Arctic Aviation Assets Designated Activity Company

• Jurisdiction: Ireland
• Judge: Mr. Justice Quinn
• Judgment Date: 21 April 2021
• Neutral Citation: [2021] IEHC 268
• Court: High Court
• Docket Number: 2020 366/COS
• Date: 21 April 2021

In the Matter of Arctic Aviation Assets Designated Activity Company

and

In the Matter of Norwegian Air International Limited

and

In the Matter of Drammensfjorden Leasing Limited

and

In the Matter of Torskefjorden Leasing Limited

and

In the Matter of Lysakerfjorden Leasing Limited

and

In the Matter of Part 10 of the Companies Act, 2014

and

In the Matter of Norwegian Air Shuttle ASA, As a Related Company within the Meaning of Section 517 and Section 2 (10) of the Companies Act, 2014

[2021] IEHC 268

2020 366/COS

THE HIGH COURT

Contracts – Repudiation – Companies Act 2014 s. 537 – Companies seeking approval of the repudiation of contracts – Whether the quantum of the loss or damage suffered by the counterparties to such repudiations should be determined at a hearing pursuant to s. 537 (3) of the Companies Act 2014

Facts: Certain companies applied to the High Court pursuant to s. 537 (1) of the Companies Act 2014 for approval of the repudiation of contracts. The companies said that to effectively implement a business plan and permit the continued viability of the companies and the whole or part of their undertakings as a going concern it was necessary to repudiate certain contracts and to address the liabilities arising from such repudiation in schemes of arrangement. The applications were opposed by the counterparties. The court was required to determine threshold issues, discretionary issues, jurisdiction questions and recognition questions. The companies did not apply for orders under subsection (3) determining the quantum of loss or damage suffered by the counterparties. Instead they proposed that the quantum be determined by an expert to be appointed under the examiner’s proposals for a scheme of arrangement. The opposing parties objected to that approach and submitted that if orders were made approving repudiations the court should hold a hearing pursuant to subsection (3) to determine the quantum of their loss.

Held by Quinn J that there was nothing inappropriate about the timing of the applications for approvals under s. 537. He was satisfied that the relevant contracts met the test identified by Murray C.J. in Re Linen Supply of Ireland Limited (Unreported, Supreme Court, 10 December 2009) in that they were not confined to the payment of money; therefore, they were contracts to which s. 537 applied. Quinn J held that the information presented to the court was sufficient to conclude that the applications before the court were made for the proper purposes intended by Part 10 of the Act and that repudiation of the contracts the subject of the applications were necessary and would facilitate the survival of the companies as a going concern. Inasmuch as the repudiations trespassed on the rights of counterparties to the contracts, he held that the companies were clearly insolvent at the time of the presentation of the petition; the evidence before the court was that their return to viability was dependent not only on the investment and the restructuring proposals which would be brought forward by the examiner, but also on the restructuring of the cost base of the companies sought to be achieved by the repudiations. He was not persuaded that there was any basis to find that s. 537 should be limited in the manner suggested by the objectors. He concluded that this was not an appropriate case in which to deprive the counterparties of a hearing pursuant to subs. (3).

Quinn J held that the court should grant approval under s. 537 (1) for the repudiation of the contracts the subject of the notices of motion, save for those which the court was informed were to stand withdrawn. On 5 March, 2021, Quinn J made orders approving the repudiations. He also concluded that the quantum of the loss or damage suffered by the counterparties to such repudiations be determined at a hearing pursuant to s. 537 (3). After he declared that the court would hold such a hearing under subs. 3, directions were made and a date fixed for that hearing. The court was subsequently informed that the parties had agreed the quantum, and that hearing date was vacated.

Application granted.

Judgment of Mr. Justice Quinn delivered on the 21st day of April, 2021 (Section 537)

1 Section 537 of the Companies Act 2014 provides as follows:-

“(1) Where proposals for a compromise or scheme of arrangement are to be formulated in relation to a company, the company may, subject to the approval of the court, affirm or repudiate any contract under which some element of performance other than payment remains to be rendered both by the company and the other contracting party or parties”.

2 Subsections 2 and 3 provide as follows:-

“(2) Any person who suffers loss or damage as a result of such repudiation shall stand as an unsecured creditor for the amount of such loss or damage

(3) In order to facilitate the formulation, consideration or confirmation of a compromise or scheme of arrangement, the court may hold a hearing and make an order determining the amount of any such loss or damage mentioned in subsection (2) and the amount so determined shall be due by the company to the creditor as a judgment debt.”

