Corporate restructuring in Ireland in 2022

In summary

This article provides a summary of the current restructuring landscape for domestic and international restructurings in Ireland and includes a discussion of the various restructuring mechanisms that are available under Irish law. It examines Ireland’s increasing attractiveness as a venue for international restructurings and includes an overview of a number of recent high-profile cases.

Discussion points

• Considerations in relation to the principal restructuring processes and procedures available in Ireland
• Analysis of recent high-profile restructuring cases that have appeared before the Irish courts
• Examination of the Irish legislature’s response to the covid-19 pandemic

Referenced in this article

• Companies Act 2014 (the Companies Act)
• Companies (Miscellaneous Provisions) (Covid-19) Act 2020 (the 2020 Act)
• Companies (Rescue Process for Small and Micro Companies) Act 2021 (the SCARP Act)
• Re Ballantyne Re plc & Companies Act [2019] IEHC 407
• Re Weatherford International plc (ex tempore, 12 December 2019) [Record No. 2019/348 COS]
• Nordic Aviation Capital Designated Activity Company v The Companies Act 2014 to 2018 [2020] IEHC 445
• Directive (EU) 2019/1023 on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU (the Restructuring Directive)

Introduction

Ireland has become an important European jurisdiction for cross-border restructurings with well-established processes and procedures to implement high-value, complex cross-border restructurings such as Part 9 schemes and examinerships (defined below). These processes are familiar to international practitioners as they bear similarities to leading international restructuring procedures such as schemes of arrangement in the United Kingdom (and other jurisdictions) and Chapter 11 of the US Bankruptcy Code (Chapter 11).

In addition to Part 9 schemes and examinerships, which are the focus of this article, there are additional processes available including:

• liquidations (both solvent and insolvent) under Part 11 of the Companies Act to facilitate the winding up of a company with provisional liquidations providing a path for pre-packaged restructurings and transactions; and
• debt enforcement using the receivership process (an out-of-court process used to enforce security on foot of security documents and Part 8 of the Companies Act).

Ireland, like many other jurisdictions, faced great economic uncertainty as a result of the covid-19 pandemic. While the economic unpredictability imposed by repeated and extended public health restrictions resulted in the enactment of certain legislative supports for Irish businesses, it also highlighted the effectiveness of Ireland as a venue for international and domestic restructurings, particularly in the aviation industry. This article considers the various procedures that may be utilised to implement such restructurings.

Restructuring procedures

There are two principal restructuring processes available to Irish (and, where appropriate, international) companies under Irish law, namely:

• examinership under Part 10 of the Companies Act (examinership); and
• a scheme of arrangement under Part 9 of the Companies Act (the Part 9 scheme).

Companies that can avail of these processes range from those incorporated in Ireland or that have their centre of main interest (COMI) in Ireland to those that have a ‘sufficient connection’ to Ireland.

An additional restructuring mechanism is available to a company that is being, or is about to be, wound up under section 676 of the Companies Act: the winding-up scheme. Winding-up schemes have many similarities to Part 9 schemes but do not need to be sanctioned by a court unless they are challenged by an impaired creditor.

Examinerships and Part 9 schemes may be used to restructure domestic or international companies and have been used for the purpose of implementing wider international restructurings in conjunction with foreign restructuring procedures such as Chapter 11 plans or the Norwegian reconstruction process.

In addition to using Irish law processes to implement international restructurings, it is also possible for international restructurings to be recognised in Ireland without utilising Irish law processes. Although Ireland has not implemented the UNCITRAL Model Law on Cross-Border Insolvency, there are three principal ways in which international insolvency and restructuring processes can be recognised in Ireland, namely the following.

• The Recast Insolvency Regulation, which provides for the recognition and enforcement of insolvency proceedings commenced in another EU member state, has effect in Ireland. Ireland must formally opt in to the inclusion of new insolvency proceedings in Annex A of the Regulation and the opt-ins to cover a number of new processes from other members states is currently in progress.
• Ireland has a well-established common-law tradition of recognising foreign insolvency processes based on principles of equivalence and reciprocity.
• In the right cases, a foreign law restructuring of an Irish company can be recognised by agreement or acquiescence.

