The Virgin administrations: adjustments to process in times of COVID-19

The recent decision of the Federal Court in Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) [2020] FCA 571 provides an example of the Court granting flexibility to administrators performing their functions through the challenges presented by the COVID-19 pandemic.

This decision involved the highly publicised administrations of Virgin Australia Holdings Ltd and its subsidiaries (Virgin Companies). The size and scale of the airline’s administrations presented acute difficulties due to the need to comply with laws regarding the movement and behaviour of people in the circumstances of the ongoing pandemic and laws in relation to administration of companies under Part 5.3A of the Corporations Act 2001 (Cth) (Act). Faced with these difficulties, the administrators of the Virgin Companies sought orders regarding how certain procedures of the administrations should occur in the circumstances of the COVID-19 pandemic.

In summary, the administrators sought orders to allow for:

1. the meetings of creditors to be conducted by telephone or audio-visual conference only and a tailored regime for creditors to submit proxies in advance of the meetings;
2. notices to be sent by email to creditors where the administrators had the creditor’s email address;
3. a single committee of inspection (COI) to be formed for the Virgin Companies which would be selected by the administrators in the first instance from creditors who nominate and which would subsequently be ratified by the creditors;
4. the meetings of the COI to be held by telephone or audio-visual conference only and for members of the COI to receive notices by email;
5. the administrators to have 10 business days to respond to requests for information and the like from creditors, instead of 5 business days; and
6. the administrators to have 4 additional weeks to give notice to lessors of property possessed by the Virgin Companies as to whether they intended to give up or retain the property before the administrators would become personally liable for obligations under those leases pursuant to ss 443A(1)(c) and 443B(2) of the Act.

On 24 April 2020, the Court (Justice Middleton) made orders giving effect to the administrators’ requests. The orders and the reasons underpinning them provide useful guidance to practitioners in the environment of COVID-19 and the flexibility that can be adopted in respect of usual processes in administrations.

Virtual meetings of creditors, proxies and notice by email

On the issue of only conducting a meeting of creditors by telephone or audio-visual conference, the Court considered Division 75 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (Rules), which addresses how meetings concerning companies in administration may be held. The administrators intended to specify their offices as the place of the meeting with a statement that no creditor could physically attend the meeting and that attendance would be by telephone or audio-visual conference only. His Honour concluded that the relevant rules in Division 75 would likely be satisfied by sending a notice of meeting addressed to creditors along the lines proposed by the administrators. In any event, an order was made authorising the administrators to proceed in this way to the extent not already permitted under the relevant provisions of the Rules.

However, it was held to be impermissible under the Rules to list the place for the meeting as ‘Virtual meeting only’, as had been done in relation to the notice of first creditor’s meeting that had been sent out before this decision. It was impermissible due to the references to a meeting ‘place’ in rules 75-15(1)(a), 75-30(1) and 75-35(1)(a) of the Rules. This non-compliance was cured by a separate order made under s 447A(1) of the Act and s 90-15 of the Insolvency Practice Schedule (Corporations), being Schedule 2 to the Act (Schedule).

Further orders were made permitting notices to creditors to be given by email where possible and to require creditors to submit special proxies no later than the second last business day before the day of the meeting to the extent that the creditor wished to participate in or vote on resolutions put to creditors at the meeting.

Committee of inspection

The administrators sought to amend the regime that ordinarily applies for voting on the formation of a COI and its members and sought a regime to be implemented that:

1. one COI would be appointed for all the Virgin Companies;
2. the proposed members of the COI would be selected by the administrators from nominations made before the first meeting of creditors (Proposal);
3. the creditors would have an opportunity shortly after the first meeting of creditors to vote yes or no to the Proposal (rather than voting on each member individually);
4. the creditors would not be permitted to object to the Proposal having been determined without a meeting of creditors (as would otherwise be permitted by reference to s 75-40(2)(d)(ii) of the Schedule);
5. the time for creditors to respond to the Proposal would be 5 business days (instead of the 15 business days provided in rule 75-130(3) of the Rules); and
6. if the Proposal was passed in accordance with rule 75-130(2) of the Rules, then the members of the COI would be those referred to in the Proposal; if the Proposal was not passed in accordance with rule 75-130(2) of the Rules, then the administrators would consider approaching the Court or convening another meeting of creditors to determine the members of the COI.

His Honour accepted the proposed regime to select the COI as an efficient way to proceed and concluded that the Court had the power to make orders giving effect to such a regime under s 90-15 of the Schedule. The Court also made orders for sending notices by email to members of the COI and for meetings of the COI to be conducted by telephone or audio-visual conference only.

Extension of time to respond to creditors’ requests

Given the large scale of the Virgin Companies’ business and the difficulties presented to the administrators in liaising with employees of the Virgin Companies during the COVID-19 pandemic, the Court made an order providing 10 business days for the administrators to respond to any requests by creditors made under ss 70-45 and 70-50 of the Schedule (instead of the 5 business days normally permitted under rule 70-1(2)(a) of the Rules).

Extension of period for the administrators to give notice to lessors of property

The administrators sought to extend the period within which they were required to give notice to lessors of whether the Virgin Companies intended to retain or give up leased property and correspondingly to extend the date from when they would become personally liable for the obligations under the leases. The request was based on the administrators having been unable to form a view on whether the Virgin Companies should remain in possession of the leased property and their need in the circumstances for more time than that set out in s 443B(2)(a) of the Act.

After considering relevant authorities on the question,[1] his Honour accepted the administrators’ position that they required further time to consider the ongoing value of property leased by the Virgin Companies and accepted the view that making the order was more likely to assist in achieving an outcome where the business could be sold or restructured as a going concern.

Critically, his Honour held that making the order was appropriate having regard to the best interests of the creditors of the Virgin Companies as a whole (including the lessors) and that, while ‘significant’, a 4 week extension was justified. Provision was also made for potentially adversely impacted lessors to apply to the Court to have the orders varied.

[1] Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 472; In the matter of Mothercare Australia Limited (administrators appointed) [2013] NSWSC 263.