So-called ‘vulture funds’ reaching the bottom of the barrel

Foreign-based investors are cranking up their activities in the courts

Funds will argue that they only go to the High Court when they have exhausted all other avenues for repayment or if the borrowers don’t co-operate. Photograph: Istock

Funds will argue that they only go to the High Court when they have exhausted all other avenues for repayment or if the borrowers don’t co-operate. Photograph: Istock

 

The various foreign-based funds and investors – often pejoratively referred to as “vulture funds” – that bought distressed Irish loans during the crash seem to be cranking up their activities in the courts.

Carval units such as Stapleford Finance and Launceson Property Finance, the various funds associated with Cerberus and also Goldman Sach’s Ennis Property Finance, have all filed a blizzard of High Court summary judgment cases against borrowers recently.

Why are they stepping up their loan enforcement now, when the economy has recovered and many debtors have, presumably, a much better chance of making their repayments now than before?

Run out of options

One possible answer is that the funds have run out of other options with many borrowers. Most of the so-called “vultures” snapped up their loan portfolios from the banks from 2012 to 2014, or between three and five years ago.

These funds actively manage their portfolios, which simply means they dive right in and start looking for their money back as quickly as possible. It’s what they do. If, after three-to-five years, a borrower hasn’t put in place a repayment plan with them, there is a fair chance they never will.

The funds will argue that they only go to the High Court when they have exhausted all other avenues for repayment or if the borrowers don’t co-operate. This may be true in many cases.

Negotiating tactic

Another possible reason why these funds have increasingly resorted to the High Court, however, is that a summary judgment action is a devastating negotiating tactic. A High Court judgment is a very serious matter to have registered against your credit profile, and it is the precursor to making someone bankrupt.

If talks with a borrower are dragging on, it does a fund’s negotiating position no harm at all to issue High Court proceedings as part of a carrot and stick approach – a settlement being the carrot, and a lawsuit being the big, heavy stick.

If the tactic works and the borrower ponies up, then the fund won’t have to go to court and incur any legal costs. If the borrower stands firm, or is on the verge of bankruptcy and can’t pay anyway, the fund is in line to obtain a judgment and get to the top of the queue of creditors.

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