In a judgment delivered on 14 October 2020, Mr. Justice McDonald declined to confirm the appointment of an examiner to New Look Retailers (Ireland) Ltd (New Look).
Facts
New Look is a subsidiary of New Look Retail Holdings Ltd, a UK company currently in a creditor's voluntary arrangement, under the UK Insolvency Act 1986. New Look currently operates 27 retail shops in Ireland, all of which are held under long leases. On 28 August 2020 an interim examiner was appointed to New Look and the appointment was extended to 29 September, the date set for hearing the petition. The application was opposed by three of the landlords of New Look stores. At the hearing Mr. Justice McDonald identified two main issues:
- Whether New Look satisfied the statutory test set out in section 509 of the Companies Act 2014 (the Act).
- Even if the section 509 test was met, whether the Court should exercise its discretion to dismiss the petition.
Decision
Having considered the arguments put forward by both sides, the Court found that it was likely that New Look would be unable to pay its debts at some stage in the first half of next year (2021). However, the appointment of an examiner is at the discretion of the Court and Mr Justice McDonald found that the fact that the insolvency was not imminent was a factor which carried significant weight in the context of deciding whether or not to appoint an examiner.
The Court found it to be "entirely premature" to seek to appoint an examiner, in the context of the "surprising dearth" of evidence as to the extent of the attempts made by New Look to negotiate its rental obligations with its landlords.
The following statement is critically important where the judge said "… on the basis of the evidence before the court, it is inexplicable that [New Look] did not take more proactive steps in the period between March and August to resolve its differences with its landlords. As it happens, there is still time for serious negotiations to take place before insolvency looms more immediately in sight. I am of the view that this requires to be explored before seeking the intervention of the court."
Message
This judgment sends a very clear message to commercial tenants seeking to use the examinership process to achieve a compromise with landlords: such a route should not be taken prior to genuine attempts to negotiate a settlement.
About the author
Barry Cahir
About Barry
Barry is a partner and head of our insolvency & corporate restructuring team. Barry acts for all stakeholders, including liquidators, receivers and examiners, in a wide range of contentious and non-contentious insolvency and debt restructuring cases.
Barry also advises on the resolution of regulatory and other corporate and commercial disputes.
Barry contributes to the Irish Chapter of the Restructuring Review - 13th Edition.