This article first appeared in Volume 20, Issue 4 of International Corporate Rescue and is reprinted with the permission of Chase Cambria Publishing - www.chasecambria.com.

Synopsis

Since its introduction in 1990, the Irish corporate res- cue scheme known as examinership has proven itself adept at evolving to the requirements of modern com- plex cross-border corporate restructurings.

Two recent judgments of the Irish High Court indi- cate that this flexibility remains and will be of increased importance in the coming years as Irish examinership prevails as one of the restructuring mechanisms of choice for international distressed corporate groups.

In both the Norwegian Air1 and Mallinckrodt plc2 judgments, the Irish High Court emphasised that a proposed rescue scheme is capable of approval by the courts even where there are elements of significant conditionality within that rescue scheme. While this could be interpreted as a shift from previous practice, we see it in a different light – namely as a clear indica- tion that the Irish High Court is attuned to the realities of the many moving parts that exist within a cross- border restructuring.

What is examinership?

By way of brief reminder, examinership is an Irish law statutory scheme set out in Part 10 of the Companies Act 2014 (‘the Act’) for the rescue of a company or group of companies which usually comprises three main components namely, (i) new investment, (ii) a forced write-down of the company’s liabilities and (iii) a legal moratorium which prevents enforcement action being taken during the period of examinership.

In respect of the new investment, within 35 days of the appointment of the examiner (or such longer peri- od as the court may permit), the examiner must report to the court on various matters and, if the examiner concludes, amongst other things, that the formulation, acceptance and confirmation of proposals for a com- promise or scheme of arrangement would facilitate the survival of the company as a going concern, the examiner must formulate proposals accordingly – what we refer to in this article as the ‘rescue scheme’.

Having done so, the examiner must convene meet- ings of such classes of members and creditors as the examiner deems appropriate to consider acceptance of the examiner’s rescue scheme. There is acceptance by a class of creditors when both a majority in number of the creditors represented at the meeting and a majority in value of them, vote in favour of the rescue scheme.

Class approval however is not the final hurdle. The rescue scheme must be sanctioned by the High Court before it becomes binding. The High Court must be satisfied that the rescue scheme is fair and equitable in relation to any class of creditors or members that have not accepted the rescue scheme and whose interests or claims would be impaired by implementation.

In respect of the inclusion of conditional new invest- ment within a rescue scheme, Quinn J. in his Norwe- gian Air judgment noted that the traditional approach of the Irish High Court has been to decline confirmation of a rescue scheme where the investment required to implement it had not been unconditionally committed. In previous cases, investment agreements which contained conditionality which had the effect of re- serving to the investor the right to withdraw or amend its proposed investment were deemed inappropriate. The central reasons for this was that the confirmation of the rescue scheme by the Irish High Court would have the effect that the claims of creditors would be impaired on confirmation without certainty that the company would receive the necessary investment to pay the dividends.

In a previous case of Re Cisti Gugan Barra Teoranta,3 Finlay Geoghegan J. emphasised that to confirm pro- posals and render them effective as against the com- panies’ creditors and counterparties, is a far-reaching remedy and in the exercise of its discretion, the court should first be satisfied that such an order will serve the intended objectives.

Norwegian Air Examinership

The Norwegian Air group entered examinership in late 2020 as a result of, among various reasons, the impact of the COVID-19 pandemic upon the aviation sector.

Norwegian Air formulated proposals for investment terms during the course of the examinership and these proposals formed the basis of the examiner’s rescue scheme. The rescue scheme envisaged the raising of funds through three methods – a rights offering, a private placement and a new capital perpetual bonds offering.

In respect of the investment, as Quinn J. noted in his judgment approving the rescue scheme, the examiner stated on affidavit that the nature and scale of the in- vestment being sought was such that it would have been extremely difficult, if not impossible, to undertake the type of public offering envisaged in the proposals while uncertainty remained about the restructuring of Norwegian Air and whether the restructuring would be approved by creditors and ultimately confirmed by the Irish court and as appropriate by the Norwegian court.

The examiner also said on affidavit that the inher- ent uncertainty associated with the examinership pro- cess, including legal risks associated with the matter of confirmation of the rescue scheme or the possibility of appeals was such as would have undermined the pros- pects of a successful capital raise. The examiner did not believe that investors would have been willing to commit funds until after the rescue scheme had been confirmed and the appeal period had expired. For this reason, the examiner stated that, unusually, his rescue scheme has been presented to the creditors and to the court before there is in place binding commitments of investment. The examiner noted that the capital rais- ing processes would have to be completed following the confirmation of the rescue scheme. The rescue scheme would not take effect unless and until the minimum gross proceeds of NOK 4.5 billion in aggregate had been raised.

