Taking Flight: How Foreign Law Restructuring Proceedings Have The Potential To Compromise English Law Governed Debt

• Law Firm: Walkers
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Insolvency/Bankruptcy, Shareholders
• Author: Ms Fiona MacAdam, William Greensmyth, Siobhan Sheridan and Keith Hyland
• Published date: 10 May 2023

Introduction

The Cayman Islands restructuring officer regime came into force in August 2022 by way of legislative amendments to Part V of the Cayman Islands Companies Act (as amended) (the "Cayman Islands Companies Act").

It is anticipated that the new scheme of arrangement provisions that were expressly included within the new restructuring officer regime may potentially unlock an opportunity to compromise English law governed debt obligations under Cayman Islands law (which has previously not been possible as a result of the rule in Gibbs¹). Support for this argument comes from the Irish case of Norwegian Air².

In Norwegian Air, the Irish High Court (the "Irish Court") exercised its jurisdiction to sanction an Irish scheme of arrangement ("Irish Scheme") within Irish examinership proceedings. Certain English law-governed claims were to be compromised by the Irish Scheme. The Irish Court relied on expert opinions provided by Daniel Bayfield KC as to whether the English Court would recognise the Irish examinership and Irish Scheme, and would give the assistance requested by the Irish Court, pursuant to section 426 of the English Insolvency Act 1986 ("Section 426") ("English Insolvency Act") (notwithstanding the rule in Gibbs).

This article examines the conclusions that the Irish Court reached in Norwegian Air concerning how Irish insolvency proceedings might be recognised in England and Wales under Section 426. It then explains how this approach might potentially be adopted to allow a Cayman Islands scheme of arrangement ("Cayman Scheme") within the new restructuring officer regime to be recognised and enforced in England and Wales pursuant to Section 426.

Norwegian Air - Irish Examinership

Irish Examinership
Examinership is a corporate rescue procedure available under Irish law for insolvent companies which is analogous to chapter 11 bankruptcy in the United States and administration in the United Kingdom.

The key features of examinership are that for a period of 70 days (with a possible extension of 30 days) a moratorium on certain creditor action applies. During such time, an examiner (being an independent officer of the Irish Court) examines the relevant company's affairs with the aim of, if possible, formulating proposals for the compromise and/or restructuring of the relevant company's liabilities (by way of a scheme of arrangement), with a view to rescuing a company and for such company to continue as a going concern. These proposals are put before meetings of the members and/or creditors of the relevant company and, if approved, confirmation of the proposals is sought from the Irish Court.

Norwegian Air
In late 2020, five companies in the Norwegian Air group, incorporated in Ireland, petitioned for the appointment of an examiner pursuant to Section 509 of the Irish Companies Act 2014³ (the "Irish Companies Act"), as well as the appointment of an examiner to a related company, Norwegian Air Shuttle ASA, a company incorporated in Norway (being the parent and main operating company of the group) ("Norwegian Air Shuttle" and together, the "Companies").

The Irish Court appointed Mr Kieran Wallace of KPMG as examiner to the Companies on 7 December 2020 (the "Examiner"). During the course of the examinership, Norwegian Air announced its business plan for its future operations. The essential elements of that business plan were that:

1. the group would focus on its core business in the Nordic countries, operating a short haul network with narrow body aircraft;
2. the group would cease to operate long haul routes;
3. the group would initially operate up to 50 Boeing 737 aircraft operating within Norway and other Nordic countries and between those countries and the rest of Europe;
4. the group would significantly reduce the number of aircraft assets leased; and
5. the group would reduce the volume of services procured.

Repudiation of contracts
Under Irish examinership law, pursuant to Section 537(1) of the Irish Companies Act, the company 'in protection' has the power to apply to the Irish Court to repudiate onerous contracts that involve the performance of obligations (other than the payment of money) if the examiner believes this is necessary for the survival of the company as a going concern.

Based on the business plan put forward in respect of the Companies, the Examiner considered that in order to effectively implement the proposals and to ensure the continued viability of the Companies, it was necessary to repudiate some 425 contracts with 68 counterparties. The Examiner proposed to address the liabilities arising pursuant to such contracts by way of Irish Scheme.

One of the key issues which arose in the context of certain of the disputed repudiation applications was the issue of...