The future of VARA?
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I'll very happily be corrected here but having had the time now to read the various submissions, applications and affidavits relating to VAH Newco 2 and, by connection, VARA, this whole thing appears to be the corporate equivalent of shutting down the wrong engine when confronted with an engine fire. In effect, VARA had been placed into liquidation by mistake.
The sequence of events seems to have been along the following lines. When the Board decided to place Virgin Australia Holdings Limited, the parent company, into administration and Deloitte stepped in, decisions needed to be made regarding each of the vast array of companies and trusts controlled by VAH. There were about 55-odd such companies and five trusts. On the basis that some of those entities were likely set up for special purposes that may now have lapsed you'd routinely expect that some of those companies were dormant - no assets or liabilities, essentially just a corporate shell. However, being registered companies each had to have one or more directors.
First thing that the administrator wants to do is clear the decks of extraneous work - they need to decide what's going to be administered by them, what doesn't need to go into administration and what can be wound up to get it off the books. So Strawbridge et al would have asked management, Scurrah and Co, to identify the operational businesses. We know from the initial affidavits that were filed that of the 55-odd companies, 39 were nominated for voluntary administration. On that list of 39 was VARA. We also know that Velocity (the five companies associated with it) was not placed into administration. That left about 15-odd entities, notionally just dormant shells, that were slated for liquidation. On that liquidation list was VAH Newco 2.
In keeping with the practice of both checking and confirming that you're shutting down the correct engine, there's an accounting equivalent for liquidation; you get confirmation via a declaration of solvency signed by the company's director(s). In the case of VAH Newco 2, that signed declaration of solvency came from Paul Scurrah and former CFO Geoff Smith (I can only assume that there was an incomplete handover to Keith Neate when he took the CFO position last year if Geoff Smith was still a director). Any old how, now armed with confirmation that they could liquidate VAH Newco 2, Deloitte set about doing so only to find that - hang on a minute - rather than being dormant with no assets or liabilities per the signed declaration of solvency, VAH Newco 2 in fact had both - it was the 100 percent shareholder of VARA and it was the guarantor for the best part of a AUD one billion in unsecured debt.
This latest round of submissions, applications and affidavits is seeking the reversal of the earlier decision to liquidate VAH Newco 2. The administrator now wants it and another entity, VB Investco, added to the list of companies under voluntary administration.
In the grand scheme of things I don't think that it changes anything much other than to underline the fact, to the extent that it needed to be underlined, that Virgin's management really didn't have a handle on their own corporate structure.
The sequence of events seems to have been along the following lines. When the Board decided to place Virgin Australia Holdings Limited, the parent company, into administration and Deloitte stepped in, decisions needed to be made regarding each of the vast array of companies and trusts controlled by VAH. There were about 55-odd such companies and five trusts. On the basis that some of those entities were likely set up for special purposes that may now have lapsed you'd routinely expect that some of those companies were dormant - no assets or liabilities, essentially just a corporate shell. However, being registered companies each had to have one or more directors.
First thing that the administrator wants to do is clear the decks of extraneous work - they need to decide what's going to be administered by them, what doesn't need to go into administration and what can be wound up to get it off the books. So Strawbridge et al would have asked management, Scurrah and Co, to identify the operational businesses. We know from the initial affidavits that were filed that of the 55-odd companies, 39 were nominated for voluntary administration. On that list of 39 was VARA. We also know that Velocity (the five companies associated with it) was not placed into administration. That left about 15-odd entities, notionally just dormant shells, that were slated for liquidation. On that liquidation list was VAH Newco 2.
In keeping with the practice of both checking and confirming that you're shutting down the correct engine, there's an accounting equivalent for liquidation; you get confirmation via a declaration of solvency signed by the company's director(s). In the case of VAH Newco 2, that signed declaration of solvency came from Paul Scurrah and former CFO Geoff Smith (I can only assume that there was an incomplete handover to Keith Neate when he took the CFO position last year if Geoff Smith was still a director). Any old how, now armed with confirmation that they could liquidate VAH Newco 2, Deloitte set about doing so only to find that - hang on a minute - rather than being dormant with no assets or liabilities per the signed declaration of solvency, VAH Newco 2 in fact had both - it was the 100 percent shareholder of VARA and it was the guarantor for the best part of a AUD one billion in unsecured debt.
This latest round of submissions, applications and affidavits is seeking the reversal of the earlier decision to liquidate VAH Newco 2. The administrator now wants it and another entity, VB Investco, added to the list of companies under voluntary administration.
In the grand scheme of things I don't think that it changes anything much other than to underline the fact, to the extent that it needed to be underlined, that Virgin's management really didn't have a handle on their own corporate structure.
