Michael McGrath
Question:89 Deputy Michael McGrath asked the Minister for Finance the position regarding equal standing, in Irish and EU law, between senior debt and deposits in Irish financial institutions. [6590/11]
View answerTuesday, 5 April 2011
Questions (75)
Written answers
The legal position is that in the absence of a subordination agreement, where a financial institution is being wound up the principle that applies is pari passu, meaning all unsecured creditors have equal ranking to be repaid by the financial institution. So, where there is a shortfall in assets all unsecured creditors are entitled to an equal dividend. The principle of creditor equality is also enshrined in the Credit Institutions Winding Up Directive 2001/17/EC.
In the context of a company that is continuing in business as a going concern the principle of pari passu does not apply although the effect is similar. Where a company has debts, they are liable to pay those debts and each debtor has an equal right to be repaid whether that person's debt arises on foot of a bond or a deposit. In either case the terms of the repayment will obviously be determined by the instrument creating or evidencing the debt — repayable on demand or at a certain future time. I would add that the principle of equal entitlement to be repaid their debts as amongst unsecured creditors is subject to the absence of one of them being obliged by contract to be postponed in favour of another.
It must also be remembered that depositors who suffer a loss in the event of a financial institution being wound up insolvent are entitled to compensation under the Deposit Guarantee Scheme and/or the Eligible Liabilities Guarantee Scheme. The Deposit Guarantee Scheme covers all retail deposits with all credit institutions authorised in Ireland (including credit unions) up to a maximum of 100,000 euro per qualifying depositor per institution. Deposits in excess of 100,000 euro that meet the terms and condition of the Eligible Liabilities Guarantee are also guaranteed.