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16 July, 2020

Court tells Virgin’s administrators to be “full and frank” with creditors or risk delaying sale

Sydney, Australia - October 26, 2013: The Front window of the Law Courts in Australia, with the coat of arms of Australia.

The administrators of Virgin Australia have been warned that the highly-anticipated second meeting of creditors could be delayed if they fail to provide sufficient information about the airline’s sale.

In a judgement handed down in the Federal Court yesterday, Justice John Middleton is was important that “proper preparation” be made for the meeting of creditors next month, where they will decide the future of Virgin.

“This will obviously require the administrators to be full and frank with the creditors, and to provide sufficient information to enable the creditors to make an informed decision on the matters for resolution at the meeting of creditors,” Justice Middleton said.

“If a creditor at the meeting needs more time or information to consider their position, this could be a reason to adjourn the meeting of creditors.

“If sufficient information is not provided which is material to creditors in reaching a decision on a proposed DOCA [deed of company arrangement] which is entered into, this could be a ground for the court later terminating the DOCA. Neither of these scenarios is desirable.”

Bain Capital was chosen by Virgin’s administrators as the bidder they would put forward to creditors last month, but since then, the process has not at all been smooth sailing for Vaughan Strawbridge and his team at Deloitte.

Bondholders have been busy trying to block the airline’s sale to Bain, launching an application to the federal government’s Takeovers Panel, and legal action in the Federal Court to try and gain access to the confidential terms of the sale that Deloitte had agreed on with the private equity firm.

The bondholders (which include thousands of retail investors) are aiming to present an alternative offer – which they initially lobbed to Virgin’s administrators right before Bain was chosen – at the next creditors’ meeting in August.

Justice Middleton dismissed the bondholders’ request to have the confidentiality order on the sale terms lifted, claiming that they have the ability to propose a deed of company arrangement at the next meeting of creditors.

“Mr Strawbridge has given evidence that any widespread disclosure of the details of the Bain transaction may impair the parties’ ability to implement the Bain transaction in the manner contemplated by the transaction documents which have been negotiated by the administrators to deliver an outcome which is most beneficial to creditors as a whole,” he said.

“As with any transaction, a number of steps must be taken before the Bain transaction can be completed. These steps include confidential discussions with a range of stakeholders to facilitate the successful completion of the Bain transaction, to maximise the likelihood of the business of the Virgin companies being successfully conducted in the future, and to maximise the return to creditors.

“I accept that until these further steps are completed, it is not possible for the administrators to determine the final estimated outcome for creditors under the Bain transaction.”

However, Justice Middleton said bondholders were well within their right to make a play for the airline.

“There is no doubt that the administrators may promote the SID [sale implementation deed] with Bain as their preferred proposal in contest with the noteholders’ offer, and may enter into contractual arrangements that could inform the scope of any alternative proposal,” he said.

“However, the administrators’ preference for one proposal does not justify the exclusion of all other proposals from consideration by the creditors.”

Image source: iStock/Frogman1484

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administrators Bain Capital bondholders deloitte federal court John Middleton virgin virgin australia