Irish processes are capable of recognition and enforcement in the European Union under the Recast Insolvency Recognition and, despite the departure of the United Kingdom from the European Union, Irish examinership schemes and any consequential orders that arise (such as for the repudiation of contracts) are capable of recognition in England and Wales under section 426 of the Insolvency Act 1986.

In addition, there is a well-established precedent for recognition of Irish processes under Chapter 15 of the US Bankruptcy Code (Chapter 15) including the recognition of a Part 9 scheme in the case of Ballantyne Re plc and the recognition of an examinership in the case of Norwegian Air.

Examinership

Jurisdiction and initiation

Examinership provides a statutory framework for the restructuring of companies in financial difficulty but with a reasonable prospect of survival as a going concern. Examinership has been widely used in Ireland since its introduction in 1990 and has broad similarities to the Chapter 11 process.

Examinership is available to:

• companies that have a COMI or an establishment in Ireland;
• Irish incorporated companies with a COMI outside the European Union; and
• companies that have no COMI in the European Union but have a sufficient connection to the jurisdiction and are related to a company that is also in examinership (see discussion of Norwegian Air below).

To avail of the protections afforded by examinership, the court must be satisfied at the outset that the company:

• is unable to pay its debts or is unlikely to be able to pay its debts as they fall due;
• is not in liquidation;
• has not been placed into receivership more than three days prior to the bringing of the application;
• has sufficient projected cash flows to meet ordinary course liabilities as they fall due during the examinership period; and
• is reasonably likely to survive, or the whole or any part of its undertaking is likely to survive, as a going concern.

Key features

The key features of examinership are as follows:

• an initial moratorium of up to 100 days (currently extendable, in certain circumstances, to 150 days) – during this time creditors are restrained from pursuing any legal action or remedies against the company (including the enforcement of security other than security comprising a financial collateral arrangement);
• the appointment of an independent examiner who formulates and presents proposals for the restructuring of the company;
• the proposal, once approved, will be binding on the company, all its members and its creditors;
• the proposal must be approved by one class of impaired creditors (acting by majority in number representing a majority in value of those voting) (which readily facilitates cross-class cramdown) (see the discussion below regarding Weatherford International plc) and the proposal must be approved by the Irish High Court; and
• a wide range of solutions may be employed to facilitate the survival of the company, including releases of the claims of related companies, introduction of new debt or equity investment, replacement of existing equity in full, debt for equity swaps and the termination of burdensome contracts such as leases and associated guarantees.

A number of high-value examinerships have recently appeared before the Irish courts and the examinerships of Weatherford and Norwegian Air are discussed in further detail below. In addition, at the time of writing this article, the examinership process is being used to implement a Chapter 11 plan for the restructuring of Mallinckrodt plc.

Part 9 scheme

The Part 9 scheme allows a company to reach an arrangement or compromise with its members or creditors or any class of them. This is a distinct process to examinership – while the examinership and Chapter 11 processes bear certain similarities, Part 9 schemes may best be compared to, and are virtually identical to, the well-known English schemes of arrangement.

The key features of a Part 9 scheme are as follows:

• it is an arrangement or a compromise between a company and its members or creditors or any class of them;
• the approval threshold is at least 75 per cent by value representing a majority in number of each creditor class (and, if relevant, member class) present and voting at the scheme meetings;
• scheme meetings are convened by the Irish High Court (or the board of directors of the debtor) with the class composition determined by the similarity of legal rights of creditors rather than commercial interests;
• in approving a Part 9 scheme, the Irish High Court will apply the widely known tests applied by the English courts and will principally consider whether the scheme of arrangement is such that an ‘intelligent and honest person’, being a member of the class concerned and acting in his or her interest, might reasonably approve;
• the Irish High Court has jurisdiction to sanction a scheme of arrangement for any Irish incorporated entity and non-Irish entity with sufficient connection to Ireland;
• in contrast to examinership, there is no automatic stay on proceedings against the company although a limited moratorium on litigation is available;
• it has been used to facilitate the release of the obligations of third parties such as guarantors and the restructuring of non-Irish law governed debt (as detailed below); and
• it is extremely flexible and is commonly used for solvent restructurings and takeovers, and is being deployed with increased regularity for large-scale debt restructurings.

