any other step or make any other publication concerning that person’s intention to cause a credit institution to be wound up, unless the person has given 10 days’ written notice to the Central Bank of his or her intention to do so and the Central Bank has confirmed in writing that it has no objection to the person doing so.

In addition to the other duties of a liquidator, a liquidator under the Act has two further objectives:

  • Objective 1 is to facilitate the Central Bank in ensuring that each eligible depositor receives the prescribed amount payable (under the European Communities (Deposit Guarantee Scheme) Regulations 1995) from the deposit protection account, or in transferring that amount from the deposit protection account to another credit institution or to an credit institution approved by the Central Bank to hold on behalf of each such eligible depositor.
  • Objective 2 is to wind up the affairs of the credit institution so as to achieve the best results for that credit institution’s creditors as a whole.

Objective 1 takes precedence over Objective 2, but the liquidator shall begin working toward both objectives immediately upon appointment.

The Minister shall nominate one individual and the Central Bank two individuals to comprise a liquidation committee, the function of which is to ensure that the liquidator properly carries out his or her functions under this part.

viii. Recovery Plans

The Act provides that the Bank may require a credit institution to prepare a recovery plan, having regard to the nature of the business, setting out the actions that could be taken to facilitate the continuation, or secure the business or part of the business, of that credit institution in a situation where the institution is experiencing financial instability.

Furthermore the Bank may direct a credit institution to implement its recovery plan, or any part of it, if the Central Bank is of the opinion that the actions contained in the plan or part are desirable.

ix. Resolution Plans

Under the Act, following a direction for the preparation of a recovery plan, the Bank may prepare a resolution plan. The Bank may direct the institution to provide such information and analysis that the Bank requires for this purpose. The resolution plan will set out the Bank’s preparations on a contingency basis for the exercise of its functions under the Act in relation to that credit institution.

A credit institution that fails to comply with the direction under the Act commits an offence and is liable on summary conviction to a class A fine or on conviction on indictment to a fine not exceeding €10,000.00.  If an offence under this section is committed by a credit institution and is proved to have been committed with consent or connivance, or to be attributable to any wilful neglect of a person who, when the offence is committed is;

  • A director, manager, secretary or other officer of the credit institution or person purporting to act in that capacity.
  • A member of the committee of management or other controlling authority of the credit institution or person purporting to act in that capacity. 

That person is taken to have also committed an offence and may be proceeded against and punished in accordance with the Act.

8.  Conclusion

It is accepted that it is a very challenging time for Credit Unions in this country.  Certainly, it appears to be inevitable that substantial restructuring of the sector will occur and will occur in an imposed fashion by the Central Bank in the not too distant future.  We believe that it is absolutely crucial at this time for each Credit Union to appropriately apprise themselves of all of the considerations involved in a Transfer of Engagements or Amalgamations. Equipped with this information a Credit Union can then make the best possible choice as to how to proceed.  We would recommend that Credit Unions take matters into their own hands, be progressive and regard this time as a time for opportunity and change. Third party advisors such as HR advisors, auditors and solicitors should be engaged and consulted with where appropriate. In conjunction with this, a strategic review of your Credit Union should be conducted and a special designated subcommittee or task force should be set up to this effect so as not to jeopardise the on-going operation and management of your Credit Union.

While many of the potential pitfalls of this area are being speculated upon regularly and have already been referred to herein, one should also have regard to the advantages of taking action now as opposed to later which include;

  • Having an increased level of control over any potential target Credit Union,
  • Increased financial stability and compliance,
  • Enhancing the role of the Board of Directors,
  • Reducing costs,
  • Enhancing services and dividend potential for members.

We would ask if you have any questions or queries in connection with any of the foregoing that you contact us.  We would be happy to discuss same with you.

Michael Powell Solicitors


We are strategically located in Cork's Central Business District opposite City Hall and adjacent to the Clarion Hotel.  There is on street disc parking or the Clarion Hotel Car Park.

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