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Lawyering by Googling

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It’s not recommended.  But it’s prompted by Brian Cowen and Brian Lenihan’s repeated claims that bank senior creditors are pari passu with depositors, therefore you can’t burden-share with one without burden sharing on the other (i.e. the ECB, the  Central Bank, and us).  So you start using your favourite search engine to get some information on the actual interpretation of pari passu clauses and you come across

There still remains doubt, however, as to whether other courts, in the U.S. or abroad, will follow the interpretation adopted by the Belgian appellate court in that ex parte proceeding, namely, that instruments containing pari passu clauses require ratable payments to all creditors of the same class, whether or not the debtor or issuer is in formal bankruptcy or liquidation proceedings.

In other words, there is no consensus on whether new payments have to be made equally to all creditors of the same rank even if the debtor is not in liquidation.  What pari passu certainly does mean is that all equally ranked creditors have to get the same shares of a debtor in liquidation.  Without Irish exchequer support to, e.g. Anglo, that would be an equal share of not very much.

But the Department of Finance has actual fee-charging lawyers working on our case, so presumably they can come up with better than that.

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6 Responses to “Lawyering by Googling”

  1. # Comment by EddieL Nov 27th, 2010 10:11

    It is accepted that bondholders or senior creditors are entitled to get their money back like depositors but are they entitled to get it back from a third party, in the case of Anglo, AIB etc. It would also seem that they are getting favoured treatment because ordinary depositors are only insured by the State up to €100,000 whereas I gather that senior bondholders will be entitled to all their money back and worse they are entitled to get it from a third party – the State. This then is against all notions of natural justice.
    Is this the case?

  2. # Comment by P O\'Neill Nov 27th, 2010 16:11

    EddieL, the current version of the guarantee covers all deposits and bondholders. The depositors below 100K are already covered by separate deposit insurance so the guarantee only matters for the depositors more than 100K. The government’s position is that it can’t pick and choose among the big depositors and bondholders as to who gets paid. I think it’s time to ask whether they can, and I think there are good experts out there who think they can.

  3. # Comment by Daniel Sullivan Nov 27th, 2010 18:11

    I doubt if it was the case that all had to be paid or covered whether all had to be paid or covered the same amount or proportion. After all ordinary depositors don’t get the same interest payment that bondholders do, but if it is a requirement or point of principle that depositors must take some write down if bond holders do then write down all deposits by 1% for everyone 20% we write down the bondholders. Do it now and just get it over with.

  4. # Comment by EddieL Nov 27th, 2010 20:11

    Thanks P. Your answer raises another question. It is always as far as I know legally accepted that a contract has to pre-date an event. You cannot back a horse after the race is run. So it absurd to write a legal contract after the events covered by the contract have taken place.
    In this case depositors had a prior legal guarantee on deposits up to €20,000. After the event I gather this was raised to €100,000.
    If bondholders did not have special legal cover prior to the event then I would imagine that there is no precedent for the State to give blanket legal guarantee to bondholders after the event. This would be like backing the winner after the race is run (absurd). The question then is what prior legal guarantee did the bondholders have if any? When was it given and how much did it cover?

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