The final meeting of Virgin Australia creditors is all set to take place on 4 September after Virgin Australia’s administrators handed down their report to creditors this week.
The airline’s future will be voted on at a virtual Microsoft Teams meeting scheduled for 10am (AEST) on Friday, 4 September 2020. If the sale to Bain Capital is approved, Virgin Australia’s customers and employees can be much more certain of its future.
The preferred outcome of the appointed administrators from Deloitte is that the sale to Bain Capital would be finalised under a Deed of Company Arrangement (DOCA). This would provide the highest return to creditors and the best chance of Virgin’s ongoing success, according to administrators.
In the unlikely event that the sale is not approved next Friday, the other possible outcomes are that the voluntary administration is ended or the company liquidates. In their report, Virgin’s administrators say that they don’t believe it would be in creditors’ interest for the administration period to end without a sale because they believe the business is currently insolvent.
“Based on our analysis, the Group is presently insolvent and unable to pay its debts as and when they fall due. Accordingly, we are of the opinion it would not be in creditors’ interests for the administrations to end and control be returned to the Directors,” section 12.3 of the report states.
The Deloitte report also claims that Virgin Australia’s directors may have committed an offence by trading while insolvent in the days prior to 25 March 2020.
Deloitte has collected $26.8 million in fees for conducting the voluntary administration.
What happens if the Bain Capital sale proceeds?
It has been reported this week that Bain Capital agreed to pay $3.5 billion for Virgin Australia in a binding agreement signed in June. The US private equity firm has already injected $150 million into the business so that it could continue operating over the past two months.
If the proposed sale is approved by creditors owed money by Virgin Australia, Bain Capital will become the 100% owner of the airline. Virgin Australia’s existing shareholders, which include Singapore Airlines, Etihad Airways, HNA Group and private investors, will receive “no consideration”.
After the meeting, DOCAs must be signed within 15 business days. This will commence the process of transferring ownership of Virgin Australia to Bain Capital, a process which is expected to be completed by 31 October 2020. Voluntary administrators will remain in control of Virgin Australia until this process is finalised.
Once this occurs, the claims of creditors will be transferred into a trust. It is intended for money owed to be paid out around 6-9 months after this.
Under Bain Capital’s plan for the airline, Virgin Australia would become a “value” carrier with an all-737 mainline fleet. Initially, Virgin 2.0 would focus only on domestic and international short-haul flying, but would resume long-haul international flights once demand returns.
What about bondholders?
There have been reports that two major bondholders had been trying to put forward a counter-proposal to the sale to Bain Capital. However, they withdrew their alternative bid last week after the federal court rejected their application to force Virgin’s administrators to put their bid to a vote alongside the sale to Bain Capital at the 4 September creditors’ meeting.
Under the proposed sale to Bain Capital, secured creditors would receive 100% of money owed and Virgin Australia employees would receive their entitlements in full. But Deloitte estimates that unsecured creditors including bondholders would receive only 9-13% of their money back. The administrators opine that this is still the best outcome for bondholders because they would receive less – and potentially nothing – under the alternatives proposed.
Customers to receive “Future Flight Credits”
Customers owed money by Virgin Australia for cancelled flights, including those issued with travel bank credits and conditional credits, will be issued with new “future flight credits”. These will be valid until 31 July 2022 but come with some restrictions. Unfortunately, it looks unlikely that monetary refunds for flights booked prior to Virgin Australia entering voluntary administration on 21 April 2020 will be forthcoming.
The administrators estimate that Virgin customers are owed between $550 million and $650 million in aggregate.
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