SPML/LMC anyone claimed for mis selling and unfair charges?

[Crapstone]

How the regulator views the mortgage market

 

Something else worth looking at...Too slow and shutting the door after the horse(s) bolted.

[Crapstone]

I haven't fully read the Walkers case but is seems that one of their points was that the arrangement fee should have been included in the amount of credit. I agree with the judges that this was a charge and not part of the loan offered but as I've said..haven't yet read it all.

[I'm the bad guy?]

WM,

 

power corrupts, absolute power corrupts absolutely

 

 

 

ITBG?

[ryde]

Wonderman

I believe dare i say it the court of appeal case may have been right and differed in the issues presented by the walker case,the tragedy was that a discetionary power was not upheld as it usually is and that sppl who should not be trading can afford a top qc and get huge costs in their favour,the wilsons for a 18000 pound debt which rose to 40000 after sppl charges are now faced by ruination and 100000 pound debt from the faceless b........s,who will no doubt be dining out in mayfair on their success.

ONE BIG IMPORTANT ISSUE ARISING FROM THIS CASE IS:

Considering the wilsons had a qc who by any accounts is not going to be slow off the mark and that this case was only decided yesterday,the first thing any qc would look at is the claimants title to sue in other words whether they were solvent,the legal standing of the company and the fact that somehow they were not being administered as a wholly owned subsidiary of lehmans by pwc who should have bought the claim as administrators.So I don't wish to spoil the party but legally what is the position of these companies when they can sue in the high court and win?I cannot believe that a qc would not investigate and raise these points if applicable, the case ends before it starts.The law relating to administration and trading whilst insolvent(as they appear to be doing) needs to be really thoroughly looked at.As has been stated I would not stake my house on this defence without certain evidence and facts in any court hearing because I know for certain I'd come out without it.

Edited November 13, 2009 by ryde

[wonderman]

ITBG? Absolutely right. The courts in my view are in the same league as the discredited FSA, FOS, OFT and any other public institution that exists (including our ineffective parliament). All of our country's institutions are truly defunct and degenerate. Absolute power has corrupted absolutely.

 

Ryde - I do understand that people really do WANT to believe that our courts have some integrity so if that belief gives you comfort please do not let me affect your beliefs.

 

For the rest of us, the reliance on the alleged lower-court judge exercising discretionary powers under s.127(1), that's just pure nonsence. The lower-court judge was not exercising discretionary power he was mandated by operation of the Wilson Case and s.127(3) to find against the lender. I hear you cry - but s.127(3) is repealed - NOT SO - for agreements entered into in 2005 (as in the Walker's case), s.69 and Schedule 3 of the CCA 2006 has an expressed saving for agreements entered into prior to the commencement of the 2006 Act. Thus, s.127(3) was not repealed for the purposes of the Walkers agreement which was a 2005 agreement. Incidentally, the Court of Appeal is also bound to follow the Wilson precedent in any event.

 

Note how the court of appeal suggest that the lower-court judge was exercising discretion when in truth, the lower-court judge refused to enforce the agreement by operation of s.127(3) which is NOT a discretionary power. The Court of Appeal KNOW that s.127(3) is NOT a discretionary power, but they obfuscate the distinction by saying at para. 23 " He then declined to exercise his discretion under section 127(3) of the 1974 Act to make an enforcement order." Did the Court of Appeal make a mistake? No, they just hoped that by conflating s.127(3) with the words "discretion" that nobody would notice. Read the Wilson case, there is no court power of discretion when applying s.127(3). The court's discretionary power is under s.127(1). The lower-court did not exercise any discretion at all. It applied the law, as it must, under s.127(3)

 

Incidentally, the C of A are also bound by their previous decision and at law should have followed the Wilson case, but they didn't so the C of A are plain WRONG. The C of A erred when they exercise THEIR discretion to ignore the law in the Wilson case and the House of Lords Wilson case and fudge s.127(3) to be an exercise of "discretion". Rubbish! See how capricious and arbitrary our courts really are!!!

 

Hey ho, back to Mollie5549 and my earlier post, which both cite S&P as testimony to, our boys in the judicial seats getting top marks for being unfriendly to us consumers. No matter what the law is, you can count on our judiciary to make sure the lender prevails even when the lower-court judge got it right! Can't have the lower-court judge affecting the A1 grade can we?

Edited November 13, 2009 by wonderman
To further explain s.127(3) and highlight the C of A's obfuscation

[ryde]

wonderman

As I have said before the law as practised is not the law as written,mainly due to the discretionary powers given to judges to give their own interpretation to the written word and also their inherent dislike and disregard and prejudice for any litigant acting in person,if this judgement is wrong it will no doubt be appealed to the lords given that the poor sods now have nothing to lose.

 

The important issue this case and its timing raises for all here is the title to sue by sppl(no directors and all !) and why the issues and current debate raised here(solvency and consequentially title to sue) was and has not been raised in the court of appeal case,because if it was relevant that would be the first argument of any barrister,it is incomprehensible that this issue has been overlooked.