That’s a convenient theory but unfortunately it is in black and white that VAH Newco 2 (VARA) is in default of its obligations in notes to the values of AU$400,000,000 and US$350,000,000 hence the insolvency trigger.
VAH Newco 2 is the sole shareholder of an entity called A.C.N. 098 904 262 Pty Ltd - it was one of the 38 business entities placed under voluntary administration when the overall parent company, Virgin Australia Holdings Limited, entered administration. A.C.N. 098 904 262 in turn holds 100 percent of shares issued by VARA. VARA was also one of the 38 business entities placed under voluntary administration when VAH entered administration.
All the recently filed submissions are looking to do is to move VAH Newco 2 onto the list of companies currently under administration. The applicant, Richard Hughes (Deloitte), is essentially saying look I was given the job of winding up some VAH companies that were thought to be dormant and solvent pursuant to section 491(1) of the Corporations Act 2001. In the course of my work I found that two of them - Newco 2 and Investco - weren't dormant or solvent so I cannot deal with them under section 491(1).
In his affidavit Hughes says that there are three options available for Newco 2 (and Investco) :
- wind them up in involuntary insolvency;
- appoint an administrator; or
- convene a meeting of creditors and obtain permission to wind them up in voluntary insolvency.
He recommends 2. appointing an administrator and further recommends that the administrator be the same as those handling the rest of the Virgin administration.
The guarantor status of Newco 2 on some of the notes is interesting but I don't think it changes much in the grand scheme of things. It's not like it's new debt - it's part of the approximately $1,988,250,000 in unsecured debt owed to bondholders that was identified from the get-go.
As for VARA, I cannot see any material impact. They had already been placed under voluntary administration when VAH entered voluntary administration. We had previously assumed that all the unsecured debt associated with the bonds was held against VAH, the ultimate owner of VARA. We now know that some of that debt is guaranteed by a VAH subsidiary - Newco 2 - and that Newco 2 sits in the chain of ownership that extends from VAH down to VARA.
If you think that the recent Newco 2 revelation has some more material impact, I'm all ears.
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'Mick'-
When does the Deed of Cross-Guarantee (DOCG) that is being relied upon in this instance, I 'believe'- get extinguished for that purpose.....????
And would appreciate being educated myself- do not get me wrong on that, at all.
Voluntary Admin or Liquidation (in this case)....????
ASIC link: https://asic.gov.au/regulatory-resou...ency_statement
Extract #1:
Extract #2:
What is the go- here, with this ??
With thanks & rgds
S28- BE
When does the Deed of Cross-Guarantee (DOCG) that is being relied upon in this instance, I 'believe'- get extinguished for that purpose.....????
And would appreciate being educated myself- do not get me wrong on that, at all.
Voluntary Admin or Liquidation (in this case)....????
ASIC link: https://asic.gov.au/regulatory-resou...ency_statement
Extract #1:
Common problems we have identified
Common problems we have identified
Common problems with deeds that we have identified include:
- Completion of Part 1 of the Schedule
- The deed contains typographical errors or incorrect Australian Company Numbers (ACNs) or Australian Registered Body Numbers (ARBNs)
- Deed incorrectly executed
- Alternative trustee has not been appointed and is required to be
- Solvency statement does not identify deed
- Companies under external administration
- Opt-in notice not lodged
Companies under external administration
Companies that are under external administration and any entities owned by such companies are not eligible for relief.With thanks & rgds
S28- BE
No, not really. Entering voluntary administration is usually undertaken on the assumption or knowledge that the business is or is about to become insolvent. And while just because a parent entity is insolvent doesn't necessarily mean that a subsidiary is insolvent, that's moot in this case because VARA was already under administration anyhow.
This particular matter is really just a clerical error. Newco 2 was assumed to have been dormant and solvent and able to be wound up as a simple desk top exercise. There's a reference in one of the filings to an understanding
that "the company be wound up voluntarily" and "that the remuneration of the Liquidator from the date of appointment to the date of completion is agreed at $4,500 exclusive of GST, being the amount calculated in the remuneration approval report dated 21 march 2019 and sent to the members"
A point that is worth reiterating though is that VARA was always part of the administration. The VARA Group, A.C.N. 098 904 262 and VARA itself, were the Nineteenth and Twentieth Plaintiffs on the original filing for voluntary administration. That business was always up for grabs as part of the sale process undertaken by the administrator.