An increasing number of applications to approve Part 9 schemes are appearing before the Irish courts and the leading examples of Ballantyne Re plc and Nordic Aviation Capital DAC are discussed below.

Pre-packs

A key consideration for insolvency practitioners, debtors and creditors alike is the potential to use Irish restructuring procedures to implement pre-packaged distressed transactions or restructurings.

Both examinerships and Part 9 schemes may be run as pre-packed processes subject to the use of lock-up agreements or restructuring support agreements with creditors of the concerned company or companies to support the restructuring and, in the case of examinership, the independent oversight and final determination of the court-appointed examiner.

The cases of Weatherford, Ballantyne Re plc and Mallinckrodt Plc included significant pre-packed features involving lock-up agreements or restructuring support agreements with sufficient creditor majorities committed to supporting the restructuring prior to launch of the Irish processes.

However, pre-packs are most frequently implemented in Ireland through receiverships or provisional liquidations with the debtor’s assets transferred for value pursuant to a pre-agreed transaction following the appointment of the insolvency practitioner.

Comparison of Irish restructuring processes with similar international processes

Irish restructuring processes are robust, flexible and compare strongly with leading international processes such as English law schemes of arrangement and Chapter 11.

We have set out some of the key characteristics of the Irish processes as compared to a Chapter 11 in the table below. The differences between an English law scheme of arrangement and a Part 9 scheme are minimal and, as such, have not been included.

Recent high-profile cases

A number of noteworthy restructuring cases have come before the Irish courts in recent years, which demonstrate the usefulness and effectiveness of the Irish legal system to implement large international restructurings. Some of these cases are considered below.

Norwegian Air

The most significant examinership of 2021 was that of Norwegian Air Shuttle ASA (NAS), a Norwegian incorporated company and listed plc, together with five Irish group companies (together, Norwegian Air).

Among several novel and complex features, it was the first case in which an Irish examinership was used to restructure the obligations of a non-EU company. It involved a highly complex restructuring of Norwegian Air’s several billion euros of direct debt and future aircraft-related obligations and Norwegian Air’s significant downsizing and refocus as a Nordic centric regional airline.

Jurisdiction

A central feature of this case concerned the restructuring of NAS, the Norwegian incorporated parent and main operating company. In considering whether the Irish courts had jurisdiction to appoint an examiner to a non-Irish incorporated company that did not have its COMI in Ireland or another EU country, the Irish court applied the following test:

• Was the company related to another company (eg, a parent, subsidiary or sister company)?
• Did the related company have its COMI in Ireland?
• Was the related company in examinership?
• Did the debtor have a sufficient connection to Ireland?

In applying this test, the court was satisfied that there was a basis for jurisdiction as NAS was a related company to its various direct and indirect Irish incorporated subsidiaries and had a sufficient connection to Ireland. The court was satisfied that the restructuring implemented through examinership would be effective in other key jurisdictions including Norway, England and Wales.

Parallel Norwegian reconstruction

The examinership was utilised as the lead restructuring process for NAS and the only process used to restructure the various Irish subsidiaries. This procedure was implemented in parallel to a Norwegian law governed restructuring process (the Norwegian Plan). Importantly, the restructuring proposal under the examinership (the NAS Scheme) incorporated elements of Norwegian law to ensure it could be implemented alongside the Norwegian Plan. A key aspect of the NAS Scheme was that it authorised the examiner to approve the Norwegian Plan on behalf of all of NAS’s creditors to ensure that the NAS Scheme could be successfully implemented through the Norwegian Plan. Both plans were subsequently granted Chapter 15 recognition.