The relevance of this issue requires careful and detailed study now by us. Law,fact and evidence is required to substantiate any allegation or accusation otherwise it could be bin time for any such accusations.

This is especially important because to all who have contributed over the last year in my opinion this issue is potentially the most important.

I would hope that instead of getting sidetracked on issues already debated and going in circles everyone could look at this issue which currently has the most relevance.and post the relevant substantiated legal arguments.

Edited November 14, 2009 by ryde

[wonderman]

Hi Ryde,

 

I agree with you. SPPL and SPML's criminal and illegal trading is a very big issue. It is more criminal conduct on the part of these lenders. I couldn't agree with you more, but the reality is that our judiciary will not look at a lender's criminal conduct. They never have and probably never will. So effectively, by not looking at, nor considering the lenders criminal conduct our courts grant the lenders immunity. In the meantime, overturning the Wilson case and rendering s.127(3) a CCA nullity is another nail in the coffin for borrowers.

 

Thus, its a double whammy against borrowers. Yes, agreed, here's even more evidence of criminal conduct at the hands of this lender, and then the court gives them a judgment that defeats and overturns one of the very very few consumer precdents available to borrowers, namely Wilson.

 

So it really is a very sad day for borrowers/consumers all round. Criminal conduct is rewarded when you're a lender. Our judiciary will still give the lenders everything they want irrespective of how many criminal laws they breach. Even Shakespear's Shylock didn't get to draw blood. Our courts will give the lenders all, blood, sweat, tears and the dripping off the end of your nose!

[ryde]

Back street loansharking given a legitimate face and supported by the corrupt expense/bonus obsessed establishment feathering their own nests at the expense of the oppressed,spied on litigated against and repressively downtrodden worker and ordinary person ,the same old story polarising the population and sowing the seeds of revolution!hence rise of minority parties.

WE'RE NOT GOING TO TAKE THIS ANYMORE.(quote howard beel broadcast news,think they had him shot in the end great film though and so true,in fact its getting worse somebody fined £75 for litter today for feeding the ducks, accompanying toddler allowed to continue as too young to prosecute!worlds gone ffffffg mad.)(papers write these stories we've got a much better one)

Edited November 14, 2009 by ryde

[Crapstone]

Back street loansharking given a legitimate face and supported by the corrupt expense/bonus obsessed establishment feathering their own nests at the expense of the oppressed,spied on litigated against and repressively downtrodden worker and ordinary person ,the same old story polarising the population and sowing the seeds of revolution!hence rise of minority parties.

WE'RE NOT GOING TO TAKE THIS ANYMORE.(quote howard beel broadcast news,think they had him shot in the end great film though and so true,in fact its getting worse somebody fined £75 for litter today for feeding the ducks, accompanying toddler allowed to continue as too young to prosecute!worlds gone ffffffg mad.)(papers write these stories we've got a much better one)

 

All is never as it seems..ryde.

 

Totally off topic but I actually agree with the £75 fine. Knowing the area well , it's full of Canada Geese and the 'duck feeders' have promoted a huge increase in rats, as well as leaving their litter behind. It's well sign-posted not to feed the ducks, so there is no reasonable excuse to ignore it.

 

I'm surprised the Walkers case didn't get more coverage. I only know about it from a very small article hidden away in a newspaper yet large coverage was given to CoML stating that they had adjusted their repossession forecast downwards.

 

Keep up the hard work...

[Crapstone]

Debt write-off loophole closed by court - MoneySavingExpert News

 

A quick explaination of the Walker case for ease of reference.

[ryde]

crapstone

Totally off topic but I actually agree with the £75 fine. Knowing the area well , it's full of Canada Geese and the 'duck feeders' have promoted a huge increase in rats, as well as leaving their litter behind. It's well sign-posted not to feed the ducks, so there is no reasonable excuse to ignore it. quote.

of course you're in the midlands and it was smethwick,I'm a brummie not far away ,strong in the arm and thick in the head! and the victim of the fine told the paper there were no signs up !

[Crapstone]

yeah, I was thinking about that but donot know too much about their remit. Will look into, plus the OFT and any others recommended.

 

TS will have a look as that area of law, whilst not usual for them, is one they can comment on and should understand as it's within their framework. You'd need to speak to a head officer.

 

Mind you..TS Institute has gone downhill and the exams have become a joke.

http://www.tradingstandards.gov.uk/quals/pastexamsandreports.cfm

 

Pity they don't have the 2005/2006 ones I did on there.

