If Norwegian gets the green light after the hearing in court on December 7, the airline has a good chance of survival, experts believe. However, the bankruptcy lawyer considers that the current shares are worth zero.
When Norwegian submitted its application for bankruptcy protection to the court in Ireland, the clock began to tick. Within 150 days, the airline must find the rescue.
But in order to be protected during this period, the company must first get the green light from the court, a decision taken after a hearing taking place in Dublin on Monday 7 December.
Judge Michael Quinn’s plan to take a position was announced on Thursday. It includes the total or partial cancellation of all debt, in exchange for shares, and raising billions in new capital.
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Believes that Norwegian gets the green light
Amanuensis Alexandros L. Seretakis at Trinity College Dublin, which has Irish company law as one of its areas of expertise, believes that the airline has good opportunities to do so.
– I think the court will accept it, because Norwegian has reasonable chances of survival. In the end, they will probably write down the debt and find new capital from an investor. They will probably continue as a smaller company, Seretakis tells E24.
– As long as they succeed in presenting a sustainable plan for Norwegian, as I believe they will do, to cut debt and find new capital. They will probably say that it is covid that has been destructive for the company, so that Norwegian will be able to continue its operations in a world without covid, he adds.
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On the edge of the cliff
Norwegian carried out an extensive rescue operation last spring, but has been aware that the company needs more capital to recover from the crisis.
The travel restrictions due to the pandemic have reduced the number of passengers by 91 percent and caused Norwegian a deficit of NOK 6.4 billion during the second and third quarters.
However, the airline was rejected this autumn on application for direct billion-dollar aid from the state, and on November 18, the company applied for protection for Irish subsidiaries under the “examinership” scheme.
This means that creditors can not collect their claims or file for bankruptcy for the company, as long as it has the protection of the court.
Norwegian can continue its operations through the process, which is one of the advantages, Seretakis points out.
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Must convince the court
According to lawyer Gavin Simons, most companies that are fully involved in the “review process” succeed in restructuring the company.
He works as a partner in the Dublin-based law firm AMOSS, with corporate restructuring.
The company is also the Irish member of the international law alliance Interlaw, of which the Norwegian law firm Haavind is a member.
– It is not a question of “let them in the degree project and let’s wait and see if there are good opportunities for survival”. From the beginning, the court must be convinced that there are reasonable chances of success, in order to confirm the appointment of an “examiner”, says Simons.
The person who has been appointed by the court as a so-called reviewer (reviewer) has a central role in the work of sewing together a rescue plan. Auditor Kieran Wallace from KPMG has been given the Norwegian assignment.
– Basically, only qualified companies come out of the starting gate. And if they come out of the starting gate and can secure the necessary investments, they have a very good chance of finally getting through the review process, the lawyer says.
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Today’s shareholders are the least the court cares about, according to Simons.
Since Norwegian applied for bankruptcy protection, the share has fallen by 20 percent, but the market capitalization is still NOK 1.4 billion. Nordic small savers also continue to buy into the company.
– They have the advantage of profit in the company, and with that they must also withstand the consequences of loss. When they go to court and say that the company is insolvent, the value of that shareholding is zero, the lawyer says.
A creditor group can bind everyone
During the period that the court protects, the auditor must find a solution that includes writing down the debt and adding new capital to Norwegian.
– He must secure the new investment, formulate his proposal for debt settlement, convene meetings in the various creditor classes, present the proposals for a vote, Simons says.
It is then sufficient for a creditor class to accept the solution. It will also bind the other creditors.
– The minimum support is necessary for a system to be approved by the court and made binding on all creditors, regardless of whether they voted for or against the treatment they receive under the debt system, the lawyer says.
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Losses to creditors
During the process, the creditors are divided into groups. They will only receive part of their outstanding claim, a so-called “dividend”.
“Instead of paying them 100 percent, you may be able to pay the unsecured creditors 5 percent of the debt, while creditors with priority, such as tax authorities, can get 15-20 percent,” says Simons.
But creditors can not have it worse than in a bankruptcy situation, where the company is divided and sold piece by piece, a so-called liquidation. In a report recently presented to the court, the creditors predicted a loss of NOK 64 billion in the event of bankruptcy.
– The dividend to them must be at least equal to what the creditors would have received in the event of a liquidation of the company. It takes care of the historical obligations, the lawyer says.
He points out that the company may also need to clean up future obligations, such as renting aircraft.
“The review process will address the historical obligations, but it must lay a solid foundation for the company in the future, so that it will be profitable in the future,” says Simons.