The Norwegian Examinership and what it entails for the company’s creditors (Originally published on 15 December 2020)

On Monday, 7 December, the Irish High Court affirmed the appointment of an examiner, Kieran Wallace of KPMG, to a number of companies in the Norwegian Air Group (“Norwegian”) as well as the Oslo based parent company of the group, Norwegian Air Shuttle ASA (“NAS”). The appointment of the examiner will provide Norwegian with critical protection from its creditors for a period of approximately 100 days. This article briefly outlines some aspects of the examinership process and what it entails for Norwegian’s creditors.

The necessity to seek examinership arose after Norwegian’s financial difficulties were exacerbated when its fleet was grounded by the COVID-19 outbreak. The High Court heard that Norwegian’s passenger numbers fell approximately 78% year on year compared to 2019. At the end of September, the debts and liabilities stood at US$7.4 billion. Revenue in the third quarter of 2020 was down by 91% as against 2019.

When the matter was initially before the High Court on 18 November 2018, the board of directors of Norwegian expressed hope that an examiner could put together a scheme of arrangement with Norwegian’s creditors which, if approved by the High Court, would allow Norwegian to continue as a going concern.

The Irish Court has already approved two high profile aviation restructurings: Nordic Aviation Capital and Cityjet. It may well be a hub for other aviation related insolvencies or restructurings given its key role in the global aviation market and its well respected legal system.

Norwegian stated that it had chosen Ireland for its application because its fleet is held in Ireland and that it had taken the decision “in the interests of its stakeholders”.

Norwegian’s aviation asset platform is held by four companies based in Dublin. Arctic Aviation Assets DAC, an Irish company, is the parent company of these companies. This arm of Norwegian’s business handles aircraft financing and ownership. Arctic Aviation Assets DAC is a wholly-owned subsidiary of NAS.

Notably, the application to the High Court in November to appoint an examiner came a week after the Norwegian government refused to grant further financial assistance to Norwegian, a decision which Norwegian said left it facing a “very uncertain future”.

There has been some discussion within the Aviation industry and the media as to whether Norwegian’s Centre of Main Interest is located in Norway rather than in Dublin. As the Court has heard the petition to appoint Mr. Wallace it would be difficult to reopen this issue, save in limited circumstances. Counsel for Norwegian advised the Court that NAS could take parallel proceedings in Norway but that the Irish proceedings would take precedence over any such proceedings.

It became evident when the matter was in Court on 15 February that a large portion of NAS’s creditors are not happy with the restructuring proposals put forward by the examiner. The group is proposing to cut a large portion of its fleet, seeking to repudiate leases over 36 aircraft. Some of the group’s creditors, however, including Avolon, SMBC Aviation Capital and Goshawk, are among creditors that have agreed to settle claims against NAS. The creditors that are not happy with the scheme to rescue the group, including Export Import Bank of United States (“EXIM Bank”), have argued that they are being put under unreasonable pressure to settle claims as part of the examiner’s plan to rescue the group. The sentiments raised by EXIM Bank were echoed by a number of other creditors.

Examinership is a process whereby the protection of the High Court is obtained to assist the survival of a company. Essentially, it allows a company to restructure its debts with the approval of the High Court. In many ways, Ireland’s examinership process is similar to The US’s Chapter 11 protocol.

The usual outcome of the examinership process is that the creditor balances are reduced, the assets of the company are protected, investment is obtained and the directors remain in control of the business during the examinership process which is supervised by an expert practising accountant called the examiner.

The examinership process usually involves a mechanism known as a scheme of arrangement. Under the scheme, creditors will be organised into individual classes and a “cramming down” of the debts owed to the different classes of creditor may be put in place provided that certain thresholds of creditor class approval are met (as outlined below). Some creditors may only receive part payment of their debt.

For so long as a company is under the protection of the court, a creditor cannot take steps to:

(i)wind up the company;

(ii) appoint a receiver, or, if so appointed before the presentation of a petition a receiver shall not be able to act;

(iii) enforce against the property or effects of the company, or proceedings involving attachment, sequestration, distress or execution, except with the consent of the examiner;

(iv) where any claim against the company is secured by a mortgage, charge, lien or other encumbrance or a pledge of, on or affecting the whole or any part of the property, effects or income of the company, no action may be taken to realise the whole or any part of that security, except with the consent of the examiner; and

(v) no steps may be taken to repossess goods in the company’s possession under any hire purchase agreement, except with the consent of the examiner.

The scheme of arrangement that is ultimately proposed by the examiner will need to be approved in a meeting of the creditors. The scheme of arrangement is deemed to be accepted when a majority in number representing a majority in value of the claims have voted in favour of the scheme. The scheme does not require approval of each individual class of creditor.

Any creditor may object to the examiner’s proposals and they will have an opportunity to do so before the court. Once the court has considered the implications of the scheme of arrangement for each individual class of creditor, it may then confirm, modify or reject it. If confirmed, the scheme of arrangement will then be binding on all parties regardless of whether or not they consented to it. We have experience in advising all classes of creditors on their options and representing them in court.

If the scheme of arrangement is not approved and the Irish companies are not in a position to meet their debts as they fall due, they will have no option but to commence winding up proceedings, unless they are acquired by an entity prepared to meet their debts as they fall due.

During the summer of 2020, the Nordic Aviation Capital scheme of arrangement was approved by over 90% of the company’s secured and unsecured creditors. The level of approval and lack of opposition to the Scheme was noted by the Court when it approved the scheme of arrangement on 21 July 2020. For more detail about the Nordic Aviation Capital scheme of arrangement please click here.

Conclusion

When confirming the interim appointment of the examiner in November, Mr Justice Quinn noted that the Independent Expert Report had stated that Norwegian’s creditors (which include aircraft leasing companies and financial lenders) would do better through a successful examinership process compared to if Norwegian was put into liquidation.

The Court will hear the companies’ application to repudiate the leases and the application to extend the examinership by a further 50 days on 23 February.

Click the links below for more information on:
∙ The Irish examinership process
∙ Restructuring and insolvency
∙ Aviation disputes

This note is for general information purposes. Legal advice must be obtained for all individual circumstances. Whilst every effort has been made to ensure the accuracy of this note, no liability is accepted by the author or Flynn O’Driscoll for any inaccuracies.