Virgin Australia entered voluntary administration today with the aim of finding a “stronger financial position” after the pandemic. The airline failed to secure a federal government bailout after finding themselves in AUS$4.8 billion debt. But what does the term ‘voluntary administration’ mean? And what does the situation mean for Virgin Australia customers?
Express.co.uk has the answers.
What does voluntary administration mean?
According to Company Rescue, Voluntary administration is an Australian term for administration.
The website says: “In UK law, the term is a bit of mix up of the two main rescue insolvency processes; administration and a company voluntary arrangement.
“Of course, the directors can opt to appoint administrators voluntarily and they have that power to protect their position.
“The process is started by filing a notice of intention to appoint administrators at the court.”
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The site explains: “An administration must have a purpose in that it has to achieve a better result than liquidation.”
This is what Sir Richard Branson, founder of Virgin Australia, hopes to gain.
Virgin Australia’s administrators are called Deloitte.
“One way that this can be achieved is by exiting the administration via a CVA.
“This is where the company is put into administration first as a way of protecting the company against legal actions and then the company agrees to pay a proportion of the debts over a few years in a CVA.
“It is the administrator that proposes the CVA.
“There is no nominee as the administrator takes that position.
“If the CVA is accepted then control of the business is handed back to the directors with the administrator as a supervisor.”
What does going into administration mean?
The Company Rescue explains that administration is a tool used to protect a business against legal actions if it is insolvent and financially struggling.
It says: “The company is taken over by appointed administrators to review the business and decide on a restructuring plan.
“The business can be put on the market to find a potential buyer as a going concern.
“There is usually a sale of all or parts of the business and assets.
“If the previous directors or third party are interested in buying back the business, this can be done in a pre-pack administration deal.
“The business is bought at the same time as administrators are appointed, resulting in a quick and efficient process.”
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How did Virgin Australia go into administration?
The collapse of Virgin Australia would have been avoided if the federal government had given the airline a loan.
Virgin Australia asked for a $1.4bn loan from the government, and this could have been converted into shares.
However, on Tuesday the chief executive, Paul Scurrah, said that by Monday this had dropped to a request for $200m.
The Government rejected the requests.
On Monday, the Virgin board met and discussed their problems.
Amongst that was $4.8bn debt that needed to be repaid, cash spending of millions of dollars a day, and no government bailout.
The company decided to appoint Deloitte as administrators.
What will happen to Virgin Australia employees?
Scurrah has confirmed that there will be no redundancies and all Virgin employees will keep their jobs during the administration period.
Most of the employees are stood down and will have access to the government’s jobkeeper scheme.
This is made available when companies lose half of their revenue.
These employees will receive $1,500 a fortnight.
Jobs aren’t guaranteed when the company is bought out, though.
What will happen to my frequent flyer miles with Virgin Australia?
Velocity is the Frequent Flyer program for Virgin Australia.
You can normally use Velocity points on flights, cars, hotels, products, gift cards, and wine.
This is complicated since Velocity is a separate company that is not going into administration.
However, Velocity has frozen its redemptions for four weeks starting today.
Scurrah said Velocity points are still valuable, but there will be a “pause” on using the points on Virgin flights for now.
He added: “That business is well structured, it has a trustee, a separate CEO and we’ll be working with them as we go through this process.
“I think it’s also important to say on Velocity that there is a trust in place that has cash backing for the points.”
However, the new buyer may have other plans and what the points will be worth is unclear.
What happens to flights I’ve already booked with Virgin Australia?
It’s unclear when Virgin Australia will be flying again, but Scurrah said people with bookings should “expect to fly” once travel restrictions are lifted.
For now, it seems that customers are only entitled to cancel their flights in exchange for travel credit.
The website says: “Due to the current unprecedented situation regarding COVID-19 (coronavirus), your right to obtain a refund or compensation in respect of flight cancellations may be impacted during this time.
“We have created a dedicated page to let you know how we can assist you during this time.”
Find the page here.
What happens to my Virgin Australia credits for flights cancelled?
For now, your flight credits are safe.
Scurrah said that there is no intention to cancel flight credits.
He added that the goodwill associated with he credits will be worked through with interested parties.
Who is going to buy Virgin Australia?
There are more than 10 interested parties, said a representative for Deloitte.
Names that have been thrown into the mix include Ben Gray’s private equity firm, BGH Capital, and Etihad.
The Queensland government has offered support, as long as the airline keeps its HQ in the state.
The New South Wales treasurer is also in talks with Virgin Australia and Deloitte, and would probably want the airline to have roots in Western Sydney.
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