The Irish High Court has delivered its judgment on repudiation of contracts (including leases and guarantees) in the Norwegian case which will be of interest to the aviation and restructuring and insolvency communities alike.
The key takeaways from the judgment (which will be dealt with in more detail in a future article) are:
- Confirmation that examinership, via section 537 of the Irish Companies Act 2014, allows contracts which might otherwise be specifically enforceable after a company exits examinership, to be repudiated.
- The statutory threshold test that the contract must have an element of performance other than payment remaining to be rendered by both parties before it qualifies for repudiation has been clarified and, unless the contract obligations are confined merely to monetary obligations, then the contract will come within the statutory test.
- In exercising its discretion on whether to approve repudiation of a contract by a company in examinership, the court should adopt the following approach:
(a) has the company decided to repudiate in
furtherance of the formulation, consideration and confirmation of
proposals for a scheme of arrangement which will facilitate the
survival of the company and all or part of its undertaking as a
(b) has the company established that repudiation is necessary to achieve that purpose?; and
(c) if (a) and (b) above have been established, then the court should balance the interest of the individual counterparty against the interests of the company and its members and creditors as a whole.
- Repudiation orders have extra territorial effect.
- Cape Town Convention – The judgment
deals with aspects of the Cape Town Convention especially with
regards to the impact on enforcement and insolvency matters, and
Alternative A, which Ireland has adopted. Key points from the
- An Irish examinership, as a form of insolvency proceedings for
the purposes of the Convention, means that Alternative A requires:
- Giving up possession of the aircraft (within the prescribed time periods);
- Debtor/"insolvency administrator" must preserve the aircraft until possession given back;
- The court endorsed the findings of the Australian court in VB Leasing v Wells Fargo such that "giving up" possession does not require physical redelivery of the aircraft as if the lease were at an end; and
- In the context of giving possession, the court also ruled that it would not be appropriate to make a ruling to discharge third party liens over the asset in favour of the contract counterparty.
- Debtors' obligations cannot be modified without creditor consent, but this does not affect the authority of the insolvency administrator to terminate the agreement – the judgment provides that termination is different to modification and therefore not prohibited.
- An Irish examinership, as a form of insolvency proceedings for the purposes of the Convention, means that Alternative A requires:
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.