Repudiation of English law governed contracts

Another key feature of the examinership concerned the repudiation of Norwegian Air’s English law governed aircraft leases and the restructuring of its associated guarantees to reduce the fleet size. Following a contested hearing, the court determined that it had jurisdiction to approve the repudiation foreign law contracts in the case of any company that was subject to an Irish examinership and, in this case, to repudiate (terminate) English law leases, subleases and guarantees of aircrafts.

The repudiations gave rise to substantial damages in favour of the lessors and other aircraft creditors which were subsequently written down in the NAS Scheme and the examinership scheme for the other companies.

Innovative feature – conditional investment

The examinership was also unique because of the nature and scale of the investment (4.5 billion Norwegian kroner) that was separated into three tranches:

• a rights offering to existing shareholders of up to 395 million Norwegian kroner with tradeable subscription rights;
• a private placement of new shares, listed on the Oslo Stock Exchange, with key investors and certain NAC group creditors; and
• the new capital perpetual bonds offering, a perpetual hybrid debt instrument paying cash and payment-in-kind interest with an equity conversion right that was available to NAC Group creditors.

In a significant departure from the normal course, the examiner presented the NAS Scheme to NAS’s creditors before binding investor commitments were in place. To protect creditors, the NAS Scheme (and the Norwegian Plan) were formulated to ensure that the write-down of obligation would not take place ‘unless, and until’ the minimum investment had been raised.

Treatment of existing equity and blended dividend

The NAS Scheme provided for a blended dividend to unsecured creditors representing 5 per cent of their claim comprising a proportionate share of a cash sum of 500 million Norwegian kroner with the balance converting into a convertible debt instrument that could later be converted into equity or sold pursuant to a structured sale, which took place in autumn 2021. The NAS Scheme also provided for the dilution of existing shareholdings in NAS to 4.6 per cent (subject to certain assumptions).

This case represented one of the most complex and innovative examinerships since the introduction of the process in 1990; it required the examiner to deviate from established practices and demonstrate significant flexibility in his approach to the restructuring. The examinership was of great importance as it facilitated the transformation of Norwegian Air’s business model and has allowed it to operate as a Nordic-focused airline with a strong balance sheet. This examinership highlighted the strengths of the process and its usefulness in implementing complex international restructurings.

William Fry advised the examiner, Kieran Wallace of KPMG.

Weatherford

This case involved the coordination of New York, Bermudian and Irish insolvency processes to implement key aspects of a US court-sanctioned global insolvent reorganisation under Chapter 11 using an Irish examinership. The case concerned Weatherford International plc (Weatherford), the Irish parent company of the Weatherford Group, an oil and gas services group.

The Weatherford Group commenced a Chapter 11 process in the United States to restructure unsecured loan notes in excess of US$8 billion that had been guaranteed by Weatherford on behalf of its Bermudian and US subsidiaries (the subsidiaries). The Weatherford Group and the subsidiaries proposed – and were subsequently granted approval for – a joint reorganisation under Chapter 11, subject to certain conditions including:

• the placing of Weatherford into examinership;
• the examiner of Weatherford proposing an examinership scheme based on the Chapter 11 proposal;
• the examinership scheme being approved by the Irish High Court; and
• the implementation of a Bermudan scheme of arrangement in respect of its Bermudan subsidiary.

The effectiveness of each of the restructuring processes was conditional upon each of the processes taking effect at the same time to ensure that the Weatherford debtors implemented the processes consistently across the three jurisdictions.

This case involved a significant debt-for-equity swap requiring the cancellation of existing shares and associated rights, the issuance of new shares to holders of the restricted debt and the existing shareholders together with a debt cramdown. The examinership process also facilitated the compromise of guarantee claims held by noteholders against certain members of the Weatherford Group.

William Fry advised the examiner, Mick McAteer of Grant Thornton, who was appointed to Weatherford.

