A HIGH Court judge has expressed concern about aspects of an application by Aer Lingus Group plc for approval for a €500 million share capital reduction in a situation where there is a €700 million shortfall in the Aer Lingus pension fund.
After Mr Justice Peter Kelly raised the pension deficit in court yesterday, he was told the matter may be the subject of litigation.
Paul Sreenan SC, for Aer Lingus, said the company took the view it had met all its obligations concerning payments but it anticipated there could be litigation or “industrial relations problems”.
There was no contingency provided for in relation to any such litigation, he said.
Mr Sreenan said it was a shared pension scheme and Aer Lingus Ltd would be primarily liable if there was any liability found. The issue was known about for some time and the company’s legal advice was it would not be compelled to fund a deficit, he added.
Mr Justice Kelly said the court would require some assistance on the pension fund issue before it would permit the share capital reduction sought.
He agreed to Mr Sreenan’s application to transfer the application for approval for the share capital reduction to the Commercial Court, made directions for the advertisement of that petition and listed it for hearing on July 18th.
Mr Sreenan said a supplemental affidavit would be provided to address the pension deficit concerns. He indicated the existing level of distributable reserves was sufficient to pay a three cent per share dividend and payment of any further dividend would depend on the company’s performance.
The company is seeking approval for reduction of its non-distributable reserves from some €859.4 million to €359.4 million so as to allow for €500 million to be credited as a profit available for distribution in the reserves of the company. The application was grounded on an affidavit by Aer Lingus group chief financial officer Andrew Macfarlane, on behalf of the company.
Mr Macfarlane said the company had, in December 2011, an aggregate balance on its share premium account, capital conversion reserve fund and capital redemption reserve fund of some €860 million with distributable reserves of some €57.3 million.
Aer Lingus was seeking approval for reduction of the two capital funds, and part of its share premium account, by up to €500 million of its non-distributable reserves, he said. The proposed reduction would not affect the solvency of the company or prejudice the rights of any of its creditors or members, he added.
Mr Macfarlane said the company would not use the increased distributable reserves resulting from the proposed reduction to declare dividends or redeem or purchase any of the company’s share capital unless the directors were satisfied doing so would not prejudice the company’s ability to pay its debts as they fell due.
