In a judgment delivered on 14 October 2020, the High Court, in refusing to appoint an examiner to New Look Retailers Ireland Limited (New Look Ireland) ruled that it was "entirely premature to consider the appointment of an examiner". New Look Ireland trades under the brand name "New Look" and operates across 27 stores in Ireland.
The petition to appoint an examiner was opposed by three of New Look Ireland's landlords. Mr Justice McDonald exercised his discretion to dismiss the petition, on the basis that where New Look Ireland was not currently unable to pay its debts, it should explore less drastic options such as negotiations with landlords before it invoked an application for examinership.
Consideration of when a Company is likely to be unable to pay its debts
The High Court considered the statutory test set for insolvency set out in section 509(1) of the Companies Act 2014 (2014 Act). McDonald J stated that it is clear from the language of section 509(1)(a)
"that the court's power to appoint an examiner is triggered both where a company is currently unable to pay its debts and where it is likely to be unable to pay its debts at some point in the future".
The legislation provides no guidance on how far into the future a court can reasonably look for this purpose and McDonald J did not ultimately determine the matter in this judgment. However, it is the first recorded judgment where the High Court confirmed that a company being unlikely to pay its debts at some point in the future (rather than being cash-flow insolvent at the time of petitioning) can trigger the jurisdiction to appoint an examiner.
In this case there was some disagreement between opposing independent experts as to when New Look Ireland would be cash-flow insolvent. McDonald J accepted that New Look Ireland is likely to be unable to pay its debts at some stage in the first half of 2021. He further held that it is therefore likely to be unable to pay its debts within the meaning of section 509(1)(a).
Exercise of Discretion / Engagement with Creditors
McDonald J emphasised the serious nature of appointing an examiner. He referred to the "substantial curtailment of creditors' rights which flows from s. 520(4)" of the 2014 Act and that the discretion afforded to the court by virtue of section 509(1) should be exercised accordingly. McDonald J highlighted the obligation on a petitioner pursuing examinership to establish, in suitable cases, that "appropriate efforts" were made to seek to resolve issues with creditors, and in this instance, with the landlords. On the facts of this case, the court in exercising its discretion, held that appropriate efforts were not made in circumstances where New Look Ireland was not imminently facing cash-flow insolvency.
What does this judgment mean in practice?
The High Court's jurisdiction to appoint an examiner is discretionary notwithstanding the statutory tests for insolvency set out in section 509 of the 2014 Act. Engagement with creditors prior to petitioning for the appointment of an examiner is a discretionary factor that has not been the subject of a prior judgment. This judgment demonstrates the broad nature of the discretionary powers available to the court. McDonald J acknowledged that an application to appoint an examiner in this case may have to be made in the future, however the court can and will exercise its discretion in appointing an examiner even if the statutory conditions for insolvency are met. This is particularly so where New Look Ireland did not meaningfully enter into commercial negotiations and where it had time on its side to do so.
The judgment highlights that, despite fulfilling the statutory conditions as to insolvency and showing a reasonable prospect of survival, other discretionary factors will be considered by the High Court.
Prior engagement with creditors may not be appropriate or possible in every case. However potential petitioners and their advisers will need to consider what represents "appropriate efforts" to engage with creditors, which will necessarily turn on the facts of each individual case. The judgment serves as a timely reminder that granting an order to appoint an examiner is not a box ticking exercise.
William Fry represented two of the landlords who opposed the petition.
Contributed by William Foley
Originally published 23 October 2020
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