3 Applications for approval of a repudiation under this section are made on notice to the counterparties to the relevant contract and to the appointed examiner of the company (s. 537 (4) and RSC O. 74A, r. 19).

4 This judgment relates to applications pursuant to s. 537 (1) by certain of the companies named in the title above for approval of the repudiation of contracts, where the applications are opposed by the counterparties.

5 The companies did not apply for orders under subsection (3) determining the quantum of loss or damage suffered by the counterparties. Instead they proposed that the quantum be determined by an expert to be appointed under the examiner's proposals for a scheme of arrangement. The opposing parties objected to that approach and submitted that if orders were made approving repudiations the court should hold a hearing pursuant to subsection (3) to determine the quantum of their loss.

6 On 5 March, 2021, I made orders approving repudiations. I also concluded that the court should hold a hearing pursuant to subs. (3) to determine the amount of the loss of the objecting counterparties. The background and reasons for making the orders are summarised in this judgment.

7 This judgment is structured as follows:

The examinership

• (1) Introduction and background to the applications,

• (2) The facts relating to the opposed applications,

• (3) Identification of the legal issues raised by opposing parties,

• (4) Consideration of Section 537 and Part 10 of the Act,

• (5) Evidence relevant to the opposed applications,

• (6) Conclusions on threshold issues,

• (7) Conclusions on discretionary issues,

• (8) Extraterritorial jurisdiction and recognition issues,

• (9) The Convention on International Interests In Moveable Equipment and the Protocol relating to Aircraft Equipment, made at Cape Town, 16 November 2001.

• (10) Mode of determination of the quantum of losses of counterparties.

8 On 18 November, 2020, five companies in the Norwegian Group petitioned for the appointment of an examiner pursuant to s. 509 of the Companies Act 2014 (“the Act”). The petitioners were:-

• • Arctic Aviation Assets Designated Activity Company (“AAA”).

• • Norwegian Air International Ltd. (“NAI”).

• • Drammensfjorden Leasing Ltd (“DLL”).

• • Torskefjorden Leasing Ltd. (“TLL”).

• • Lysakerfjorden Leasing Ltd. (“LLL”).

9 The petitioners applied also for the appointment of an examiner to a related company, Norwegian Air Shuttle ASA (“NAS”), which is the ultimate shareholder of the Norwegian Group of companies, and an aircraft operating company. I refer to NAS and the petitioners as “the companies”.

10 As required by RSC O. 74A, r. 5, on the day on which the petition was presented, the petitioners applied to this Court for directions, and the court appointed Kieran Wallace of KPMG Dublin, as examiner of the companies on an interim basis pending the hearing of the petition.

11 On 7 December, 2020, I heard the petition and appointed Mr. Wallace examiner of the companies.

12 The background to the petition and the reasons why the court was satisfied to appoint the examiner are summarised in a judgment delivered by this Court on 16 December, 2020, ( 2020 IEHC 664) (“The First Judgment”).

13 In the First Judgment, I found that each of the petitioners had its centre of main interests in the State and therefore that these proceedings are main proceedings within the meaning of Article 3.1 of Regulation EU 2015/848 of 20 May 2015 on insolvency proceedings (Recast) (“the Regulation”).

14 NAS is incorporated and has its headquarters in Norway. No submission was made that it had its centre of main interests otherwise than in Norway. Accordingly, the Regulation does not apply to NAS. I therefore examined the jurisdiction of this Court to appoint an examiner by reference to the Companies Act 2014. S. 517 of the Act establishes the jurisdiction to appoint an examiner to a company related to a company to which an examiner has been appointed pursuant to s. 509. For that purpose, the definition of a “related company” includes “any body that is capable of being wound up under this Act” pursuant to s. 2 (10) and s. 2 (11) of the Act.

15 Chapter 3 of Part 22 of the Act governs the winding up of unregistered companies, which may include a foreign company, subject to the satisfaction of certain conditions for the exercise of this jurisdiction. Having considered the established line of cases on this jurisdiction and the connection between the business and activities of NAS and the State, I concluded that NAS was a company liable to be wound up under Part 22 of the Act and was therefore a related company for the purposes of s. 517 (see paras. 80 – 101 of the First Judgment).

16 In this judgment the term...