"On 22 January 2020, the Companies obtained Foreign Investment Review Board (FIRB) approval for an internal reorganisation allowing for the transfer of shares in other entities in the Virgin Group that are held by the Companies (other than those in liquidation (and as identified above)), to VAAH. These actions were scheduled to occur this year but were put on hold due to the onset of the COVID-19 pandemic."
VAH
^
Newco 2 (100%)
^
VARA
VAH
^
Newco 2 (100%)
^
VARA
They couldn't have been too advanced with that work otherwise you would have expected that they would have picked up the fact that Newco 2 wasn't dormant.
Last edited by MickG0105; 30th Jul 2020 at 22:35. Reason: Note re VARA always being under administration
"They couldn't have been too advanced with that work otherwise you would have expected that they would have picked up the fact that Newco 2 wasn't dormant."
10. On 24 April 2019, Geoffrey Smith and Paul Scurrah, the directors of each of the Companies, signed declarations of solvency for the Companies (Declarations of Solvency). The Declarations of Solvency record that the Companies had no assets or liabilities as at 24 April 2019. Exhibited at Tabs 2 and 3 of Exhibit RJH-1 is a copy of the Declarations of Solvency for each of the Companies lodged with the Australian Securities and Investments Commission (ASIC) on 24 April 2019.
10. On 24 April 2019, Geoffrey Smith and Paul Scurrah, the directors of each of the Companies, signed declarations of solvency for the Companies (Declarations of Solvency). The Declarations of Solvency record that the Companies had no assets or liabilities as at 24 April 2019. Exhibited at Tabs 2 and 3 of Exhibit RJH-1 is a copy of the Declarations of Solvency for each of the Companies lodged with the Australian Securities and Investments Commission (ASIC) on 24 April 2019.
Separately, it is now clear that Scurrah and Smith in effect provided a false declaration. And Deloitte proceeded down the voluntary liquidation path for Newco 2 on the basis of that (false) declaration of solvency.
'Mick'-
When does the Deed of Cross-Guarantee (DOCG) that is being relied upon in this instance, I 'believe'- get extinguished for that purpose.....????
And would appreciate being educated myself- do not get me wrong on that, at all.
Voluntary Admin or Liquidation (in this case)....????
ASIC link: https://asic.gov.au/regulatory-resou...ency_statement
Extract #1:
When does the Deed of Cross-Guarantee (DOCG) that is being relied upon in this instance, I 'believe'- get extinguished for that purpose.....????
And would appreciate being educated myself- do not get me wrong on that, at all.
Voluntary Admin or Liquidation (in this case)....????
ASIC link: https://asic.gov.au/regulatory-resou...ency_statement
Extract #1:
Extract #2:
What is the go- here, with this ??
With thanks & rgds
S28- BE
Okey doke, S28, so my understanding of Deeds of Cross Guarantee is that they are largely used to simplify the reporting requirements for complex businesses. It is important to note that the 'guarantee' we're talking about here is not a financial guarantee - there's no implied cross guaranteeing of debts and liabilities - it's simply a cross-guarantee of some of the obligations under the Corporations Act 2001.
For example, DOCG allow Virgin (or any 'parent' company for that matter) to compile and lodge just one aggregated set of financial reports rather than having to present P&Ls and balance sheets for each of the individual subsidiary entities. DOCG don't absolve businesses from keeping the requisite accounting records at the subsidiary entity level they just don't have to report at that level.
That relief from reporting however does not persist under administration. The administrator needs to unpick the quilt into its individual threads and present P&Ls and balance sheets for each and every subsidiary entity. If the business's accounting systems have been set up properly that individual entity reporting requirement shouldn't be too onerous but the less of it that you have to do the better. It's one of the reasons why one of the first things that the administrator looks to accomplish is clearing the decks of any extraneous work by winding up however many dormant entities they can. Which is what led us to this Newco 2 matter.
Now, to a more mundane matter, how do you change font size?
Last edited by MickG0105; 31st Jul 2020 at 01:40.
Yes, that's a point I think that I touched on earlier. The fact that Geoff Smith was still a director is odd in of itself; you would have thought that any and all such directorships would have transferred to Keith Neate when he came on board.
Separately, it is now clear that Scurrah and Smith in effect provided a false declaration. And Deloitte proceeded down the voluntary liquidation path for Newco 2 on the basis of that (false) declaration of solvency.
Separately, it is now clear that Scurrah and Smith in effect provided a false declaration. And Deloitte proceeded down the voluntary liquidation path for Newco 2 on the basis of that (false) declaration of solvency.
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Yes, that's a point I think that I touched on earlier. The fact that Geoff Smith was still a director is odd in of itself; you would have thought that any and all such directorships would have transferred to Keith Neate when he came on board.