Edited November 14, 2009 by Crapstone

[ryde]

crapstone

need some diversion at this time in the morning am watching duran duran at the moment some of bhams finest reminds me of thatcher who i hated at the time for wiping out manufacturing in our area but now am beginning to reevaluate her in the light of the shower that has followed especially with being sold out to europe can you imagine her standing for this ?, am ex brummie as made the mistake of going south but you never lose your roots and I have immediate rapport with anyone from home , you're a baggies supporter then?(and a nightowl)

crapstone

thanks have returned the compliment

Edited November 14, 2009 by ryde

[wonderman]

Hi Crapstone,

 

Thanks for posting that moneysavingexpert link. Note how Martin Lewis dresses it up as a "Loophole". s.127(3) was not a loophole. Parliament laid down the law on what lenders MUST do when lending to the public. Parliament intended that consumers MUST be given full and frank information about the contract including calculating a comparable interest rate charge so that consumers were given correct information for them to decide on the product. If the lenders did not comply faithfully with providing that information, s.127(3) rendered the contract unenforceable. That provision was there to deter the lenders from breaching their statutory obligations under the CCA. IT IS NOT A LOOPHOLE - its a sanction from the lenders point of view and a remedy from the consumers point of view.

 

Consumers who are not given the truth about the interest rate they're being charged and all the fees etc., in faithful compliance with the CCA would have a REMEDY against the lender. Thus, it was not some accidental and unintended "loophole", it was parliament's conscious and expressed intention to make sure the lenders complied with consumer law and the act expressly provided consumers with a REMEDY if lenders did not comply.

 

And SPPL complained to the court that the Walkers would get a "windfall". God that's rich! The C of A should have granted the Walkers the REMEDY that the act (and Parliament) said they can have. Plus, in any event, SPPL have had much more than windfalls of each and every one of its customers but Martin Lewis hasn't mentioned that and Martin Lewis hasn't mentioned any of their criminal conduct either. Martin Lewis knows that one of the only effective deterrents that gave the CCA some bite was s.127, and the court of appeal have overturned PARLIAMENT'S INTENTION. So it's now the court of appeal that legislates for parliament. You can only have parliament's consumer protection if the court of appeal say so, which they did correctly apply in the Wilson case (albeit between gritted teeth and great reluctance). But now, seeing as so many lenders don't abide by the law, the court of appeal negative the only really effective remedy under the act! The court of appeal are WRONG. Martin Lewis is establishment pretending to help consumers. Loophole - he ought to be ashamed of himself.

 

The court of appeal should hang their heads in shame

Edited November 14, 2009 by wonderman

[gustavius rex]

crapstone

need some diversion at this time in the morning am watching duran duran at the moment some of bhams finest reminds me of thatcher who i hated at the time for wiping out manufacturing in our area but now am beginning to reevaluate her in the light of the shower that has followed especially with being sold out to europe can you imagine her standing for this ?, am ex brummie as made the mistake of going south but you never lose your roots and I have immediate rapport with anyone from home , you're a baggies supporter then?(and a nightowl)

crapstone

thanks have returned the compliment

 

 

Hi Ryde,

 

Do not know why on earth you would ''re-evaluate'' old Maggie? She managed, with a few exceptions, to run this country completely down the drain. She was the mother of the industrial wipe-out and focusation on financial and service sectors as the future for old GB. And, concerning Europe, l do not understand your complaint about a ''sell-out'' at all??? Most of the legislation that protects you, me and the rest of the Joe's in this country comes from or originates in Europe. Europe is not saddled with the class system we have here, why, the parliaments and laws of Europe are mainly there to protect the people and not the ''money lenders''. Without Europe and it's human rights act, consumer protection legislation etc. we would be even worse off and (if that's possible) be even less able to defend ourselves against the ''establishment''. Most legislation that has been introduced here has been virtually forced up on us and to the chagrin of the establishment, judiciary and money lenders. l have held you as a knowledgeable fighting spirit and champion of the poor and downtrodden, why your Euro sceptisism come as a bit of a disappointment to me.

GR

[enoughisenough]

I'm with GR on this.

 

Our last best chance resides with the ECJ enforcing these consumer rights. Europe is our hope of only salvation. There is a clear case for Francovich Damages against the whole rotten corrupt parliament, FSA, OFT, FOS and the courts.

 

See my thread here.

 

http://www.consumeractiongroup.co.uk/forum/mortgages-secured-loans/209359-eu-law-consumer-protections.html

[ryde]

GR EIE

This was said on a light note late at night!!!! in a political rant born of increasing frustration Icertainly didn't wish it to be taken seriously and apologise for posting without any considered thought! I hated Thatcher she wiped out the manufacturing industry where I came from, we had street riots because of her policies,the mining industry was wiped out and the areas devastated and she bankrolled the back of all this by wasting all the north sea oil revenue .In her favour she was tough with Europe on the budget and our contributions(thats what i mean by the sell out),europe respected her as a powerful political figure instead of the wishy washy lot we have had since who have jumped on the euro gravy train expense bonanza eg the kinnocks.

Edited November 14, 2009 by ryde

[ryde]

GR

Any joy in court the other day or is it all still going on?

