On 25 May 2020 the Federal Court delivered a further judgment in respect of the voluntary administration of Virgin Australia Holdings Ltd and other companies within the virgin group (the Virgin Companies).
The decision sets out how section 443B of the Corporations Act 2001 (Cth) (the Act) operates in respect of payments for property used or occupied by the Virgin Companies, shedding new light on what the court will have regard to when ordering lengthy extensions of the time that voluntary administrators have to give notice to owners and lessors of property.
Background
On 20 April 2020 voluntary administrators were appointed in respect of the Virgin Companies.
On 23 April 2020 the voluntary administrators applied to the Federal Court seeking various orders, including an order that the time stated in section 443B of the Act in which they were to give notice to lessors of property leased by the Virgin Companies be extended by four weeks.
On 24 April 2020 the voluntary administrators were successful in obtaining orders that, amongst other things, they were not personally liable in respect of property leased by the Virgin Companies for the period 28 April 2020 to 26 May 2020.
The court accepted that the voluntary administrators needed more time to consider the ongoing value to the Virgin Companies and the various property the subject of leasehold interests. The court also considered the interests of the Virgin creditors as a whole and that an extension maximised the prospect of preserving the business of the Virgin Companies with a view to a sale or restructure of the business as a going concern.
The Decision
The 25 May 2020 Federal Court decision was in respect of a further extension of time sought by the voluntary administrators under section 443B of the Act. The extension was sought to 16 June 2020 in respect of a more limited class of property.
The voluntary administrators were successful obtaining orders, amongst other things, extending the time in which they are to give notice to lessors of that class of property to 16 June 2020 and so that they are not personally liable in respect of the leases to 16 June 2020.
In making its decision, the court considered the law in respect of further extensions under subsection 443B(2) of the Act and how that law applies concerning certain international conventions and protocols in respect of aircraft.
The reasons why the court granted the further extension included the following:
The characteristics of the aircraft, engines and other associated aviation equipment and the ongoing possession of that type of property being critical to the ongoing viability of the airline business.
The negotiations between the administrators and aircraft lessors including negotiating protocols as to the ongoing possession, maintenance, preservation and use of the aircraft in question.
That the timing of the proposed further extension was harmonised with the sale process, including the timing for final bids in respect of certain aircraft.
That the liabilities associated with the aircraft leased property were significant, exceeding $40 million per month.
It being unlikely that there was any material prejudice to the aircraft lessors for the further extension.
The views of one of the voluntary administrators, particularly given his experience, regarding the time required to finalise sale protocols in respect of the aircraft and regarding the extension being designed to preserve and enhance value.
It being necessary for the court to have regard to the best interests of the creditors of the Virgin Companies as a whole, an extension maximising the prospect of preserving the business of the companies with a view to sale or restructure as a going concern.
Aircraft lessors who may be adversely affected by the orders sought were permitted to apply to the court to vary the orders.
Comments
The decision to extend the notice period under section 443B of the Act, when taking into account the April 2020 orders, is longer than most previous orders under that section. The circumstances in respect of the voluntary administration of the Virgin Companies are however exceptional, the Federal Court thoroughly considering those exceptional circumstances in its reasons.
Of particular interest to practitioners is the focus on complexity, the extent of leasing liabilities, the need to harmonise sale processes and the protection to aircraft lessors. The clear focus of the court was considering the interests of the creditors as a whole by ordering an extension that maximised the prospects of preserving the business with a view to sale or restructure. The court will therefore be guided by the object of Part 5.3A of the Act when ordering long extensions.
It is therefore likely that the court will order similar long extensions in the future in respect of voluntary administrations of similar size and complexity and where the voluntary administrators face similar exceptional circumstances.
See Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 3) [2020] FCA 726
Also see Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) [2020] FCA 571
Written by Julian Walsh