Statutory Loan Transfers – A Missed Opportunity

There are a number of legal techniques in the Irish loan market for transferring a portfolio of loans and underlying security. These include assignment, novation and transfer under a bespoke statutory process.

An assignment is only effective to transfer rights. If liabilities are also to be transferred this requires a novation – which is effectively a new contract between the transferring bank, the obligor and the transferee bank. Where a large pool of loans and security is transferred the novation route is unworkable.

Bespoke transfers include transfer schemes under Part III of the Central Bank Act 1971 ("CBA 1971"), and under the Asset Covered Securities Act 2001 ("ACSA 2001"). These schemes provide a legally secure method of transferring rights and liabilities without having to put in place a novation with each customer. If available, therefore, a statutory scheme can be particularly useful where a large portfolio is transferred.