ITBG

quote

under 3 :

(a) "I have absolute proof, from written evidence, that SPML is both balance sheet and trading insolvent. The last director, Ms Amany Attia, is now being prosecuted by Companies House, for failing to act in the role of director in providing 2 years of accounts. This can be confirmed by Mr Kevin Hughes, of the Compliance Team-Companies House. SPML, was a mortgage provider, and has no employees, has ceased trading, 1 director(under prosecution), and falsely claimed it is 'trading' at the same registered address as Capstone.

Furthemore, SPML has actively been conducting property repossessions through the courts as SPML, where it has so been in 'wrongful trading'. The courts and general public, are completely unaware of this, except Companies House. I believe this case is of great importance and in the national interest, as families are being evicted from their homes, by effectively a bankrupt company."

 

 

I am with you 100% on this.

Part of my defence in pending action which is drawing extremely close is the title to sue issue

.1)I have requested proof as to the solvency of the litigants when as a wholly owned subsidiary, their parent(lehmans) is in administration.

2)Proof they have not sold the loan on(their whole business being securitization)so no longer own it.

They have simply stated they own the loan and are not insolvent and the court has accepted this!!!

So your quote in 3 above is essential to my case and to any investgation by the relevant authorities.Can you post the proof as you state" that these companies is both balance sheet and trading insolvent."because we all know they are but proving it is a different matter.

 

I can then use it in both my defence and complaint because I would just love to see this lot bite the dust.

 

What needs to be determined is the contractual basis between spml /pml and the spv eurosail, are spml/pml contractually bound(prospectus needs to be carefully examined) to service the eurosail payments to the investors if they are they are trading whilst insolvent,if they are merely originators they can lie dormant for years without trading.

Edited November 14, 2009 by ryde

[ryde]

The problem with all the law we seem to be dealing with here is that its all in the fine detail and hinges on a word and its interpretation there is no definitive answer and its all down to judges opinion,look at the barristers who get it wrong.

[gustavius rex]

Hi ryde,

 

Please, take it easy, no hard feelings, just a bit of surprise at your statement. Enough about this and let me tell you what happend to me. l went to court in a commercial lease case, where the claimant insists that l have a signed and valid lease running for some x years. l have disputed that, but, have had problems with the case law as l never managed to find any relevant judgement. Now, last week, l had some help from an unexpected source and found the case law in question. l faced a solicitor, a barrister and the claimants alone. l did manage to part win my case and where l lost, l was responsible in any case, hence, not a win for my opponents. l am now going to turn my discovery around and go for the claimants jugular with a counter claim as well as having a previous judgement struck out. My position is now such, that l may even get some interesting legal entity to take it on, ''no-win no-fee''. There's too much to get in to here, suffice it to say that if you do research you will eventually find!

 

This goes for the SPML/PML issues as well. l will again return to my previous statement about non-performance. lrrespective of the ''closing of the loophole'' discussed above, we have to stop looking at everything in a straight line forward only. Tunnelvision is dangereous as you forget everything that's going on around you. The case referred to above concerned an interpretation regarding added charges for the broker (if l have understood this right). This PARTICULAR dispute concerns one single item only. lt does not change the interpretation of the Consumer Credit Act as a whole or any particular conditions therein, with the exception of added charges. My recommendation is that we forget the entire incident and return to our issues at hand. Non-performance due to incomplete information and (and mark my wording here) unsolicited and unapproved speculation with our assets in the mortgage securitisation by the issuing of derivative and spekulative instruments securitised against third party assets without consent from the third party and to the detriment of the security of the third party's assets, home and fortune. l put it to you, that no-one was ever informed, in one way or another, that the properties we bought and mortgaged with SPML/PML would be used as securities in the risky derivatives market. lf we had known and been fully familliar with the risks this entailed, then we would not have mortgaged with SPML/PML.

 

comments please.

 

GR

[Gallahad]

GR

I wholeheartedly concur with your observations and think we must all try to refocus on what are the really relevant issues.

G

[not another b----- letter]

Hi

Found the Consumer Action Group and this thread yesterday and its been an eye opener, we have a mortage/loan with SPPL and have had two years of harrassment, we fell one month behind with our payments and had a some late payments, that resulted in arrears of over twelve hundred pounds (arrears is what Capstone call them I prefer unlawful charges) we were served with a summons which was withdrawn a week before the hearing, they now say it was all a mistake and have paid back some of the charges and all the court and legal fees. But having read some of the posts here for us it looks like the start of the battle not the end of it.

I wonder what would have happened if the case had gone ahead and we had lost, would we now be facing repossesion? or would it all have been a mistake?.

 

And now a question SPML and SPPL same company?, and can we fill in a C I B complaint form, (if the answers yes consider it done)

 

Feel very sorry for the Walkers and the lost case in the Appeal Court, hope that one day you get your revenge.

 

And finally looked at Capstones web site this morning and found the following on the home page:

 

 

Capstone provides borrowers with professional account oversight of their borrowing commitment.

