The administrators of the stricken airline Virgin Australia have asked a court to approve a scheme to once again start offering flight credits, which they put on ice after taking control of the company a fortnight ago.
But the proposal stops short of paying the approximately 340,000 requests for a refund received since the administrators, partners at the big accounting firm Deloitte, took office.
The flight credit plan is one of a series of requests the administrators have made of the federal court in an attempt to avoid or reduce personal liability for debts Virgin Australia continues to run up as most of its 140 planes sit idle on the tarmac.
In an affidavit filed with the court, the lead administrator, Vaughan Strawbridge, also said 19 interested parties were poring over Virgin’s financial data, and asked for extra time to hold a second meeting of creditors so that they can be presented with a concrete offer to buy the airline.
Preliminary bids are due on Friday, and binding offers by 12 June. None have yet been received, Strawbridge said.
Under insolvency law, administrators are usually responsible for all the debts a company runs up while they are in charge of it.
But in documents filed with the court, the administrators said they also wanted to reduce their liability for payments to suppliers, aircraft-leasing companies and to the holder of the Virgin trademark, Richard Branson.
They also want to avoid personal liability for payments under the federal government’s coronavirus wage relief subsidy, jobkeeper.
More than 8,200 of Virgin Australia’s 10,000 employees have claimed a total of $24.8m in jobkeeper payments, the administrators told the court.
Avoiding personal liability for the debts the airline accumulates would enable the administrators to continue to operate it in the run-up to any sale.
Strawbridge said Virgin Australia had cancelled 6,400 flights as a result of the coronavirus pandemic and the “inability of the Virgin companies to pay refunds or offer credits at present puts them at a competitive disadvantage”.
“In this regard, I note that the inability of the administrators to pay refunds to customers who booked their tickets before the Virgin companies entered into administration has been the subject of recent media coverage,” he said, pointing to a Guardian Australia article on the issue.
He said offering flight credits was also “necessary to preserve as much goodwill associated with the Virgin brand and business as possible for a buyer”.
In addition, he said he was mindful of the Australian Competition and Consumer Commission’s “expectation that customers who have experienced travel cancellations will receive a refund or other remedy such as a credit note or voucher”.
The proposal would allow customers to book new flights but would not allow them to get cash refunds.
Strawbridge said customers would be no worse off because if they weren’t able to get a flight credit they would become unsecured Virgin creditors and would be “unlikely to receive a 100% refund on any restructuring or upon liquidation” of the group.
He said he had also asked for a new deal with companies from which Virgin leases more than 110 aircraft at a cost of about $40m a month.
“Because of the covid-19 travel restriction period, only approximately 50 of the aircraft are presently operational with approximately 27 of those aircraft generating revenue at any one time (principally for charter arrangements and otherwise for limited domestic travel),” he said.
A second meeting of creditors is due to be held on 25 May, but Strawbridge asked the court to extend this to 25 August.
He said the affairs of the group were complex and selling the airline as a going concern offered a chance of better returns to creditors owed $6.8bn than winding up the company.
The administrators hoped to strike a deal with a suitor by 21 June so that it could be presented for approval to a creditors’ meeting in early August, he said.
