Last week the Supreme Court overturned Mr Justice McGovern's recent decision in the Linen Supply of Ireland examinership that the current legislation does not permit the repudiation of leases in an examinership. The case has now been remitted back to the High Court to consider whether, in the specific case before it, the leases ought to be repudiated in order for a scheme of arrangement to be formulated.
The Supreme Court held that Section 20 of the Companies (Amendment) Act, 1990 should be interpreted in the ordinary meaning and that the word contract must be interpreted to include leases. The court said that leases are, as a matter of law, contracts.
In light of the challenges facing the Irish retail market, the importance of this decision cannot be understated. It is generally acknowledged that examinership is an effective restructuring model for a retail business. The ability to repudiate leases of non performing stores is often an important part of the process and key to attracting fresh investment. The recent High Court decision in the O'Brien's Irish Sandwich Bars examinership had cast doubt on the ability to repudiate leases where agreement could not be reached with landlords.
For the landlord community this decision provides little comfort other than some clarity as to their negotiating strength in an examinership. The key message to landlords is clear: find out the financial position of the tenant in examinership (and, in particular, the profitability of that outlet); assess your leverage and be ready to negotiate with the examiner early in the process.
While the Linen Supply of Ireland case is back before the High Court to adjudicate on whether the repudiations of leases in this restructuring should be permitted, this Supreme Court decision will be very much welcomed by the restructuring community.