Ballantyne Re

In a landmark case in 2019, an Irish reinsurance special purpose vehicle, Ballantyne Re plc (Ballantyne), undertook an insolvent restructuring through the implementation of a Part 9 scheme proposed by its largest guarantor, Ambac Assurance UK Limited. The Part 9 scheme provided for the novation of all of Ballantyne’s reinsurance obligations to a third party and the restructuring of its New York law governed debt and allowed for the residual value in the company to be distributed to senior noteholders. The scheme also provided for the commutation of certain note guarantee obligations and the release of the obligations of other third parties.

The Part 9 scheme was opposed by one of Ballantyne’s senior noteholders with a relatively minor holding. In deciding whether to sanction the Part 9 scheme, the court considered the relevant UK and Irish authorities in determining the applicable test. In affirming (and applying) the well-established five-limbed test of the English courts in this jurisdiction, the court held that it must be satisfied that the following requirements have been met:

• sufficient steps have been taken to identify and notify all interested parties;
• the statutory requirements and all directions of the court have been complied with;
• the classes of creditors are properly constituted;
• no issue of improper coercion arises; and
• the Part 9 scheme is such that an intelligent and honest person, being a member of the class concerned and acting in his or her interest, might reasonably approve of it.

The court ultimately held that these criteria had been satisfied, rejected all grounds of objection and sanctioned the Part 9 scheme.

To ensure its effective implementation, Ballantyne obtained recognition of the Part 9 scheme as a foreign main proceeding under Chapter 15. The company was subsequently placed into a solvent liquidation and will ultimately be wound up. This successful outcome demonstrated the effectiveness of Part 9 schemes in implementing complex international restructurings in what was the first of its kind in this jurisdiction.

William Fry advised Ballantyne.

Nordic Aviation Capital DAC

Waiver and deferral arrangement

Nordic Aviation Capital Designated Activity Company (NAC) is the Irish parent company of the Nordic Aviation Capital aircraft leasing group of companies (the NAC Group). The NAC Group had a wide range of financing arrangements that were governed by English, German or New York law with the total NAC Group debt extending to some US$6 billion, of which NAC was the common guarantor.

In 2020, to counteract the negative impact of the covid-19 pandemic, a Part 9 scheme was deployed by NAC to successfully implement a waiver and deferral arrangement with its broader lender group. The arrangement involved the temporary deferral of principal and interest repayments, and final maturity amounts under its financing agreements and the waiver of any enforcement events that might have already arisen under the relevant financing agreements until a defined date.

Once the Part 9 scheme was approved by NAC’s creditors, the Irish High Court was required to consider whether it had jurisdiction to approve the Part 9 scheme. In considering whether it had jurisdiction to do so, the Court was required to determine whether there was a sufficient nexus between the ancillary releases provided for in the Part 9 scheme and the relationship between NAC and its non-Irish creditors (it determined that there was). In approving the Part 9 scheme, the court applied the test affirmed in this jurisdiction in Ballantyne Re plc together with a requirement that the Part 9 scheme was not ultra vires.

Following the implementation of the Part 9 scheme, NAC sought and was subsequently granted Chapter 15 recognition of the Part 9 scheme. This case further demonstrates the effectiveness of Part 9 schemes in implementing international restructurings, particularly as this restructuring was recognised in multiple jurisdictions including the European Union, the United Kingdom and the United States.

2021–2022 restructuring

The negative impact of the covid-19 pandemic continued to prevail in late 2020 to early 2021 and the NAC Group worked with financial creditors and stakeholders to consider and implement a substantial restructuring of its financial indebtedness and certain other obligations and liabilities.

In late 2021, NAC, together with its subsidiaries, entered into a restructuring support agreement (RSA) with its equity holders and lenders to establish a framework for the consensual restructuring of the NAC Group’s financial indebtedness. In December 2021, NAC and its subsidiaries subsequently filed Chapter 11 petitions in the United States to implement a restructuring of the group as envisaged by the RSA. The NAC Group has obtained an additional debtor-in-possession financing facility in the sum of US$170 million to fund its operations during the Chapter 11 process.

It is envisioned that the Chapter 11 restructuring (which has a very high level of creditor support) will lead to an improvement in the NAC Group’s financial position, which will enable it to continue its global operations. William Fry advised the NAC Group following the implementation of the Part 9 scheme and continues to advise the NAC Group on its restructuring.

