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Virgin bondholders file class action suit against management

written by Hannah Dowling | May 13, 2022

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

Former Virgin Australia bondholders have filed a class action suit against the airline’s former and current directors and senior executives in the Federal Court, after months of speculation.

The lawsuit alleges that Virgin Australia, along with former CEO Paul Scurrah and former chairman Elizabeth Bryan, failed to disclose crucial financial information from a 2019 prospectus, including on the airline’s ability to meet its loan obligations.

Virgin stated it is aware of the legal proceedings, however “does not expect any financial consequence to the company from these proceedings”, as it was extinguished of any such responsibility during its sale to Bain Capital in November 2020.

It comes after unsecured creditors, including bondholders, received between just nine and 13 cents on the dollar on their investment following the sale of Virgin Australia to Bain Capital in 2020.

The lawsuit is being driven by Melbourne-based law firm Corrs Chambers Westgarth and funded by London-based Balance Legal Capital, who previously called on anyone who purchased unsecured notes in Virgin Australia following the 2019 prospectus to take part in the class action.

Corrs Chambers Westgarth also previously provided advice to bondholders during Virgin’s voluntary administration.

According to a report by The Australian, the class action alleges that Virgin failed to disclose its true financial position in the prospectus, ahead of its planned $700 million capital raise to fund its acquisitions of the Velocity Frequent Flyer program.

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Investors were invited to buy unsecured notes at $100 per note, and a minimum of 50 notes.

It is claimed that while the prospectus noted that Virgin had incurred losses over the past three financial years, it also pointed to numerous measures being executed to return to profitability, including an organisation restructure planned to cut $75 million off annual costs, and a supplier review intended to cull costs by a further $50 million per year.

However, less than six months after the capital raise, the COVID pandemic hit, and Virgin filed for voluntary administration in April 2020 with debts in excess of $7 billion. It is thought around $2.1 billion of this debt is allocated to bondholders.

Virgin Australia bondholders famously made numerous attempts to secure the sale of the airline themselves, after Bain Capital became administrator Deloitte’s top pick in the race.

In June 2020, bondholders broke cover to launch their sensational attempt to wrestle control of the airline from the two remaining bidders, Bain Capital and Cyrus Capital Investments.

Sydney advisory Faraday Associates lodged the proposal with administrator Deloitte three days after the official bidding process ended.

The offer involved $800 million to recapitalise the business and $125 million to keep it alive during the administration process.

Faraday Associates, which is representing the bondholders, said in a statement, “Our plan offers a sustainable capital structure underpinned by public ownership to provide certainty and support the strong operating plan for the airline.”

Bondholders later lost a bid in Federal Court to obtain access to secret details of Bain’s “winning” bid approved by administrator Deloitte, and later increased their offer to secure the airline.

However, by August, they admitted defeat, with Bain’s deal rubber-stamped by creditors in September.

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