Judge refuses to sanction reduction in capital reserves

A judge has refused to sanction a €500m reduction in Aer Lingus group’s capital reserves to pay dividends to shareholders unless the airline makes provision for potential legal claims resulting from the €930m deficit in the Aer Lingus pension schemes.

The shortfalls in the general and pilots’ pension schemes would seem to constitute a contingent future claim against Aer Lingus, Mr Justice Roderick Murphy said in the High Court yesterday.

In those circumstances, court approval of the resolution to reduce the capital reserves was subject to a condition that Aer Lingus provide for potential claimants arising from the pension funds deficit, he found.

The proposed reduction in the capital reserves from almost €860m to about €360m was “substantially below” the level of the shortfall in the pension funds, he noted.

While the Aer Lingus group was entitled to seek a reduction in capital, the court had to address the matter on the basis of Section 73 of the Companies Act relating to the entitlements of creditors, he said.

The trustees of the pension schemes owed duties to the Aer Lingus pensioners and are contingent creditors of Aer Lingus in the circumstances of a shortfall in funding of the schemes, he ruled.

The judge also noted the trustees had engaged with Aer Lingus with a view to resolving the pension fund issues and had expressed concern, if the company got approval for the share capital reduction before a final agreement was reached on pensions issues, such approval was likely to impact significantly on the talks.

He was delivering his reserved judgment on the application for approval for the reduction. The judge has adjourned the matter to Sept 3 to allow the various parties consider his judgment. James Doherty, for the trustees, said “a lot depends” on what happens between now and Sept 3.

In its application, Aer Lingus Group plc, as holding company of the Aer Lingus companies, had claimed it has no “legal” obligation to address the pension funds deficits and also said Ryanair, a 30% shareholder, had threatened legal action if the Aer Lingus board moved to reduce the deficit without shareholder approval.