CityJet Scheme of Arrangement Confirmed by High Court

A significant decision from the High Court has confirmed proposals for a scheme of arrangement concerning CityJet DAC, in the face of a challenge mounted by unsecured creditors. Our Restructuring & Insolvency team examines the background to the case and the likely impact.

In a decision handed down on 23 October 2025[1], the High Court (Judge Quinn) has confirmed proposals for a scheme of arrangement (the Proposals) regarding CityJet Designated Activity Company.

The Proposals were confirmed in the face of significant opposition by CityJet’s sole shareholder, the Strategic Alliance of Regional Airlines, and its related entities (the SARA Entities), in their capacity as unsecured creditors.

The judgment is a significant one in the context of the ongoing evolution of the law on restructuring and insolvency in Ireland. It addresses some previously untested provisions of Part 10 of the Companies Act 2014, as amended on foot of the Preventive Restructuring Directive, or ‘PRD’. While the overarching concept and requirement that proposals for a scheme of arrangement cannot be unfairly prejudicial is not new, the decision is the first in which the High Court has had to consider expert evidence concerning the post PRD requirement under Section 541(3A) of the 2014 Act. The expert evidence considered in this instance concerns specifically whether the Proposals satisfy the best-interest-of-creditors test.

Background

Kieran Wallace and Andrew O’Leary of Interpath Ireland were appointed as Joint Interim Examiners of CityJet on 8 May 2025 and were subsequently appointed as its Joint Examiners on 26 May 2025.

CityJet is a provider of wet lease services, and it supplies airline customers with aircraft, crew, maintenance services and insurance to operate on the airlines’ behalf. This was the third time that the company had entered into examinership, following two prior restructurings in 1996 and 2020.

Since 2020, CityJet faced financial difficulties caused by group indebtedness arising from its previous examinership, the COVID-19 pandemic and the termination of a key contract with Lufthansa. These, among other factors, led to the company’s decision to petition the Court for the appointment of the Joint Examiners.

Challenge to the Proposals

Under the Proposals, each of the unsecured and contingent unsecured classes of creditors received a dividend of 2% of their debt. At the statutory meetings convened by the Joint Examiners, the impaired creditors overwhelmingly voted in favour of accepting the Proposals.

The SARA Entities, in their capacity as creditors, opposed the Proposals. The two principal grounds of challenge ultimately advanced at the confirmation hearing were that:

1. The Proposals were unfairly prejudicial to creditors, including members of the SARA group.
2. CityJet did not have a reasonable prospect as a going concern and is bound to fail.

Unfair prejudice

The Best-Interest-of-Creditors test

Prior to the amendments to the 2014 Act on foot of the PRD, the key feature of the analysis in examinership of unfair prejudice was to compare the outcome under the relevant Proposals to that in an alternative - almost invariably, a liquidation.

The overarching “unfair prejudice” test remains. However, Section 541(3A) of the 2014 Act introduces a more specific requirement: where there are dissenting creditors, the Court must be satisfied that the proposals meet the best-interest-of-creditors test before confirming a scheme of arrangement. This test is not defined in the 2014 Act, but rather by reference to the PRD, which defines it as follows:

““Best interest of creditors” test means a test that is satisfied if no dissenting creditor would be worse off under a restructuring plan than such a creditor would be if the normal ranking of liquidation priorities under national law were applied, either in the event of liquidation, whether piecemeal or by sale as a going concern, or in the event of the next best alternative scenario if the restructuring plan were not confirmed”.

In CityJet, the Proposals provided for a 2% dividend to impaired creditors for their agreed claims. The alternative, being a winding up of CityJet, was assessed by the Joint Examiners as providing only a 0.99% dividend to impaired creditors. This valuation, which is a function of realisable value of assets, estimated costs of liquidation and examinership, and an assessment of the creditor composition and quantum, was made as at the date of the Proposals. However, this figure was later revised by the Joint Examiners up to 1.52% before the confirmation hearing. On that basis, the Joint Examiners argued that the Proposals satisfied the best-interest-of-creditors test.

The Joint Examiners’ calculations were heavily disputed by the SARA Entities who, relying on expert evidence, argued that the correct estimated dividend on a winding up basis was 3.53%, and therefore that the Proposals were unfairly prejudicial to them and that the best-interest-of-creditors test was not met. It is noteworthy that the focus was entirely on the liquidation outcome - no evidence was put before the Court on the outcome in the event of a going concern sale or any “next best alternative”.

The Joint Examiners contended that the onus is on an objector to prove that the test has not been satisfied. However, the Court confirmed that the onus is on an examiner to prove that the test is satisfied.

Valuation evidence

The key element influencing the assessment of the best-interest-of-creditors test was a dispute around the valuation of inventories held by CityJet. This was because the Court accepted that even if the figures relied on by the SARA Entities were all valid, save for the value attributed to the inventory, the test would have been met. The Court was faced with conflicting valuations in this regard.

