In December 2009, the Supreme Court determined that companies in examinership could seek court approval to repudiate leases with their landlords as part of the examinership process. Following this decision, the Linen Supply of Ireland case was returned to the High Court, where Mr Justice McGovern approved the repudiation of several leases.
As part of the repudiation process the High Court determined what damages should be paid to a landlord for the repudiation. These damages are primarily based on the loss of rent. In this case, the Examiner sought to have the amount of damages awarded reduced or “crammed down”, along with the other debts of the company, as part of the proposed scheme of arrangement. However, one of the company’s landlords argued that the award of damages could not be crammed down under the examinership legislation. Mr Justice McGovern decided otherwise and approved the scheme of arrangement which provided for, amongst other things, the cramming down of the repudiated landlords’ damages.
The company has now successfully emerged from examinership. It has been reported in the media that the scheme of arrangement will safeguard in the region of 350 jobs and allow the company to distribute a redundancy fund of €5.4 million to the 260 employees made redundant as part of the examinership.
This case has provided much needed clarity on the entitlement of a company to repudiate leases whilst in examinership and will provide further options to ailing companies with burdensome leases when dealing with their landlords.