The rescue scheme noted that it would come into ef- fect only when the following preconditions have been satisfied:

• That the rescue scheme was confirmed by the Irish High
• That the Norwegian restructuring plan, which was intended to implement the rescue scheme without modification had been sanctioned by the Norwegian
• That the company raised investment proceeds of no less than the minimum gross proceeds thresh- old of NOK 5 billion in connection with the new investment streams.

Quinn J. noted that as regards the effective date for the rescue scheme to take effect, Section 542(3) of the Acts.541, shall come into effect from a date fixed by the court, which date (unless the court deems it appropriate to fix a later one) shall be a date falling no later than 21 days after the date of the proposals confirmation.’

Quinn J. noted in the Norwegian Air rescue scheme, that if the above conditions, including the receipt of the minimum investment proceeds into locked accounts, had not been implemented by a specified future time, such amounts as have been advanced by investors would be refunded, the claims of creditors would not be impaired or written down and the rescue scheme would not come into effect.

Noting that Norwegian Air was in a different cat- egory to the ‘conditional investment’ cases referenced above, Quinn J. stated that it is only in exceptional cases that the court should confirm proposals in the absence of evidence of binding investment arrangements.

He noted that there is no rule which precludes the court from adopting a flexible approach in an appropri- ate case. Quinn J. noted that the necessity for certain conditionality had been well-explained by the examin- er. Quinn J. continued that that necessity takes this case outside the realm of those cases where the court has refused confirmation because the conditionality serves the interests of a particular investor or shareholder. He expressly noted that ‘I am satisfied that the complexity and conditionality in this case is a necessary feature of the restructuring and that confirmation is consistent with the objectives of Part 10 and with the purpose for which the examiner was appointed’.

Mallinckrodt plc

In October 2020, Mallinckrodt PLC entered Chapter 11 in the US. As the ultimate parent company, Mall- inckrodt PLC is an Irish registered company, in order to fully implement the Chapter 11 proposals, a comple- mentary examinership was required in Ireland which commenced in February 2022.

The rescue scheme in the examinership was practi- cally identical to the Chapter 11 proposals. Of note, within the rescue scheme were 23 conditions prece- dent. While some of these conditions had been satisfied by the date the rescue scheme came before Quinn J. for approval, many remained unsatisfied and unwaived.

Quinn J. noted in his judgment approving the rescue scheme however that it was clear from an overview of the conditions and the evidence before the Court in relation to the status of these conditions that there are numerous ‘moving parts’ to the completion of the restructuring.

He also noted that it was clear from the very outset of these proceedings that there would always have been many moving parts between a confirmation order and the effective date.

Quinn J. stated that to suspend or delay the process of confirmation pending the satisfaction or waiver of all the conditions would put at risk not only the achieve- ment of the target date – albeit that is only a target date – but also the success of the restructuring as a whole.

He noted his judgment in the above referenced Norwegian Air examinership on the question of con- firmation of conditional schemes of arrangement and the traditional approach of the Court, which is to lean against confirmation of a plan which remains conditional.

He emphasised here that the Court should as a gen- eral rule be slow to confirm proposals where there is extensive conditionality. Doing so should be the excep- tion, and the question arises as to whether this case is such an exception.

Having regard to the benefits for stakeholders, it seems to Quinn J. that the risk of a failure to consum- mate the restructuring because of delay creates a greater prejudice to the stakeholders as a whole than the limited prejudice which would flow from a confir- mation order being made now, even if ultimately the proposals do not come into effect.

Conclusion

Examinership benefits from EU-wide recognition under the provisions of the Recast Insolvency Regulation.4 That allied with Ireland being an English speaking common law jurisdiction and the deep experience of over 30 years of jurisprudence on the examinership corporate rescue process ensures that examinership will remain a viable option and the Irish High Court a critical hub for multi-jurisdictional complex corporate restructurings.

The decisions in Norwegian Air and Mallinckrodt plc emphasise that the Irish High Court understands the very many intricate layers that prevail in these cases and as a result, the court will, in the appropriate cir- cumstances, approve a rescue scheme that has within it a significant element of conditionality in terms of new investment or other fundamental requirements. For rapidly moving, intricate restructurings, this ap- proach is an explicit benefit.