Introduction

The case of Arctic Aviation Assets Designated Activity Company & Ors v. Companies Act 2014 (Approved) ([2021] IEHC 272) was adjudicated by the High Court of Ireland on April 22, 2021. This judgment addresses a complex application involving multiple companies within the Norwegian Group, namely Arctic Aviation Assets DAC (AAA), Norwegian Air International Limited (NAI), Drammensfjorden Leasing Limited (DLL), Lysakerfjorden Leasing Limited (LLL), Norwegian Air Shuttle ASA (NAS), and Torskefjorden Leasing Limited (TLL). The central issue revolved around the confirmation of a scheme of arrangement designed to restructure the Group's finances and operations under the Companies Act 2014, ensuring the survival of these companies as going concerns amidst financial distress exacerbated by the COVID-19 pandemic and the grounding of Boeing 737 Max 800 aircraft.

Summary of the Judgment

The High Court confirmed the examiner's proposals for a scheme of arrangement under section 541 of the Companies Act 2014. The proposals aimed to restructure the group's debt and operational focus, transitioning from long-haul to European short-haul flights with narrow-bodied aircraft. Key elements included a mixed capital raise through Rights Offering, Private Placement, and New Capital Perpetual Bonds, conditional on securing a minimum of NOK 4.5 billion in investments. The court assessed various factors, including the fairness and equity of the proposals, the support from creditors and members, and the viability of the companies post-restructuring. Despite the conditional nature of the investment commitments, the court deemed the proposals fair, equitable, and aligned with the objectives of preserving the enterprises and employment.

Analysis

Precedents Cited

The judgment extensively references previous cases to elucidate the application of the Companies Act 2014 and the principles governing schemes of arrangement:

• Re Camden Street Investments Limited [2014] IEHC 86: Emphasized that Part 10 of the Act does not allow for the pooling of affairs across multiple companies for schemes of arrangement.
• Re Antigen Holdings Limited [2001] 4 IR 600 and Re Traffic Group Limited [2008] 3 IR 253: Highlighted the court's discretion in confirming schemes that favor the enterprise's survival and employment preservation over shareholder interests.
• Re McInerney Homes Limited [2011] IESC 31: Established that the examiner bears the onus of proving that proposals are fair and equitable, juxtaposed against potential liquidation outcomes.
• Re Ballantyne [2019] IEHC 407 and Re Nordic Aviation Capital DAC [2020] IEHC 445: Affirmed the court's jurisdiction to confirm schemes that include releases of third-party liabilities, provided there is a sufficient nexus.
• Re Noble Group Limited [2018] EWHC 2911 (Ch): Supported the probability standard for recognizing confirmed schemes in other jurisdictions.
• Other cases like Re Goodman International (1991), Re Harley Medical Group Limited [2013] IEHC 219, and Re Eylewood Limited [2010] IEHC 57 were referenced to discuss the court's stance on modifications to schemes and the fairness towards creditors and members.

Legal Reasoning

The court's decision hinged on several critical legal evaluations:

• Fairness and Equity: The proposals were scrutinized to ensure they were fair and equitable to all classes of creditors, securing more favorable outcomes than liquidation for the majority.
• Conditional Confirmation: Unlike standard confirmations, this case involved conditional investment commitments. The court assessed the viability of these conditions through evidence of advanced investor discussions, government support, and engagement with financial advisers.
• Interlocking Schemes: Given the interconnected nature of the Group's companies, the court evaluated the proposals collectively, focusing on the lead proposals related to NAS, which underpin the entire restructuring strategy.
• Third-Party Releases: The confirmation included releases of liabilities across different companies within the Group, which the court found permissible under section 548 of the Act and relevant precedents.
• Preservation of Employment: The court placed significant weight on the proposals' potential to preserve thousands of jobs, aligning with the legislative intent behind Part 10 of the Act.
• Creditor Approval: While not all creditor classes approved the proposals, the overwhelming majority's support and lack of objections played a crucial role in the court's decision.

Impact

This judgment sets a significant precedent in several areas:

• Conditional Schemes of Arrangement: It demonstrates the court's willingness to confirm schemes contingent upon future investment, provided there is credible evidence supporting the fulfillment of these conditions.
• Interlocking Schemes Across Related Companies: The case provides a framework for handling complex restructurings involving multiple interrelated entities, emphasizing the necessity of viewing such proposals holistically.
• Third-Party Liability Releases: By confirming a scheme that releases liabilities across related companies, the judgment expands the scope of what can be achieved under the Companies Act 2014.
• Balancing Creditor Interests: It reinforces the principle that the court should prioritize the overall betterment of the enterprise and its creditors over individual dissenting classes, particularly when the majority stand to gain from the restructuring.
• Employment Preservation: The decision underscores the judiciary's role in facilitating arrangements that save businesses and, by extension, preserve employment, aligning with broader economic and social objectives.

Complex Concepts Simplified

• Scheme of Arrangement: A legally binding agreement between a company and its creditors or members, approved by the court, to restructure the company's debt or operations.
• Examinership: A legal process in Ireland aimed at restructuring an insolvent company, allowing it to continue trading while addressing its financial difficulties.
• Rights Offering: A way for a company to raise capital by giving existing shareholders the right to purchase additional shares, typically at a discount.
• Private Placement: A capital-raising event where shares or bonds are sold directly to a select group of investors rather than the general public.
• New Capital Perpetual Bonds: Hybrid securities that have characteristics of both debt and equity, typically without a fixed maturity date.
• Blended Dividend: A payment structure combining cash dividends with convertible debt, offering creditors both immediate payments and potential future equity participation.
• Contingent Unagreed Creditor: A creditor whose claim is conditional upon certain events, such as the outcome of litigation, and has not been formally agreed upon within the scheme.
• Dividends: Payments made by a company to its shareholders or creditors, representing a portion of profits or structured debt repayments.

Conclusion

The High Court's confirmation of the examiner's proposals in Arctic Aviation Assets DAC & Ors v. Companies Act 2014 ([2021] IEHC 272) establishes a noteworthy precedent in the realm of corporate restructuring under the Companies Act 2014. By approving a conditional and interlocking scheme of arrangement, the court demonstrated flexibility in addressing complex financial distress scenarios, ensuring the survival of interrelated companies and preserving significant employment. The case underscores the judiciary's commitment to fairness and equity, balancing the interests of diverse creditor classes while prioritizing the broader economic and social benefits of maintaining operational entities. This judgment will guide future restructurings, particularly those involving multiple interconnected companies and conditional investment commitments, highlighting the importance of comprehensive planning and robust evidence in securing court approval.