We take ownership of customer satisfaction, ensuring a positive and friendly response to all account queries.

 

And under careers,

 

A day in the life of a Collections Officer …

 

My day as a Collections Officer is a fairly hectic one and each day is different, which I really enjoy. We are all focussed on making contact with people who have fallen behind in their mortgage repayments and who may need some help and guidance getting them back on track.

 

Team work is a major part of the Collections department. The case load is split across the teams and we have monthly targets to meet.* This creates great banter and gives us all drive, keeps us going and above all makes work fun!.

 

Yes it must be a lot of fun, like the fun we had when we were facing possible repossession and could not sleep at night because we were worrying about losing the roof over our heads, yes it must be great working for Capstone.

 

*Love to know what those monthly targets are?.

[enoughisenough]

Welcome to the forums and to the thread NABL. I'm sure you will make a valuable contribution.

[on*the*case]

Hi and welcome 'not another b----- letter',

 

There are plenty on here who share your experience with Capstone and 'their caring customer management'

 

Have a search (Capstone, London Mortgage, SPML) through the Repossessions Repossessions - The Consumer Forums thread to read some of the horror stories. Check 'Crapstones' and my recent experience http://www.consumeractiongroup.co.uk/forum/repossessions/230154-preferred-mortgages-capstone-mortgage.html This made a District Judge call the company 'a shambles'.

The fact is that Capstone like their customers to be in arrears, that way leads to better revenue and profit.

You may also profit from reading about the FSA recent £2.8M fine on GMAC and the FSA order to repay £7.7M to customers for the same abuses as Capstone. Rumour has it that Capstone are presently 'assisting' the FSA is a similar investigation.

[ryde]

Great news OTC have just read your other thread a victory at last and something to cheer ,great that you and the other caggers worked through it all and made pml and capstone look total idiots.

 

Apologies for this long post of text regarding securitization but believe it may be valuable in:

1)understanding the whole process

2)concerns Ireland home of the spml/pml/eurosail securitizations of our loans

3)Surprise,surprise price waterhouse the administrators of lehmans are involved and have been from the start,the plot thickens considerably.

sorry for text could only lift it from a cached source as subscription only!!will edit it later.

 

Ireland is securitization's rising star

The tax features of securitizing assets through Ireland give the country many advantages in establishing a worldwide reputation for this type of transaction, argue Enda Faughnan and Harry Gleeson of PricewaterhouseCoopers

Today securitization is the funding and risk transfer method of choice for an increasing number of corporates and financial institutions and is the largest growing contributor to global capital markets. Following favourable tax and regulatory changes, Ireland has become one of the favoured EU locations for many financial transactions including securitization, collateralized debt obligations (CDOs), asset covered securities, asset repackaging transactions and other structured finance transactions.

Securitization should be of interest to any large corporate that owns suitable financial assets, whether a pool of debts or discrete revenue streams. For financial institutions, securitization can lead to lower regulatory capital requirements. It is estimated that about 20% of top European corporates have already conducted a securitization and it is expected that the European securitization industry will continue to grow at pace in the coming years.

In terms of choosing a location for a securitization special purpose vehicle (SPV), the following tax drivers are critical:

 

• tax neutrality for the SPV;
  
• the ability of the SPV to make outward payments free of withholding tax;
  
• the ability of the SPV to receive income free of withholding tax, and
  
• no local tax liability for the foreign note holders.
  

Ireland delivers on each of these key tax drivers and because it is onshore and a member of the EU and the OECD, it will continue to be a favoured location for securitization transactions.

Securitization explained

Securitization is commonly defined as the creation of tradeable securities out of an income stream or projected income stream generated by financial assets. It is a process by which assets are financed in the capital markets based on the credit strengths of these assets independent of the credit rating of the originator (owner) of the assets. In a typical securitization transaction, the originator sells a portfolio of assets to the SPV. The SPV will fund the acquisition of the assets by issuing rated bonds or notes.

Different terms of credit and legal enhancement are used to achieve a credit rating which is independent from, and would normally be higher than, the credit rating of the originator. The SPV will fund the interest and principal payments on the bonds with collections from the underlying assets. The structures would normally be limited recourse in that the payments on the bonds would be limited to the cash flows generated on the securitized assets.

Benefits of securitization

Transactions by the SPV can be structured with AAA ratings on most debt which means the funding cost should be reduced.

Assets that may not be readily sold could be grouped together to create a diversified collateral pool against which debt can be issued.

Securitization can increase the lines of credit for a company which can be recycled quickly to generate additional assets and free up long-term capital.

A corporate can raise capital through an SPV as a private placement which would enable sensitive business and financial information to be kept private.

Securitization can allow a company to transfer risk to third parties in that financial risk from defaults on loans or contractual obligations by customers can be partially transferred to investors and credit enhancers.

