The High Court refused Bestseller Retail Ireland Limited’s application to repudiate leases for premises in Navan, Dundalk, Tralee and Sligo, finding a shortcoming in the company’s approach to selecting leases for repudiation.
Mr Justice Brian J. McGovern delivered the judgment on 23 April 2010. The application was made during the company’s examinership under sections 20(1) and 20(3) of the Companies (Amendment) Act 1990. The court said the application was an interim step: refusing it did not end the examiner’s appointment, and the examiner would have to reconsider the position. The judge said he would hear counsel about the effect of the order on the remaining leases.
Bestseller Retail Ireland, which operated 36 stores under four brands, was insolvent. An independent accountant had recommended closing 14 stores; the examiner later identified three more as unprofitable, including the Dundalk premises. The company sought permission to repudiate a number of leases. Some landlords agreed, while others objected.
The landlords argued that they had not received full information about the store-selection criteria or the financial analysis behind the decisions. The Dundalk landlord also said the store was not listed for closure in the accountant’s report and challenged the company’s explanation that it would likely make a loss. The company said the examiner’s review considered the unit’s turnover, rent, projected turnover and renovation costs.
The judge noted that the company had not sought to repudiate leases where its parent or holding company had guaranteed the rent. He said there was no reasonable explanation for that difference in treatment and that the evidence suggested the dominant motive for excluding those properties was to protect the holding company’s interests as shareholder. He considered that inconsistent with examinership’s purpose of rescuing viable enterprises and preserving jobs, rather than protecting shareholders from unsuccessful investments.
The court also said repudiation significantly interferes with landlords’ property rights and should not be allowed lightly. It refused the application for the Navan, Dundalk, Tralee and Sligo leases. The judgment does not decide whether a scheme of arrangement could later be brought before the court; the judge said a compromise with the objecting landlords remained possible.