The High Court held that landlord claims against Linen Supply of Ireland Limited could be reduced under its examinership scheme, but adjourned a final decision for one week to allow discussions on a requirement for ongoing investor funding.
The judgment was delivered by Mr Justice Brian J. McGovern on 3 February 2010. The court was considering the examiner’s report and request to approve a scheme of arrangement under the Companies (Amendment) Act 1990. A number of landlord creditors objected, arguing that their claims for damages after lease repudiations could not be impaired and that the proposed terms were unfair.
The landlords’ claims were agreed in quantum and liability. The scheme offered them 30% of their agreed debts, with rent due during the protection period to be paid in full. The judge treated the landlords as prospective creditors when the petition was presented, even though no rent was then in arrears. He held that the Act allowed a scheme to impair the claims of prospective creditors, including the landlords’ agreed claims arising from the repudiation of leases.
The court rejected the landlords’ fairness objection. The 30% dividend was similar to the offer made to many other creditors supporting the scheme, and the landlords had not been treated differently. The judge also noted that the agreed damages took account of the possibility that the landlords could let the premises to other tenants, although securing new agreements might take time. He found no evidence that the proposals were unfair or inequitable.
The judge did, however, accept a separate objection concerning the investor’s proposed loan of up to €17.8 million. Under the scheme as drafted, the loan could be demanded after creditor payments were made, which the landlords argued could leave the company insolvent. The company’s counsel said the scheme could be changed to prevent withdrawal for a year after its effective date.
The judge concluded that the scheme fell short of the requirement for a legally binding commitment to provide funding needed to support the company as a going concern. He was prepared to approve it if it included ongoing investor funding, but did not grant final approval in this judgment. He adjourned the matter for one week so the examiner and company could discuss with the investor whether it would make that commitment.