Types of securitized assets

As the securitization industry grows and becomes more sophisticated, the types of assets that are securitized have expanded into non-financial assets and future cash flows. Examples of securitized assets include:

 

• aircraft leases
  
• boat loans
  
• car loans and leases
  
• credit card receivables
  
• equipment leases
  
• insurance policies
  
• mortgages (residential and commercial)
  
• railcar and train wagon leases
  
• real estate
  
• royalty streams
  
• trade receivables
  
• truck loans
  

Types of securitization transactions

As the objectives of parties to securitization transactions can vary (see the different benefits identified above), this creates requirements for different types of securitization transactions. The most popular transactions undertaken to date in Ireland include:

True sale

In a traditional "true sale" structure, the originator sells a pool of assets to the SPV and receives the proceeds from the issue of notes by the SPV as the purchase price for the assets acquired.

Synthetic

Unlike a true sale, a synthetic securitization will not provide the originator with cash. Instead the originator may use this transaction to transfer the credit risk on assets and to reduce regulatory capital requirements. The SPV will sell credit protection for a fee under a derivative instrument, which typically would be a credit default swap. The SPV will use the proceeds from the issue of bonds or notes to collateralize its obligations under the credit default swap. This means that the size of the bond issue required by the SPV should equal the expected credit losses in connection with the pool of assets rather than the aggregate value of the pool of assets.

Credit-linked transactions

These transactions are normally entered into by companies that are unable or unwilling to transfer assets off their balance sheet. This transaction would involve the issue of notes or the taking of a secured loan by the assets pool owner. The performance of these notes or secured loan is directly linked to the selected asset pool.

Irish tax rules - what is a qualifying company for securitization purposes?

Tax neutrality is one of the key drivers in identifying a suitable securitization jurisdiction. Before the introduction of the favourable securitization tax provisions, one of the major difficulties in establishing an SPV in Ireland was ensuring that the SPV was carrying on a trade for Irish tax purposes. If the company is not trading for tax purposes it would not be entitled to a tax deduction for its interest payments and expenses. The Irish authorities identified securitization as a key growth area in financial services and introduced significant tax changes in 2003 to enhance Ireland's attractiveness as a domicile of choice for securitization vehicles.

The securitization rules provide that a "qualifying company" will be subject to Irish corporation tax at a rate of 25% on its taxable profits. While this tax rate is high in comparison to the general corporation tax rate of 12.5% for trading companies, the taxable profit can be almost entirely eliminated through appropriate planning and structuring (that is, total return swaps, service fees, interest on subordinated loans/credit linked notes). The typical profit left in an SPV would be in the region of nil to €5,000.

A "qualifying company" means a company which:

 

1. is resident in Ireland;
   
2. acquires "qualifying assets" (see definition below) or as a result of an arrangement with another person holds or manages qualifying assets or enters into a legally enforceable arrangement with another person and the arrangement is itself a qualifying asset (such as a derivative);
   
3. carries on in Ireland the business of the holding and/or management of "qualifying assets";
   
4. apart from activities ancillary to that business, carries on no other activities;
   
5. undertakes the first transaction resulting in the holding and/or management of qualifying assets for a value of not less than €10m ($13.366 million);
   
6. notifies the Irish tax authorities that it is a company to which points (a) to (e) apply; and
   
7. carries on no transaction other than by way of a bargain made at arm's length (the legislation specifically excludes profit participating loans from satisfying this requirement - this is a favoured method of profit extraction for SPVs).
   

A "qualifying asset" means an asset which consists of, or of an interest in, a "financial asset". "Financial asset" is widely defined and includes:

 

• shares, bonds and other securities;
  
• futures, options, swaps, derivatives and similar instruments;
  
• invoices and all types of receivables;
  
• obligations evidencing debt (including loans and deposits);
  
• leases and loan and lease portfolios;
  
• hire purchase contracts;
  
• acceptance credits and all other documents of title relating to the movement of goods, and
  
• bills of exchange, commercial paper, promissory notes, and all other kinds of negotiable or transferable instruments.
  

There are two tests of tax residence in Ireland referred to at (a) above, that is, a central management and control test and an incorporation test. If the SPV is owned by a charitable trust then it is most likely that the SPV would be regarded as tax resident in Ireland under the incorporation rule provided the SPV is incorporated in Ireland. The central management and control test is not defined in Irish legislation and its meaning is taken from UK case law. An SPV will normally be regarded as tax resident in Ireland if meetings of the board of directors are held in Ireland and major policy and strategic decisions of the company are taken at those meetings.

Test © of a qualifying company (that is, that it carries on in Ireland the business of the holding and/or management of qualifying assets) is normally satisfied by the participation of typically two Irish-resident directors in the affairs of the SPV and the appointment of an Irish-based corporate administrator to manage the SPV. The role of the Irish administrator is generally limited (but can be wider if required) to, for example,keeping books and records of the SPV, preparing accounts and providing directors. Typically the SPV will have no employees.

