High Court: Examiner appointed over low-cost airline Norwegian Air with only six planes in use



Killian Flood BL
Killian Flood BL

The High Court has granted an application by Norwegian Air to appoint an examiner over six companies in the Norwegian Group. The court noted that the struggling company had met serious challenges in recent times, with the airline only having six planes in use due to the coronavirus pandemic. The court said that “radical measures” had been implemented in 2019 and 2020 but “still more is required”.

The principal issue in the application was whether the parent company, Norwegian Air Shuttle ASA, was sufficiently connected to Ireland in order to receive court protection in this jurisdiction.

Background

The application was brought by five Irish companies within the Norwegian Group. The petitioners included Norwegian Air International Limited, an airline operator in Ireland, and Arctic Aviation Assets DAC, which performed centralised asset management for the Group. The petitioners also brought an application to appoint an examiner over Norwegian Air Shuttle ASA, the Group’s parent company based in Norway.

While the Norwegian Group had reached approximately €4 billion in revenue by the end of 2019, the industry had been hit particularly hard by the grounding of the Boeing 737 Max in March 2019 and by the Covid-19 pandemic, the court heard. Despite initially targeting a net profit for the year in February 2020, within weeks of the pandemic the Group’s focus shifted “from anticipated growth to survival.” Demand for bookings fell more than 99 percent in the second quarter of 2020 and passenger numbers had fallen by 78 percent. Revenue for the third quarter had decreased from €1.13 billion in 2019 to just €119 million in 2020, a fall of 91 percent. In the final quarter of 2020, the Group had only six aircraft in use.

An independent expert’s report was produced by Mr Ken Fennell of Deloitte, who said that the survival of the petitioner companies was heavily dependent on whether the two airlines, Norwegian Air Shuttle and Norwegian Air International, were successful in the future. Mr Fennell identified further restructuring requirements for the Group, which included adjusting airline leasing payments to market value, adjusting future orders of aircraft and increasing the use of so-called “power by the hour” deals in which Norwegian would repay loans based on the hours its planes were in operation. Mr Fennell stressed in his report that he could not guarantee that the future conditions of the airline industry would be stable enough for the examinership to be successful.

High Court decision

In a written judgment delivered after an ex tempore ruling, Mr Justice Michael Quinn approved the examinership applications for the petitioners and appointed Mr Kieran Wallace of KPMG as the examiner for the Group. The court held that the five petitioner companies were companies incorporated in State and conducted the majority of their business in Ireland. As such, the court determined that it had jurisdiction under the Article 3 of EU Regulation 2015/848 on insolvency proceedings to appoint an examiner over the petitioner companies.

The court was required to give a more detailed analysis of its jurisdiction to appoint an examiner over Norwegian Air Shuttle, the parent company, which was incorporated and headquartered in Norway. Further, the only assets it held in Ireland were the shares of its subsidiary companies. Under section 517 of the Companies Act 2014, the court has the power to appoint an examiner to a “related company” of an examinership application.

Mr Justice Quinn considered several authorities which informed the legal test for entering a non-Irish company into the Irish examinership system. The court relied on the judgment of Ms Justice Mary Laffoy in Re Harley Medical Group (Ireland) Limited [2013] 2 IR 596, which considered the criteria for winding up a non-Irish company. The test in that case said there must be a) a sufficient connection to Ireland which may include having assets in the State; b) a reasonable possibility of benefit to those applying for the winding up order and; c) one or more people involved in the distribution of the company assets over whom the court can exercise jurisdiction. The court considered this test useful to apply in the present case of an examinership application.

The court went on to consider Re Compania Merabello San Nicholas SA [1973] 1 Ch 75, which held that there was no need to show in a winding up petition that a company ever carried on business in the State and that it was sufficient to prove that a company had assets of any nature in the State. Again, Mr Justice Quinn said that he found this approach useful to determine his jurisdiction to appoint an examiner to Norwegian Air Shuttle.

The court ultimately concluded that Norwegian Air Shuttle had a longstanding connection to the State, both in terms of the companies it owned and the flights it operated to and from Ireland. All the Irish-based companies were strategically important to the Group, including the subsidiary airline Norwegian Air International and the subsidiary airline leasing and financing platform, Arctic Aviation Assets, the court said. Mr Justice Quinn held “it is clear that the commercial operations of the Group taken together with the range of legal transactions entered into by both [Norwegian Air Shuttle] and its subsidiaries are so closely linked and interdependent that [Norwegian Air Shuttle] has a real and deep connection to the State.”

The court also received opinions from Norwegian counsel BAHR AS and Hogan Lovell’s in London that an Irish examinership would be recognised by the courts in Norway and England. This was necessary because creditors had issued proceedings in England for unpaid rent of aircraft. Additionally, the court had to be satisfied that that the examinership would be enforceable in those jurisdictions in order to provide tangible benefit to the applicants.

Conclusion

The court determined that it had the jurisdiction to appoint an examiner over all five petitioner companies and over Norwegian Air Shuttle. Having considered the evidence from Mr Fennell and the fact that no objections were taken by any creditors to the examinership, Mr Justice Quinn was satisfied that the companies had a reasonable prospect of survival. Accordingly, the court approved the examinership application.

© Irish Legal News Ltd 2021



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