Recent developments

The Irish legislature did not make any substantive amendments or postponement of creditor rights during the covid-19 pandemic, nor was there any relaxation of the rules surrounding reckless trading or director liability. However, the 2020 Act introduced a number of legislative amendments in response to the covid-19 pandemic including:

• the amendment of Part 4 of the Companies Act to facilitate the use of electronic meetings in place of physical meetings;
• the amendment of section 570 of the Companies Act, which has facilitated an increase in the threshold at which a company can be deemed unable to pay its debts from €10,000 to €50,000; and
• the amendment of section 534 of the Companies Act to provide a mechanism for a longer period of examinership by increasing the initial maximum period of court protection from 100 to 150 days.

These measures are in place for an interim period (as defined in section 3 of the 2020 Act), which has been extended until 31 December 2022.

Another recent development was the enactment of the SCARP Act. By enacting this legislation, the Irish legislature signalled its understanding of a need in the Irish market for cost-effective insolvency processes that suit the requirements of small and micro companies, prompted, in part, by the economic uncertainty imposed by the pandemic. The SCARP Act introduced the small company administrative recuse process (SCARP). Effectively, SCARP provides for a more streamlined version of examinership for small and micro companies that are unable or likely to be unable to pay their debts as they fall due. To qualify for SCARP, a company must have two of the following (in relation to the two previous financial years):

• an annual turnover of up to €12 million;
• a balance sheet of up to €6 million;
• up to 50 employees.

The process is initiated by the directors of a company and does not require any court involvement (subject to the requisite approvals). The process involves the formulation of a rescue plan by an insolvency practitioner appointed by resolution of the directors. A creditor or member may file an objection to the rescue plan on various grounds set out in the SCARP Act. Should an objection arise, the court’s approval (by either the High Court or the Circuit Court) must be sought to approve the rescue plan. If no objection is filed within 21 days, the rescue plan will become binding on all members and creditors without the need for a court application. Although SCARP is modelled on examinership, it is intended to be more accessible and cost efficient, in part due to the reduced role of the court.

It remains unclear whether the current global economic and political uncertainty will necessitate further extension of existing covid-19 legislation in Ireland or the enactment of additional legislation and associated governmental supports, but it is a likelihood that must be closely monitored by businesses and insolvency practitioners alike.

Future developments

Further legislative reform in this area is anticipated over the course of 2022 as the legislature will be required to transpose the Restructuring Directive into Irish law. It is intended that the Restructuring Directive will, among other things, harmonise member state restructuring and insolvency laws and provide a framework for a preventative restructuring process. Although, the preventative restructuring process envisioned by the Restructuring Directive closely resembles examinership, the transposition of the Restructuring Directive will no doubt necessitate subtle amendments to existing examinership legislation.

The original deadline to transpose the Restructuring Directive through the adoption and publication of national laws and regulations was 17 July 2021. Ireland has availed of the extension under article 34(2) of the Restructuring Directive and will be required to implement national laws by 17 July 2022.

Conclusion

It seems likely that there will be a greater need for the use of Irish insolvency and restructuring procedures in the months and years ahead due to the economic uncertainty stemming from the global political impact of the war in Ukraine and the ongoing presence of covid-19. Further uncertainty for domestic and international businesses is likely as a result of the associated disruption to supply chains, increased energy costs, higher commodity prices, volatility in the global markets, sanctions, an increased risk of cyberattacks in response to the imposition of sanctions and disruption to foreign direct investment due to global economic uncertainty. In particular, both Irish and international companies operating in the aviation industry that have already been directly affected by covid-19 may be at increased risk due to the imposition of counter sanctions in response to sanctions on Russia’s aviation sector.

Consequently, national and international debtors and creditors alike will continue to have a need for strong, innovative restructuring and insolvency procedures. As such, it is probable that Ireland will continue its evolution as an important venue for international restructurings and that Part 9 schemes and examinerships will be deployed with increased regularity in cross-border restructurings in the months and years ahead.