It will be noted from test (d) above that the SPV must not carry on any other activities (apart from those that are ancillary to the business of the holding and/or management of qualifying assets). This is to ensure that the SPV is only used for particular types of activities so as to confine the favourable tax treatment afforded to Irish SPVs only to qualifying assets.

Withholding taxes - outward

Typically, debt is used to finance the SPV by way of a loan or the issue of notes, bonds or commercial paper. Normally, withholding tax at a rate of 20% applies to interest payments by an Irish-resident company. However there are two exemptions from withholding tax that are relevant for securitization vehicles.

First, there is no requirement to deduct withholding tax on interest payments by a qualifying SPV to any person who is resident in the EU or in a country with which Ireland has a double tax agreement (DTA). Ireland has DTAs in place with 44 countries and is in various stages of negotiation to conclude additional DTAs with nine new countries including Argentina, Singapore and Turkey.

Second, there is an exemption from Irish withholding tax on interest payments on quoted eurobonds. A quoted eurobond is defined as a security which is quoted on a recognized stock exchange, carries a right to interest and is in bearer form. Interest on a quoted eurobond can be paid gross if the paying agent is not based in Ireland, or if it is, interest may still be paid gross if the quoted eurobond is held in a recognized clearing system (for example, Clearstream, Euroclear or Crest). The quoted eurobond exemption provides additional protection from withholding tax than the exemption mentioned above as there is no residence test for the recipient of the interest (that is, the recipient may be resident outside the EU in a non-treaty country).

Withholding taxes - inward

Frequently cash flows from assets attract withholding taxes on the income and/or capital gain flows on those assets and can only be avoided by locating the SPV in a jurisdiction which has a DTA with the country of origin of those assets. Ireland's success as a securitization SPV location is partly attributable to the DTA network in avoiding withholding taxes on the cash flows. Irish SPVs have been used in numerous transactions for acquiring a wide range of Korean and Japanese assets because of Ireland's favourable double tax treaties with those countries. For example, with the exceptions of Hungary and Russia, Ireland is the only country to have negotiated a nil rate of withholding tax on interest payments and capital gains from Korea.

Taxation of note holders

Ordinarily any Irish source income (that is, interest) receivable by a non-Irish resident would be liable to Irish income tax at the standard rate (20%). However, there is a specific exemption from Irish income tax in respect of interest payable by a qualifying SPV to any person resident in the EU or in a country with which Ireland has a DTA. Where the recipient of the interest is resident elsewhere, a technical charge to Irish income tax arises, but in practice the Revenue Commissioners have not sought collection of the tax where the recipient has no Irish presence.

Value-added tax

In general the activities of a qualifying SPV are exempt activities for VAT purposes and therefore there is no obligation on the SPV to charge Irish VAT on its activities.

Before 2004 there was some uncertainty in Ireland with regard to the VAT treatment of management fees incurred by qualifying securitization SPVs. Thankfully, an amendment to the Irish VAT legislation in 2004 has now put the issue beyond doubt. Management services provided to all qualifying SPVs are exempt from VAT. The definition of management may comprise any of the three functions listed in annex II to Directive 2001/107/EC of the European Parliament and Council (being the functions included in the activity of collective portfolio management). The three functions are:

 

• investment management; and
  
• administration,
  
• marketing.
  

This brings certainty to the VAT treatment of management fees payable by qualifying securitization vehicles and should cover, among other things, corporate administration services and collateral management services supplied to a qualifying SPV.

Stamp duty

No charge to Irish stamp duty should arise on the issue of bonds or notes by a qualifying SPV. In addition there should be no Irish stamp duty on the transfer of any such bonds or notes.

Accounting implications - impact of introduction of IAS 32 and IAS 39

The cash flows over the life of a typical SPV are flat or neutral so that little or no tax liability arises. Under the existing historical cost accounting rules - Irish generally accepted accounting principles (GAAP) - it is possible to achieve a flat profit and loss from an accounting perspective. This accounting profit is followed for tax purposes so that little or no Irish tax is payable by the SPV.

Under the proposed new IAS rules there is likely to be more profit and loss volatility from an accounting perspective due to, among other things, changes in hedge accounting, assets being accounted for at fair value (previously amortized cost) and derivatives being accounted for at fair value (previously neither recognized or measured). Over the term of the transaction the profit in the SPV should be flat from an accounting perspective. However there could be mismatches from a tax perspective due to the restriction on the use of losses in a qualifying SPV.

Following representations and discussions with the Irish authorities on this matter, the Irish Revenue have indicated that legislation will be introduced to enable qualifying SPVs elect to continue to be taxed in accordance with profits computed using the old Irish GAAP rules. This should enable Irish SPVs to continue to be taxed on flat accounting profits. This legislation change is expected before the passing of the 2005 Finance Bill (likely to be mid-March 2005).

