Virgin Australia bondholders who were displeased by the airline’s sale to private equity firm Bain Capital, have been encouraged to sign up to the class action against the carrier’s former and current directors and senior executives.
The lawsuit will be funded by London firm Balance Legal Capital and led by Corrs Chamber Westgarth. The suit is expected to be filed in Federal Court.
The suit will allege Virgin Australia did not disclose its true financial position in a 2019 prospectus for a capital raising to fund its $700 million acquisition of the Velocity frequent flyer program.
Investors were invited to purchase unsecured notes at $100 each, with a minimum spend of $5000.
The prospectus illustrated that Virgin Australia had incurred losses over the past three financial years and outlined how the company planned to return to profitability.
The plan included cost-cutting to slash $75 million a year, an organisational restructuring, and a supplier to save the airline $50 million annually.
Virgin Australia filed for administration with debts of more than $7 billion, less than six months after the capital raising and the COVID pandemic erupting.
Bain Capital then purchased the airline for $3.5 billion in a deal that saw 6500 bondholders receive between 9 and 13 cents on the dollar, however, this did not sit well with bondholders, some of whom unsuccessfully tried to purchase Virgin Australia during its administration.
Those who purchased unsecured notes in Virgin Australia will be eligible to take part in the class action, according to Balance Legal Capital.
Balance Legal Capital describes its work as “promoting access to justice by supporting litigants who do not have the means or the capability to fund worthy litigation.”
After the sale to Bain Capital was confirmed in September 2020, former Virgin Australia boss Paul Scurrah was let go in favour of previous Qantas executive Jayne Hrdlicka.
Under Hrdlicka’s new management the airline relaunched as a “mid-market carrier” that targeted leisure passengers.
Some of the cuts the airline made include scrapping free in-flight snacks in economy, and an overhaul of business class meals to cheaper meals.