The Irish High Court recently confirmed a scheme of arrangement for Atlantic Homecare Limited in a case which highlighted how the survival or otherwise of a company can hinge on a reduction in overheads such as rents.
Prior to entering into examinership in June 2012, Atlantic Homecare Limited employed approximately 348 people and operated 13 trading retail stores. It had accumulated losses of €21m over the previous five years, but managed to stay in business with the support of other Grafton Group companies, including Woodies DIY Limited. Many of its stores were trading at a loss due to high rents and business had also suffered due to the decline in the construction sector. Bar one exception, all of its stores were subject to upward yearly rent reviews. Atlantic had continued to trade the 13 stores in the hope that anticipated legislation prohibiting upward only lease agreements would be introduced. However, such legislation never came to pass.
Mr Declan McDonald was appointed examiner to the company in June 2012. The Independent Accountant’s Report in support of the appointment of an examiner stated that the company would have a reasonable prospect of survival with suitable investment if its five uneconomic stores were closed, overheads in the eight remaining stores were reduced by €1.3m and staff numbers were reduced to 234.
During the course of the examinership, the examiner reported that Woodies DIY Limited had expressed an interest in investing in the company subject to certain conditions being satisfied, including the repudiation of the leases of the five uneconomic stores and reductions in rents for the stores which remained open.
On 17 September 2012 a Scheme of Arrangement providing for an investment of €5.7m by Woodies DIY Limited was confirmed by Ryan J in the High Court.
Ryan J indicated that he had no hesitation in approving the scheme, which would result in the saving of a total of 304 jobs (instead of the initially estimated 234 jobs) and provide for the closure of only two (as opposed to five) stores.
Contributed by Niamh Cacciato