Irish legal and regulatory issues

Irish SPVs may be established either as limited or unlimited companies under the Companies Acts, 1963-2001. Private limited companies are the most common form of business entity used in Ireland. The essential feature of a private limited company is that the liability of members is limited to the amount of share capital subscribed. If there is a public offer of securities (such as for the bonds or notes) then a public limited company (PLC) is likely to be required.

An Irish SPV, as well as having to file annual tax returns, will also have to prepare and file annual audited accounts with the Companies Registration Office. In addition an Irish SPV must have a registered office located in Ireland, typically it must have a minimum of one Irish resident director although in practice there are normally two Irish-resident directors to ensure that the SPV is tax resident in Ireland under the central management and control test and that it meets the requirement in test © of the definition of 'qualifying company' in tax legislation.

There are no minimum capital requirements for an Irish private limited company but for an Irish PLC the minimum capitalization is €38,092 ($51,000) (although only 25% of this must be paid up).

The SPV will generally not be regulated by the Irish authorities but if the SPV is making a public offer of securities, it must issue an offering document complying with Irish public offer rules and that document must be filed at the Companies Registration Office.

An SPV may be incorporated within 10 days of the relevant documentation being lodged with the Registrar of Companies.

The Asset Covered Securities Act, 2001 introduced a statutory framework for the issue of covered bonds. Covered bonds are debt instruments that are backed up or "covered" by a pool of assets, generally taking the form of public debt or mortgage credit. If structured correctly, the bonds issued under the Act may achieve a high credit rating, facilitating access by the issuing group to funds at competitive rates. Since the introduction of this Act, there has been significant growth in the asset covered securities market in Ireland with a number of financial institutions raising large amounts of capital.

Listing

The Irish Stock Exchange has in the last number of years introduced new rules regarding the listing of specialist debt securities. These new rules have provided a relatively inexpensive and timely listing process and have proved very popular for many arrangers since their introduction (not just for Irish-domiciled SPVs but also non-Irish-domiciled SPVs).

Tax changes boost

Since the introduction of favourable tax changes in 2003, the securitization industry in Ireland has expanded rapidly and there are now more than 2000 securitization vehicles listed on the Irish Stock Exchange. Ireland delivers on all of the key tax drivers for securitization vehicles in terms of tax neutrality for the SPV, no withholding tax on outward payments, extensive tax treaty network to minimize/eliminate inward withholding taxes and no Irish tax liability for foreign note holders.

Securitization is a continually changing business and the locations which will ultimately prove most successful will be those with the fiscal and regulatory regime which offers most flexibility, certainty and support to the originators, investors and creditors. Ireland has been able to accommodate those changes and has moved from plain vanilla true sale securitizations to synthetic and credit-linked securitizations. The strong tax, legal and accounting infrastructure in Ireland, the onshore EU location and the efficient stock exchange listing system has also facilitated the development of this market. All in all, the regime Ireland has put in place and the strong track record of the Irish government being prepared to change legislation and practices where market forces demanded it, augurs well for the future of this increasingly important niche market.

Biographies

Harry Gleeson

PricewaterhouseCoopers

Wilton Place

Dublin 2

Tel: +353 1 662 6533

Fax: +353 1 662 6616

Email: [email protected]

Website: www.pwc.com/ie

Harry Gleeson joined PricewaterhouseCoopers (PwC) in 1982 and is a director in tax and legal services specializing in banking and capital markets within financial services. He is an associate of the Irish Taxation Institute and has over 15 years experience working with banks and corporates operating in the financial services industry. He has advised many multinationals on inward investment into Ireland in relation to the establishment of banking and treasury operations in Dublin's International Financial Services Centre. He has also advised on many cross-border structured finance transactions.

Gleeson is responsible within PwC's tax and legal services division for marketing and developing securitization structures within Ireland. He is a member of the tax group of PwC's European securitization group and is also PwC's representative on the securitization subgroup of Financial Services Ireland.

Enda Faughnan

PricewaterhouseCoopers

Wilton Place

Dublin 2

Tel: +353 1 662 6359

Fax: +353 1 662 6616

Email: [email protected]

Website: www.pwc.com/ie

 

 

Enda Faughnan is head of tax financial services at PricewaterhouseCoopers in Ireland. He is a member of the consultative committee of accountancy bodies in Ireland (CCAB-I). He is also a member of the banking and treasury group, a government-appointed committee responsible for the promotion and development of financial services in Ireland.

Faughnan specializes in providing tax consultancy services to the financial services sector in Ireland and abroad. His clients include domestic and international banks as well as financial services subsidiaries of major multinational corporations.

He joined Price Waterhouse in 1985 and was made a tax partner in 1988. He was appointed head of tax services at Price Waterhouse in 1995 and appointed head of tax and legal services at PricewaterhouseCoopers in 1998 on the merger with Coopers & Lybrand. He stepped down from this position in July 2003 to concentrate on international financial services client work.

Edited November 14, 2009 by ryde