Virgin Atlantic Airways Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Trower |
| Judgment Date | 04 August 2020 |
| Neutral Citation | [2020] EWHC 2191 (Ch) |
| Court | Chancery Division |
| Docket Number | No. CR-2020-003222 |
| Date | 04 August 2020 |
In the Matter of Virgin Atlantic Airways Lmited
and
In the Matter of the Companies Act 2006
[2020] EWHC 2191 (Ch)
Mr Justice Trower
No. CR-2020-003222
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Rolls Building
Fetter Lane
London EC4A 1NL
Mr D. Allison QC, Mr R. Perkins and Ms L. Pyper (instructed by Allen & Overy LLP) appeared on behalf of the Applicant Company.
( via Skype)
( )
This is an application by Virgin Atlantic Airways Limited (“the Company”) under s.901C(1) of the Companies Act 2006, for an order summoning meetings of certain of its creditors (“the Plan Creditors”) for the purpose of considering and, if thought fit, approving a compromise or arrangement within s.901A of the Act (“the Restructuring Plan”).
The Company is incorporated in England and Wales, and operates an international airline based in the United Kingdom. It has thirty-five aircraft and, in normal times, carries approximately 6 million passengers a year and has several thousand employees. Its principal operating centres are at Heathrow and Gatwick Airports, but it also has operations based in Manchester, Glasgow and Belfast. It is a wholly owned subsidiary of Virgin Atlantic Limited, 49 per cent of which is ultimately beneficially owned by Delta Airlines Inc and 51 per cent of which is ultimately beneficially owned by Sir Richard Branson, through Virgin Investments Limited (“VIL”).
The financial position of the group of which the Company forms part has been severely affected by the COVID-19 pandemic, which has caused major disruption to the entire aviation industry. The impact on the group's business has been dramatic, with a reduction in bookings of 89 per cent year on year. The current demand is only 25 per cent of 2019 levels. This continues to be the case for the Company, because although the group resumed passenger flights to certain destinations from 20 July, the evidence is that demand is likely to remain low for some time and the Company does not expect to resume normal passenger flight operations before December of this year.
The liquidity crisis to which the Company is subject as a result of the COVID-19 pandemic means that, absent both a restructuring and an injection of new money, it is projected that the group's cash flow will drop to a critical level by the week commencing 21 September. One of the issues that gives rise to particular concern is that the rights of certain bondholders to commence an enforcement process over the Company's landing slots at Heathrow Airport are triggered when the free cash drops below $75 million, which is projected to happen in mid-September. There is a real risk that this development would ultimately destroy the group's business. Furthermore, the cash shortage is such that, absent a recapitalisation including an injection of new money, the group will run out of cash altogether by 28 September. If this were to be the outcome, the Company's directors are of the view that administration in mid-September 2020 would be inevitable. The evidence is that, in the event of administration, the ultimate return for unsecured creditors would be substantially less than the return that they would receive under the proposed Restructuring Plan.
The Restructuring Plan is part of a broader recapitalisation designed to reduce the group's debt to a sustainable level, with a restated repayment profile that, together with the provision of new liquidity, would enable the group to trade into the foreseeable future. The Company's directors consider that, with the benefit of the new monies being provided as part of the broader recapitalisation, the Restructuring Plan will enable the Company to trade as a going concern.
There are four categories of creditors with which the Restructuring Plan is concerned (i.e. the Plan Creditors), with claims totalling in the region of £1.5 billion. The Company proposes that a separate class meeting for each of them should be summoned under s.901C(1).
The first category of creditors are the lenders under a US $280 million multicurrency secured credit facility dated 17 January 2018 (“RCF”), which is governed by English law and interest on which is payable at LIBOR or EURIBOR plus 1.75 per cent. These creditors are called the “RCF Plan Creditors”. The security they hold is over aircraft and aircraft engines. The RCF has been fully drawn since 20 March this year.
The second category of creditors are the lessors of twenty-four aircraft under various English law governed operating leases, maturing between March 2021 and January 2034. The sums outstanding to them in respect of existing and future liabilities amount to some US $1.25 billion. These creditors are called the “Operating Lessor Plan Creditors”.
The third category of creditors are connected parties who are creditors of the Company through a number of licence, joint venture and service agreements together with a credit facility, all of which are governed by either New York law or English law. There is a sum of £400 million sterling outstanding under these arrangements. They are called the “Connected Party Plan Creditors”.
The fourth category of creditors are unsecured trade creditors, where they are owed more than £50,000 as at 12 June 2020. Excluding certain categories, which I will come back to, they are called the “Trade Plan Creditors”. There are 168 Trade Plan Creditors who are identified by name or description in an appendix to the Explanatory Statement, and they are owed approximately £54 million in aggregate.
In broad terms, the main categories of excluded creditors include the creditors who provide goods or services essential for the continuation of the Company's business or to the implementation of the recapitalisation, but they extend a little wider than that. On the face of it they all appear to have been excluded for respectable commercial reasons. I can summarise the principal categories as follows
a. The first, to which I have already alluded, are the more than 1,000 creditors with claims of under £50,000, the inclusion of which would have given rise to significant logistical difficulties. The aggregate amount owed to them is approximately 10 per cent of the aggregate owed to Trade Plan Creditors generally.
b. The second are public bodies with claims for liabilities such as air traffic control charges, together with insurance companies where the Company might otherwise be at risk.
c. The third broad category are creditors such as sales agents, whose continuing goodwill is essential to the continuation of the business, and other advisers and suppliers, whose continuation of services or supplies is essential to the continuation (and in some respects safety) of the Company's operations.
d. The fourth category are suppliers with whom the Company has already reached agreement for a compromise of their claim at or below the level for which the Restructuring Plan provides.
Apart from those Trade Creditors which are excluded from the description of Trade Plan Creditors for the purposes of the Restructuring Plan, the Company has other creditors and finance providers whose claims against it, or whose relationships with it, are being compromised by separate bilateral agreements entered into under the broader recapitalisation. These arrangements are described in Part A, para.7 of the Explanatory Statement, and I can summarise them as follows.
a. The lessors and lenders under eight finance lease agreements and their associated finance lease facility agreements. As at the end of June, the Company had substantial liabilities under these agreements totalling almost US $1 billion. Initially these creditors were to be included in the Restructuring Plan, but they have now all agreed to the Company's proposals and, because of the potential complexities of including them in the scheme, it is no longer intended that their rights should be compromised under the Restructuring Plan.
b. The second category of interested parties are bondholders under a slot securitisation, for whose benefit the Company's legal title to twenty-one summer and twenty winter slot pairs at Heathrow Airport can be required to be transferred to a special purpose vehicle, Virgin Atlantic International Limited (“VAIL”).
c. The third category is a group of credit card acquirers, whose claims arise out of certain arrangements under which the Company is potentially liable to reimburse them for amounts collected from the customer on the original sale. I understand that this potential liability amounts to approximately £350 million but has been rearranged pursuant to a support agreement, details of which, like the other details of support arrangements, are give in the Explanatory Statement.
There are then a number of other miscellaneous liabilities including potential liabilities to counterparties under hedging arrangements and...
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