OVERVIEW:Charged with the management of 10,000 loans worth €90bn, Nama will be able to transfer, assign or sell property secured by the loans. It will also be able to borrow money to fund developments
LEGISLATION TO establish the National Asset Management Agency (Nama) gives the body sweeping powers to intervene in the property market, limits the scope of any legal challenges to its work and accords a prime role to the Minister for Finance in any dispute over asset valuation.
The new agency, charged with the management of 10,000 land and development loans worth €90 billion, expects to start acquiring the loans from banks and building societies next October and to complete this work by mid-2010.
While Nama will buy the loans at a significant discount from the value at which they were issued, debtors will have to repay the original loan in full. Half of the loans are non-performing at present.
The body will take control of €30 billion in loans against undeveloped land, €30 billion in commercial property loans and €30 billion in loans against property on which development work is in progress. Two-thirds of the property is in Ireland; the remainder, mostly in England, is outside the State.
Nama can transfer, assign, sell or otherwise dispose of property secured by the loans. It will also be empowered to borrow money to fund the development of the property it acquires “to secure the best return possible”.
Participating institutions, which will receive payment for the loan assets in the form of government bonds, are obliged under the legislation to act in “utmost good faith” with the Minister for Finance and Nama. Nama will set the price at which it acquires assets from banks, but the legislation does not outline the discount from the original loan value.
This will be determined by experts according to a methodology set out in separate – as yet unpublished – legal regulations which will be be made by the Minister for Finance.
The scheme recognises that the current markets for property-backed loans and underlying assets are very illiquid so banks will not be required to accept “firesale” prices.
The legislation says the valuation system aims to strike a price that reflects the “long-term economic value” of assets as determined by Nama.
Disputes over price
The legislation provides for the appointment of a specialist valuation panel to adjudicate on any disputes referred to it by Nama over the proposed acquisition of certain assets or the acquisition value of the portfolio it buys.
The panel would review the total portfolio acquisition value specified by Nama and advise the Minister for Finance whether it considers that value to be correct. If it finds the value to be incorrect, it must advise the Minister what it considers to be the correct value.
“The Minister may either confirm the portfolio acquisition value as advised by the valuation panel or, if he considered that the advice is wrong, remit the matter to the valuation panel, setting out his reasons for doing so,” says a memo explaining the draft Bill.
If the Minister determines that the value should be increased, the Minister can direct Nama to compensate the participating institution to the amount of the appropriate difference. “Where the Minister determines the value should be decreased, the participating institution will repay the overpayment.”
Legal proceedings
Nama may elect to replace a participating bank or building society in proceedings taken in respect of assets that transfer to Nama which were initiated before July 30th. In respect of any legal actions taken on or after that date, Nama would be liable only to pay any compensation in monetary terms.
“Unless the High Court orders otherwise, no remedy would affect the eligible asset or the transfer to Nama of the eligible asset and any property the subject of any security.”
The legislation obliges the High Court to take Nama’s objectives into account “in the public interest” when deciding on any injunctions.
The court must also take account of the desirability of certainty over Nama’s work. “Unless the High Court thinks that refusing an injunction would result in an injustice, it will not grant an injunction where a remedy in damages is available.”
The legislation sets out legal limits over the scope of any judicial review sought in respect of Nama’s work.
For example, the legislation says an application for a review shall not be granted unless it is made within one month after a decision is notified to the person concerned.
The legislation also restricts the right of appeal to the Supreme Court over a High Court determination on an application for leave to appeal for judicial review.
“No appeal lies from the decision of the High Court to the Supreme Court . . . except with the leave of the High Court.”
The legislation empowers the courts to make orders in respect of legal costs at the conclusion of each interlocutory application. If costs are not paid within 30 days, the court can impose “terms” as to the continuation of the proceedings pending payment of the costs. Nama will also be empowered to use as evidence a certificate setting out a specified debt to it.
Receivers/vesting orders
Nama will be empowered to appoint a statutory receiver to enforce the security on a property. According to the legislation, these receivers will have the powers, rights and obligations of receivers appointed under the Companies Act. Receivers would not be displaced by the appointment of a liquidator or an examiner to a company whose assets or part of them are under their control.
Nama will also be empowered to apply to the High Court for special vesting orders under which it would acquire legal title to a property.
“Where the High Court makes such a vesting order, it will also make an order for possession of the land concerned in favour of Nama,” the draft Bill says.
While legislation provides for an exception to this measure in respect of principal private residences, such residences can be transferred to Nama under other sections of the legislation if they are part of a security over a loan that it is not being repaid.
Compulsory purchase
Nama will also be empowered to apply to acquire compulsorily land that is considered necessary because the sale or the development of the land it acquires through its ordinary work would be “materially impeded” if the land concerned was not acquired.
It will also be open to Nama to apply for a compulsory purchase order if, in its opinion, “the acquisition of the land or relevant right is necessary to achieve the scale and type of development” that in its opinion is “most advantageous” to the land it acquires from banks.
“Such an order will not be made if the High Court is satisfied that there would be serious risk of injustice if it were to be made.”