Attention Lenders – Validity Of Cross-Security Arrangement Upheld

In a recent Irish Court of Appeal case¹, two brothers unsuccessfully sought to rely on the equitable doctrine of consolidation to defeat the validity of a cross-security arrangement with their bank.

Background facts

AIB Mortgage Bank advanced an initial loan to two brothers and subsequently advanced further money to the borrowers and a third brother by way of a second loan.

Both loans were secured over certain real estate assets by way of mortgages. The mortgages secured all amounts owed by the borrowers to the bank across both loans and any other arrangement, ie "all monies" security was put in place.  

The first loan was performing, however, the second was non-performing. Following unsuccessful negotiations with the borrowers on the second loan, the bank demanded repayment of both loans by way of separate demand letters. The bank used the event of default of the second loan as a reason to issue the demand repayment for the first loan.