Summary judgment in Irish building society noteholders’ rights claim

24/11/10

Summary judgment has been granted to the Irish Nationwide Building Society ("INBS") in a claim brought by holders of its subordinated debt seeking an order that the trustee of their notes present a petition to wind up INBS in Ireland.

The claim was issued on 3 November 2010 following remarks by the Irish Minister for Finance, Brian Lenihan, to the effect that the Irish Government intended that subordinated noteholders in certain troubled Irish financial institutions including INBS should "share the burden" of keeping the institutions afloat. The subordinated noteholders, taking this as a warning that they might be forced to accept reduced payment under their notes, issued a Part 8 Claim in the Chancery Division seeking an order that the note trustee issue a winding-up petition against INBS in Ireland in order to attempt to crystallise their rights before any Government action could be taken.

In response, INBS issued an application for summary judgment on 10 November 2010 contending that, whether or not the Minister's comments could legitimately be taken as a basis for action, as a matter of construction of the notes the trustee had no power to issue a winding-up petition against INBS unless and until there was an actual event of default (i.e. non-payment) and the clause in the notes setting out the trustee's rights of action against INBS expressly prohibited the taking of any other proceedings to enforce payment obligations. INBS further submitted that the scheme of the notes was to ensure that the subordinated noteholders could not withdraw their money (which forms part of the Tier II capital of the society) until maturity, save in the event of an actual payment default.

The application came on for hearing on an expedited basis before Mr Justice Mann on 18-19 November 2010 due to a concern that the uncertainty caused by the proceedings might lead to a run on the society. In a judgment delivered on 23 November 2010, Mann J upheld INBS's arguments and summarily dismissed the claim.

The judgment is here.