Introduction

The case of Nordic Aviation Capital Designated Activity Company v. The Companies Act 2014 to 2018 ([2020] IEHC 445) before the High Court of Ireland represents a significant judicial examination of the interplay between national insolvency laws and European Union regulations. The Scheme Company, Nordic Aviation Capital DAC, sought to restructure its substantial debt obligations exacerbated by the COVID-19 pandemic through a scheme of arrangement under Part 9 of the Companies Act 2014. The key issues revolved around the court’s jurisdiction to sanction the scheme, the inclusion of ancillary releases that impacted third parties, and the scheme's recognition under the Brussels Recast Regulation.

The parties involved included the Scheme Company, its creditors (both secured and unsecured), legal counsels from various jurisdictions, and entities implicated through the proposed Deed of Indemnity and Contribution. The interplay between Irish law, EU regulations, and international conventions added layers of complexity to the proceedings.

Summary of the Judgment

Honorable Mr. Justice David Barniville delivered a comprehensive judgment on September 11, 2020, sanctioning the Amended Scheme of Arrangement proposed by Nordic Aviation Capital DAC. The scheme aimed to defer payments and waive enforcement actions to prevent potential defaults and liquidation amid the pandemic-induced financial strain. The court meticulously examined the Scheme Company's compliance with statutory requirements, the appropriateness of creditor classes, freedom from coercion, and the reasonableness of the scheme from the creditors’ perspectives.

Furthermore, the judgment delved into jurisdictional aspects under the Brussels Recast Regulation and addressed potential complications arising from the Cape Town Convention and its Aircraft Protocol. The court concluded that the scheme was within its jurisdiction to sanction, given the sufficient nexus of ancillary releases and the alignment with EU regulations, thereby facilitating international recognition and effectiveness of the restructuring.

Analysis

Precedents Cited

The judgment extensively referenced previous cases to establish legal principles:

• Re A.I. Scheme Ltd [2015] EWHC 1233 (Ch) – Emphasized the court’s authority to sanction schemes involving third-party releases.
• Re Codere Finance (UK) Ltd [2015] EWHC 3778 (Ch) – Reinforced the permissibility of including external indemnities within schemes.
• Re NN 2 NewCo Ltd [2019] EWHC 1917 (Ch) – Highlighted the "sufficient nexus" test for ancillary releases.
• Re Lecta Paper UK Ltd [2020] EWHC 382 (Ch) – Confirmed the necessity of third-party releases for the effectiveness of schemes.
• Re Opes Prime Stockbroking Ltd [2009] FCA 813 – Provided a "pro-release" framework essential for recognizing schemes under international bankruptcy codes.
• Re Tiger Resources Ltd. [2019] FCA 2186 – Adopted a liberal approach towards sanctioning schemes of arrangement.
• Ballantyne Re: plc [2019] IEHC 407 – Served as a foundational Irish precedent for class composition and scheme sanctioning.

These precedents collectively shaped the court's approach towards sanctioning complex international schemes with multifaceted creditor relationships.

Legal Reasoning

The court's legal reasoning hinged on several critical points:

• Jurisdiction Under Companies Act 2014: The court confirmed its authority to sanction the scheme under Part 9, given the Scheme Company's designation as a DAC and its substantial Irish operations.
• Sufficient Nexus Test for Ancillary Releases: Applying the "sufficient nexus" test, the court determined that the ancillary releases in the scheme were directly connected to the debtor-creditor relationships, ensuring the scheme's effectiveness and international recognition.
• Brussels Recast Regulation Compliance: The judgment verified that the scheme fell within the scope of the Brussels Recast Regulation, particularly under Articles 1(1), 4(1), and 8(1), facilitating its recognition across EU Member States.
• Exclusion from Cape Town Convention Implications: Although the Scheme Company raised potential issues under the Cape Town Convention and Aircraft Protocol, the court deemed it unnecessary to address them fully, given the scheme's overwhelming creditor support and the absence of opposition from key secured creditors.

This methodical reasoning ensured that the scheme adhered to both national and EU legal frameworks, providing a robust foundation for its sanctioning.

Impact

The judgment has profound implications for future insolvency proceedings and international restructurings:

• Precedent for Ancillary Releases: Affirming the "sufficient nexus" test allows future schemes to incorporate ancillary releases, fostering more flexible and comprehensive restructuring mechanisms.
• International Jurisdiction Clarity: By delineating the scheme's compliance with the Brussels Recast Regulation, the judgment provides a clear roadmap for cross-border recognition and enforcement of similar schemes.
• Integration with EU Regulations: The decision underscores the necessity for insolvency proceedings to align with EU regulations, promoting harmonization and predictability in multinational restructurings.
• Strategic Restructuring Tools: Companies facing multifaceted creditor landscapes can leverage the established legal principles to negotiate more effective and enforceable restructuring arrangements.

Consequently, this judgment equips legal practitioners and corporate entities with enhanced strategies for navigating complex insolvency and restructuring scenarios within an international context.

Complex Concepts Simplified

Scheme of Arrangement

A scheme of arrangement is a court-approved agreement between a company and its creditors or members to restructure debts or alter the company's constitution. It requires the approval of a specified majority of creditors and subsequent court sanction to ensure fairness and legal enforceability.

Special Majority

Achieving a special majority means obtaining votes in favor of the scheme from at least three-fourths in value of the creditors present and voting. This threshold ensures that the restructuring has substantial support among the creditors.

Sufficient Nexus Test

The sufficient nexus test assesses whether there's a strong connection between ancillary releases (additional agreements affecting third parties) and the primary creditor-debtor relationships. This test ensures that such releases are directly related and necessary for the scheme's effectiveness.

Ancillary Releases

Ancillary releases are provisions within the scheme that release third parties from certain obligations or claims. In this case, ancillary releases involved releasing additional liabilities of associated entities to prevent undermining the restructuring effort.

Brussels Recast Regulation

The Brussels Recast Regulation (Regulation (EU) No. 1215/2012) governs jurisdiction and the recognition and enforcement of civil and commercial judgments within EU Member States. It ensures that court decisions are respected and enforceable across borders within the EU.

Conclusion

The High Court of Ireland's ruling in Nordic Aviation Capital Designated Activity Company v. The Companies Act 2014 to 2018 sets a pivotal precedent in the realm of corporate restructuring and insolvency law. By affirming the application of the sufficient nexus test for ancillary releases and clarifying jurisdiction under the Brussels Recast Regulation, the judgment offers a robust framework for future schemes of arrangement, especially those with international dimensions.

This decision not only facilitates more effective and comprehensive restructurings but also harmonizes national insolvency practices with EU regulations, promoting greater legal certainty and cooperation across jurisdictions. As businesses continue to navigate complex financial landscapes exacerbated by global challenges like the COVID-19 pandemic, such judicial clarity empowers corporations to implement strategic restructuring measures confidently, ensuring sustainability and operational continuity.

Ultimately, this judgment underscores the judiciary's role in balancing creditor rights, corporate survival, and legal compliance, thereby reinforcing the integrity and functionality of corporate insolvency proceedings within both national and international contexts.