ABC article link here:
https://www.abc.net.au/news/2020-08-...-vote/12592742
Given the 'Solvency' issue is starting to get a run in 'some' media outlets- some 'brief' extracts ex the appropriate area/s of today's Report to Creditors, 'should' it be of interest- if Not, that is cool... as well.
rgds all
S28- BE
Extract (
Bolding/and underline) ex the Report to Creditors:
Section 6.4- Insolvent trading (section588G) /
Extract #1:Amended section 588G (page 58)
On 25 March 2020,the Coronavirus Economic Response Package Omnibus Bill 2020 received Royal Assent, which inserted section588GAAA into the Act. section588GAAA provides relief for directors from potential insolvent trading during a six month period from 25 March 2020. To be able to rely on these measures, the debt incurred must be incurred:
•In the ordinary course of business; and
•During the six-month period commencing 25 March 2020.
The Explanatory memorandum to the above bill explains that a director is taken to have incurred a debt in the ordinary course of business if it is necessary to facilitate the.continuation of the business.
Extract #2: 6.4.1 -
Administrators’ conclusions regarding solvency: (pages 59 & 60):
Government support may be considered as a ‘lender of last resort’ and as this funding was not committed, the Virgin Group could not rely upon it as an available source of capital to maintain solvency. Furthermore, when combined together with the following indicators of insolvency, we have formed the view that the Virgin Group was insolvent from 22 March 2020 and possibly as early as 18 March 2020 when the imposed travel restrictions caused the Virgin Group to no longer be a sustainable going concern:
•Continuing losses–as detailed at section 6.4.3 the Virgin Group made losses before tax of $763.5m for 2HFYTD20, $902m for the period 1 July 2019 to 30 April 2020 and $424.5m for FY19.
•Working capital–as detailed at section 6.4.5 the Virgin Group’s current ratio and adjusted current ratio declined from January 2020 up until administration.
•Trade creditors–as detailed at section 6.4.6 the Virgin Group trade creditor aging and overall trade creditors increased from January 2020 up until the start of the voluntary administration. •Access to funding–by seeking government support, the Virgin Group was acknowledging its existing cash, receivables and loan facilities were insufficient.
•Ability to raise capital–as detailed above, Virgin Group had acknowledged that traditional forms of debt and/or equity were likely to be unavailable when it sought government support. Morgan Stanley had advised the Board that conventional debt and equity funding was unavailable. The Major Shareholders had also indicated their inability to assist.
The possibility of government support, whilst it cannot be treated as an available funding source for the purposes of assessing solvency, is relevant to the availability of defences to Directors and this is discussed at section 6.4.8. As section 588GAAA came into effect on 25 March 2020, it provided effective relief to the directors from insolvent trading from this date. We have not seen anything to suggest the debts incurred after section 588GAAA came into operation do not fall within the requirements of that section.There are therefore possibly only three days from 22 March to 24 March 2020 when the Virgin Group was potentially trading whilst insolvent. This is discussed further at section 6.5.3.1.
There exist potential defences available to the Directors as discussed at section 6.5.3. On the assumption that defences were not available, our preliminary analysis is that the potential loss to creditors is approximately $17m to $35m, depending upon whether the date of insolvency is 22 March 2020 or 18 March 2020 respectively, representing our estimate of new trading liabilities incurred up to 25 March 2020, being the commencement date of section588GAAA and the protection it provided to directors from prosecution from trading a company while insolvent. .......................