In The Matter of New Look Retailers (Ireland) Ltd v The Companies Act, 2014 (Approved)

Factual and Procedural Background

The Company A, part of a UK-based group, operates 27 retail stores in Ireland under long leases, exclusively trading in women's fashion. The Company sought court protection under Part 10 of the Companies Act, 2014, by petition presented on 28th August 2020, accompanied by an ex parte application for the appointment of an Interim Examiner, which was granted on the same day. The hearing of the petition was initially set for 16th September 2020 but adjourned by consent to 29th September 2020 to allow exchange of further affidavits and submissions.

The petition was opposed by three landlords of units occupied by the Company. The main issues in dispute concerned whether the Company satisfied the statutory test of inability to pay debts under section 509 of the 2014 Act and the exercise of the court’s discretion to appoint an examiner. The court was also required to determine jurisdiction under the EU Recast Insolvency Regulation by establishing the Company’s centre of main interests.

The Company’s financial difficulties arose primarily from the impact of the Covid-19 pandemic, which caused significant losses due to store closures and absence of online sales. The Company projected substantial revenue decreases and losses for the financial year ending March 2021, with rent obligations remaining constant and substantially above market rates due to upward-only rent review clauses in leases.

An independent expert’s report disclosed that, although the Company was balance sheet solvent with significant cash reserves, it was projected to become cash flow insolvent by October 2020, a position later revised to March 2021 in a subsequent report. The opposing landlords commissioned a report from a separate firm challenging the insolvency projections and the adequacy of information provided.

Extensive affidavit evidence was filed by the parties, including from directors of the Company, the independent expert, the opposing landlords, and the Interim Examiner. The evidence revealed disputes over financial projections, the Company’s engagement with landlords, and the appropriateness of appointing an examiner at this stage.

Legal Issues Presented

1. Whether the court has jurisdiction under Article 3 of the EU Recast Insolvency Regulation by establishing the Company’s centre of main interests in Ireland.
2. Whether the Company is or is likely to be unable to pay its debts within the meaning of section 509(1)(a) of the Companies Act, 2014.
3. Whether the statutory conditions for the appointment of an examiner under Part 10 of the Companies Act, 2014 are satisfied, including the reasonable prospect of survival.
4. The exercise of the court’s discretion under section 509(1) to appoint an examiner, even if the statutory conditions are met.

Arguments of the Parties

Appellant's Arguments (Company)

• The statutory test under section 509(1)(a) requires only that it appears to the court the Company is likely to be unable to pay its debts, which is a modest threshold met by the evidence.
• The Company is projected to be cash flow insolvent by March 2021 due to significant losses from the pandemic and excessive rent obligations.
• Appointment of an examiner is necessary to restructure the business, including renegotiation or repudiation of above-market leases, to ensure survival.
• Negotiations with landlords have been limited and ineffective, justifying court intervention to "even up" bargaining positions.
• The Company has a reasonable prospect of survival as a going concern if given protection and breathing space through examinership.

Appellee's Arguments (Opposing Landlords)

• The Company is not currently unable to pay its debts and is unlikely to become insolvent imminently; projections of insolvency are speculative and overly pessimistic.
• The Company holds substantial cash reserves and should be able to meet debts; estimates of cash flow insolvency are challenged by their own expert report.
• The Company has not engaged seriously or constructively with landlords to renegotiate rent obligations prior to seeking court intervention.
• The court should exercise its discretion to refuse appointment of an examiner given the absence of immediate insolvency and lack of necessity.
• Section 509(3)(c) and related statutory provisions should not be used to permit a company with ample cash reserves to feign insolvency by withholding payments.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first addressed jurisdiction under the EU Recast Insolvency Regulation, concluding that the Company’s centre of main interests is in Ireland based on the registered office location, core trading activities, employee base, tax payments, and the fact that all leases are governed by Irish law. The involvement of the UK parent in centralised services did not displace the presumption that the centre of main interests lies where the registered office is situated.

Regarding insolvency under section 509(1)(a), the court analysed the statutory language "where it appears to the court" and concluded this sets a lower evidential threshold than "where the court is satisfied." The term "likely" was interpreted in its ordinary meaning as "probable" or "reasonably expected." The court acknowledged the difficulty in predicting future insolvency and emphasized that the court must have sufficient and convincing evidence to form the view that insolvency is probable at some point in the future.

The conflicting expert evidence was carefully considered. The independent expert initially projected cash flow insolvency by October 2020 but revised this to March 2021. The opposing landlords’ expert projected continued solvency with a substantial cash balance at that time. The court found the landlords’ assumptions regarding rent deferrals and write-offs unsupported by detailed evidence and considered the independent expert’s trading loss projections reasonable, especially given the ongoing Covid-19 pandemic and associated restrictions.

The court noted the Company’s substantial cash reserves and that there was no imminent risk of insolvency, but concluded that insolvency is likely to occur within the first half of 2021. The court stressed that the appointment of an examiner is a serious step that significantly restricts creditors' rights and should not be made prematurely.

Critically, the court found that the Company had not made sufficient efforts to negotiate rent reductions or engage meaningfully with landlords prior to seeking court intervention. The evidence showed a lack of proactive negotiation, and the landlords were presented with a fait accompli. The court held that it is incumbent on a petitioner to explore less drastic options before invoking the court’s jurisdiction under section 509.

Given the absence of immediate insolvency and the availability of alternative remedies through negotiation, the court exercised its discretion to refuse the appointment of an examiner at this time. The court did not need to consider other discretionary grounds raised by the opposing landlords.

Holding and Implications

The court's final decision is to REFUSE THE PETITION for the appointment of an examiner to the Company.

The direct effect of this decision is that the Company will not receive the protection and breathing space afforded by examinership at this stage. The court emphasized the importance of the Company engaging in meaningful negotiations with landlords to address its financial difficulties before seeking court intervention. No new legal precedent was established; the decision reinforces the principle that the statutory conditions must be met and that the court’s discretion to grant examinership should be exercised prudently, especially where insolvency is not imminent and less drastic remedies are available.