Examinership is a well-established corporate rescue mechanism for ailing corporates and groups. It combines flexibility with a high degree of commercial and procedural certainty for all involved. It is a process which has evolved with the different economic cycles in Ireland since its inception in 1990 and has responded to downturns in different sectors. The real benefits and unique features of the process are showcased in the recent successful examinership of Norwegian Air. The examiner’s schemes of arrangement were sanctioned by the Irish High Court on 26 March 2021, marking the beginning of the next evolution in the examinership process. Some key takeaways:
- Foreign Related Companies: Norwegian Air marks a departure from the ‘centre of main interests’ test for a non-EU company. Norwegian Air Shuttle ASA (“NAS”) is a company in the Norwegian group with its ‘centre of main interest’ firmly in Norway. The Irish Court was however satisfied that it could appoint an examiner to NAS as a foreign related company on the basis of the ‘sufficient connection’ test. The Court was satisfied that NAS had a sufficient connection to Ireland through its shareholdings in Irish incorporated subsidiaries.
- Repudiations of Leases: a core element of Norwegian Air’s restructuring plan was to re-focus the wider group away from long- haul operations and towards its core Nordic-region business. This plan for a slimmed down business required a significant reduction of its existing fleet from 148 to 51 aircraft. In order to achieve this, the group sought consensual terminations of a significant number of aircraft leasing and sub-leasing arrangements. Where agreement could not be reached, the Court facilitated and ultimately approved 4 separate omnibus repudiation applications. Damages arising from the repudiations were written down by the examiner’s schemes of arrangement.
- English law governed contracts: a significant number of the aircraft leasing and sub-leasing arrangements were governed by English law. The Court was satisfied that the Irish repudiation orders and the examiner’s proposals would be recognized in England under section 426 of the UK Insolvency Act 1986, notwithstanding the English Rule in Gibbs. Ireland is the only EU member state entitled to avail of the recognition provisions under section 426 of the UK Insolvency Act 1986.
- US Chapter 15 recognition application: certain of the contracts that were subject to the repudiation application are governed by US law. NAS intends to seek recognition of those repudiation orders in the United States under its Chapter 15 recognition procedure.
- Examinership timeline: On 18 November 2020, Norwegian Air petitioned for the appointment of an examiner. The examiner submitted his final section 534 report outlining his scheme proposals to the Court on 22 March 2021. The examiner determined that investment would need to be raised through combined equity and hybrid capital raises by NAS but that this could only be done following the approval of the schemes of arrangement. The examiner’s scheme proposals are conditional on NAS raising NOK4.5 billion on or before 30 June 2021, effectively extending the examinership process to 7 months.
- Shareholders: examinership is an insolvency procedure. Equity is therefore typically cancelled. Although the shares in NAS will be significantly diluted, the NAS shareholders will retain a 4.6% shareholding notwithstanding the significant impairment of creditor claims. Given the nature of the investment required, the examiner determined that it was essential to retain liquidity and value in the NAS shares, which was the rationale for not cancelling the existing shareholders’ equity in NAS.
- Cape Town Convention: Ireland has adopted the Cape Town Convention and the Alternative A Protocol. This convention and protocol provides significant protections to aircraft lessors and financiers when a debtor enters an insolvency event, such as examinership. None of these protections were raised or relied upon before the Court by creditors during the Norwegian Air examinership.