IBRC annual report for 2011 - Irish Bank Resolution Corporation ...

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Legal claimsIn the normal course of the Bank’s business and operations, litigation arises from time to time. The Bank has a policy of activemanagement and rigorous defence of legal claims and there are procedures in place to ensure the oversight of claims by theRisk and Compliance Committee. At 31 December 2011 the Bank is engaged in a number of ongoing legal proceedings.Other than the regulatory reviews and enquiries referred to above, the only significant additional proceedings, which areongoing, are as follows:(i)In proceedings brought in the Commercial Court in Dublin, a number of investors in the Anglo Irish New York Hotel Fundhave sought the return of their investment together with interest and costs. The Bank raised a full defence in response tothese claims. The hearing of the litigation took place in February and March 2011 and on 27 July 2011 the High Court inDublin ruled in favour of the Bank against the claims made by the investors. The litigation has now been appealed by theinvestors to the Supreme Court. On 2 June 2011 the arbitrator in the related New York arbitration brought by the Bankagainst the General Partner of the Fund, held for the Bank in ordering the removal of the General Partner of the Fund, andthe arbitrator ruled against the General Partner in relation to its counterclaim.(ii)On 14 February 2011 the Bank received notice that holders of certain subordinated loan notes, having an aggregate parvalue of $200,000,000, filed a claim for relief seeking a restraining order and injunction against the Bank in the UnitedStates. The proceedings relate to alleged breaches of certain covenants contained in the documentation governing theloan notes in question. The Bank raised a full defence in response to the claim. On 28 November 2011 the United StatesDistrict Court (Southern District of New York) dismissed the claim made by Fir Tree. The litigation has now been appealedby Fir Tree to the United States Court of Appeals for the Second Circuit. No additional information in respect of thedispute is being provided, as to do so could prejudice the position of the Group in relation to the proceedings.(iii)On 15 April 2011 Assenagon Asset Management SA issued English High Court proceedings against the Bank in connectionwith the purchase of subordinated bonds in the Bank due 2017 which were included in the liability management exercisecarried out by the Bank in November 2010. The Bank has raised a full defence to the proceedings and a hearing isscheduled to take place in June 2012. No additional information in respect of the dispute is being provided, as to do socould prejudice the position of the Group in relation to the proceedings.(iv)On 16 May 2011, the wife and children of Sean Quinn issued Irish High Court proceedings against the Bank and a sharereceiver appointed by the Bank, in which declarations have been sought seeking, amongst other things, to set asidevarious loan agreements and security documents entered into by certain members of the Quinn family with the Bank. Theproceedings, which were admitted to the Commercial List of the High Court on 30 May 2011, also include an unspecifiedclaim for damages. The Bank intends to vigorously defend the proceedings. No additional information in respect of thedispute is being provided, as to do so could prejudice the position of the Group in relation to the proceedings.GuaranteesIn the normal course of business, the Group is a party to financial instruments with off balance sheet risk to meet the financingneeds of customers. These instruments involve, to varying degrees, elements of risks which are not reflected in the statement offinancial position. Guarantee contracts expose the Bank to the possibility of sustaining a loss if the other party to the financialinstrument fails to perform in accordance with the terms of the contract. Even though these obligations may not be recognisedin the statement of financial position, they do contain risk and are therefore part of the overall risk of the Group (see note 50).In addition to the above, the Bank has given guarantees in respect of certain subsidiaries.IndemnityThe TSA entered into between the Bank, AIB and AIB UK at the time of the AIB Transfer Order pursuant to which certain of theBank’s deposits and assets, and the shares held by the Bank in its Isle of Man deposit taking subsidiary, Anglo Irish BankCorporation (International) PLC (later renamed as AIB International Savings Limited) were transferred to AIB and AIB UK,contained an indemnity from the Bank in favour of AIB and AIB UK. Under that indemnity, subject to certain exclusions and tocertain time-frames within which claims can be made, AIB and AIB UK may claim indemnity against the Bank for certain directliabilities arising in connection with that part of the Bank’s business that transferred to them.Following the AIB Transfer Order, the AIB Group notified the Bank of a number of matters in respect of which it expects to seekindemnity under the terms of the TSA. The Bank is working with the AIB Group to establish whether those matters are withinthe scope of the indemnity, whether any of the limitations on, or exclusions from, liability set out in the TSA are relevant and,to the extent that they are not, what steps the AIB Group must take (such as reasonable steps to mitigate any such liability, andusing reasonable endeavours to recover amounts due in respect of certain exposures) as a precursor to a successful indemnityclaim. Discussions are ongoing with the AIB Group and, to date, the Bank has not made any admission of liability. In certaincases, it is not yet possible to ascertain the quantum of the direct loss that the AIB Group expects to incur in relation toparticular matters or if the Bank is liable under the TSA indemnity. The AIB Group has put the Bank on notice of possible claimstotalling approximately €80m, but it is not yet possible to confirm whether this is an accurate figure, or whether the Bank is, infact, liable in respect of each of the amounts comprising that total.101