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Virgin wins landmark appeal against aircraft lessors

written by Hannah Dowling | March 18, 2022

Virgin Australia aircraft line up at Melbourne’s Tullamarine at the start of the pandemic. (Victor Pody)

Virgin Australia has won its appeal in the High Court on Thursday against US aircraft lessors Wells Fargo and Willis Lease Finance, after refusing to spend $500,000 delivering four aircraft engines to Florida.

The lessors sought to recover the engines when Virgin entered administration in April 2020, to which administrators Deloitte agreed – however, refused to foot the bill to transfer the engines back to US soil.

While Wells Fargo and Willis Lease Finance ultimately collected the engines from Australia, the US companies took the matter to the Federal Court, starting a months-long battle to determine if Virgin was under any legal obligation to pay for the delivery of the repossessed goods.

In September 2020, Federal Court Justice John Middleton ruled in favour of the US lessors, with Virgin quickly lodging an urgent appeal against the decision.

The appeal was successful, with the Full Federal Court ruling that Justice Middleton has misinterpreted the term to “give possession”.

The US lessors then appealed this decision to the High Court of Australia, which this week ruled in Virgin’s favour in a world-first ruling.

The High Court found that under the Cape Town Convention’s aircraft protocol, the airline’s only obligation to the lessor was to provide an opportunity to take control of the repossessed engines in Australia.

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The ruling could have significant implications for future cases between aircraft lessors and airline insolvency matters worldwide, according to the law firm that represented Virgin.

“It found that the administrators’ invitation to Willis to take control of the aircraft engines where they were situated in Australia fulfilled the obligation to ‘give possession’ imposed by the protocol,” said Clayton Utz partner Timothy Sackar.

Sal Algeri, Deloitte’s national restructuring leader, said the firm was happy with the outcome, which also saw all court costs awarded to the administrators.

Algeri also noted that a ruling against Virgin in this matter would have likely seen other lessors chase similar outcomes, which would have ultimately resulted in a significantly lower return to Virgin’s unsecured creditors.

“The amount that would be attributed to returning all of these aircraft components and aircraft back to the lessor, would’ve been a substantial cost which would’ve ranked ahead of the unsecured creditor pool,” Algeri said.

“They would’ve had first access to the funds, and it would’ve heavily diluted or reduced the distribution that would ordinarily go to unsecured creditors.”

Despite the win, Virgin’s court battles are far from over, with another Federal Court case involving an additional 17 aircraft lessors still ongoing.

These lessors have appealed payment arrangements implemented by Deloitte, arguing they should be entitled to more money than what was offered.

“We’re effectively waiting for these matters to be resolved until we can pay creditors,” Algeri added.

“We need to have certainty around what the creditor pool is, and how we allocate the funds that we have in that pool.”

Comment (1)

  • Malcolm Davies

    says:

    I wouldn’t get over excited over this decision-its the sort of thing the administrators/liquidators can get away with once.
    Next time there will be a requirement for a security deposit to be in place to cover the cost.

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