On the facts, the Court preferred the expert valuation evidence provided by the Joint Examiners and found therefore that the best-interest-of-creditors test had been met.

It remains to be seen whether increased judicial scrutiny may be placed on the valuations that underpin proposals for schemes of arrangement in future[2].

The timing point

Importantly, the evidence relied upon by the SARA Entities presented figures relevant to the analysis on a “rolling basis”. They argued that the correct date for the purposes of assessing whether the best-interest-of-creditors test was met should be as close as possible to the date of the confirmation hearing. In contrast, the Joint Examiners argued that the appropriate time for this assessment is the date of the Proposals, i.e. the date the Proposals were presented to the meetings of creditors and members. Otherwise the Court would be faced with a constant “moving target” with fluctuating figures. On this point, the Court held as follows:

“Clearly section 543(1)(b) and (1)(c) envisage the court hearing the evidence of experts adduced after the date of the Proposals. It would be artificial to disregard such evidence. Nonetheless it seems to me that as a matter of principle although the court must consider this later evidence the test for unfair prejudice and best interests of creditors test must be applied as of the date of the Proposals.”

Accordingly, while expert evidence may be advanced regarding the value of proposals for a scheme of arrangement to creditors, prima facie, the appropriate date for assessing whether a greater return could be achieved in an alternative scenario is the date of the proposals, as put to the meetings of members and creditors.

Reasonable prospect of survival – onus of proof

Notably, the Court confirmed that while section 541(4A) of the Companies Act 2014 is a new provision relating to the assessment by the court of a company’s reasonable prospect of survival prior to confirming proposals before it, the practice of the court remains unchanged. There is a settled body of law in relation to this issue.[3]

It was submitted by the Joint Examiners that the correct interpretation of section 541 (4A) in the context of the PRD was that it is only where it has been demonstrated in the negative, by an objector, that that the Proposals would not have a reasonable prospect of facilitating the survival of the Company, that the Court is obliged to refuse confirmation. The Court did not agree, and held that it must be satisfied (the onus being on the examiners to do so) of two matters before it will confirm proposals for a scheme of arrangement, as follows:

1. That there is a reasonable prospect of the survival of the company or the whole or part of its undertaking as a going concern, and
2. That the proposals before the Court have a reasonable prospect of facilitating that survival

As a general proposition, the SARA Entities argued that the Court ought to have regard to:

• CityJet’s history of recurring restructuring
• The uncertainty of its future direction
• Its purported future undercapitalisation, and
• Difficulties generally in future day-to-day cashflows and contracts.

The SARA Entities cast doubt over whether CityJet had a reasonable prospect of survival into the future. This was described as a “survivability argument”. The Joint Examiners refuted this argument in its totality.

While acknowledging that this was CityJet’s third examinership, the Court was satisfied that the evidence before it from stakeholders and the Joint Examiners indicated that CityJet does have a reasonable prospect of survival into the future as a going concern and that the Proposals will facilitate that. Accordingly, Judge Quinn determined that it was appropriate to confirm the scheme of arrangement.

Comment

The CityJet decision is a welcome clarification regarding the Court’s approach to assessing the fairness of Proposals for a scheme of arrangement, in particular regarding the application of the best-interest-of-creditors test. Insolvency practitioners should note that the Court’s confirmation that the relevant date for the purposes of the valuation analysis for the best-interest-of-creditors test is the date the Proposals for a scheme of arrangement are put to the members and creditors.

Notably, where there is a challenge based on unfair prejudice or the best-interest-of-creditors test, the Court is obliged under the Companies Act 2014 to itself engage in a valuation of the company’s business. The Court did not do so in this case. This was due to the fact that the evidence before it related only to the value of assets and liabilities and not to the “business” of the company. It remains to be seen how this issue will develop in future cases. Stakeholders seeking to oppose a scheme, or to push for a better outcome during negotiations with examiners in the formulation of schemes, may seek to rely on arguments around how the best-interest-of-creditors test should be interpreted in a given scenario.

While each case will turn on its own specific facts, it is likely that the issue of competing valuations evidence and methodology will feature as a battle ground in future examinerships.

For more information and expert advice on successfully navigating examinership scenarios, contact a member of our Restructuring & Insolvency team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

[1] In The Matter of Cityjet Designated Activity Company [2025] IEHC 562.

[2] Not only in relation to valuation underpinning the estimated outcome on liquidation or the ”next best alternative”, but also under Section 541 (3b) (ii) which requires a valuation analysis in relation to the voting thresholds at the creditors’ meetings.

[3] For example, Re Tivway Limited [2010] IESC 11; Re Tony Gray and Sons Limited [2009] IEHC 557