Separately, it is now clear that Scurrah and Smith in effect provided a false declaration. And Deloitte proceeded down the voluntary liquidation path for Newco 2 on the basis of that (false) declaration of solvency.
Separately, it is now clear that Scurrah and Smith in effect provided a false declaration. And Deloitte proceeded down the voluntary liquidation path for Newco 2 on the basis of that (false) declaration of solvency.
The dates of this whole mess seem very odd. It started back in March 2019, then nothing seems to have happened between April 2019 and Jan 2020, then it seemed to have been forgotten about until now? Its been a few days since i read the affidavit but all the debt in Newco 2 was prior to 2019, none was new debt from 2019 borrowings?
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Giday Mick-
Ta- so that deed is not being relied on to sustain 'Solvency', at this time/junction, thank-you.
Mate, I think both Mr 'Blackout' and yourself picked up the font escalation when you 'quoted' the original post- start afresh and all should be back to normal...????/ or copy and paste some preceding text down below the quoted piece and start again (to bring the formatting down)...
There will be folk here with more knowledge than I - have never hit it but, there is a 'Remove Format' ( Tx) button 2nd from the right on the tool bar above- good luck.
Thanks again
rgds
S28- BE
Ta- so that deed is not being relied on to sustain 'Solvency', at this time/junction, thank-you.
Mate, I think both Mr 'Blackout' and yourself picked up the font escalation when you 'quoted' the original post- start afresh and all should be back to normal...????/ or copy and paste some preceding text down below the quoted piece and start again (to bring the formatting down)...
There will be folk here with more knowledge than I - have never hit it but, there is a 'Remove Format' ( Tx) button 2nd from the right on the tool bar above- good luck.
Thanks again
rgds
S28- BE
Keith Neate only re-joined VA in September 2019. Geoff Smith was still CFO in April 2019.
The dates of this whole mess seem very odd. It started back in March 2019, then nothing seems to have happened between April 2019 and Jan 2020, then it seemed to have been forgotten about until now? Its been a few days since i read the affidavit but all the debt in Newco 2 was prior to 2019, none was new debt from 2019 borrowings?
The dates of this whole mess seem very odd. It started back in March 2019, then nothing seems to have happened between April 2019 and Jan 2020, then it seemed to have been forgotten about until now? Its been a few days since i read the affidavit but all the debt in Newco 2 was prior to 2019, none was new debt from 2019 borrowings?
"It is important to note that the 'guarantee' we're talking about here is not a financial guarantee - there's no implied cross guaranteeing of debts and liabilities"
- VAH Newco 2 is a guarantor of the following notes (Notes) issued by VAH: Hughes Affidavit at [20(d)]:
(i) VAH Unlisted 2018 Notes: AUD$150,000,000 (face value) of 8.25% unsecured Fixed Rate Notes issued by VAH on 30 May 2018 and due for repayment on 30 May 2023; - (ii) VAH Unlisted 2019 Notes: AUD$250,000,000 (face value) of 8.075% unsecured Fixed Rate Notes issued by VAH on 5 March 2019 and due for repayment on 5 March 2024; and
- (iii) USD 2016 Senior Notes: USD$350,000,000 (face value) of 7.875% Senior Notes issued by VAH and due for repayment on 15 October 2021.
- VAH Newco 2 is currently in default of the obligations in the Note Deed Poll dated 17 May 2018 (which governs the VAH Unlisted 2018 Notes and the VAH Unlisted 2019 Notes) and the Indenture dated 17 October 2016 (which governs the USD 2016 Senior Notes) because of the appointment of administrators to the Virgin Companies: Hughes Affidavit at [20(d)].
The fact that Newco 2 is the guarantor for three tranches of unsecured notes issued by VAH is not in dispute.
If you want to get into the nuances of Deeds of Cross Guarantee - https://www.keypointlaw.com.au/keynotes/guarantee/
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Giday Mr Blackout & MickG-
For, the sake of 'Clarity' (and 'probably' should have referenced the source material earlier and how the question/view formed for myself- my BAD, but do not have- the time...!!!!).
THE "POINT" being- the Submission/s of 1x 'Richard Hughes' in his Capacity as 'Liquidator'-
Link to said 'Submission' to the Court here: https://www.fedcourt.gov.au/__data/a...on-2872020.pdf
Extract (Bolding):
And on it goes....
Does, 'that' make sense- "each other entity to the DOCG is liable for its debts".......????, and 'that' therefore- for me, triggered 'the Solvency' question.
Then- 'when' does that Deed of Cross-Guarantee expire... vis, the 'process' and resultant Test of Solvency..???
Many thanks- and All the Best
rgds
S28- BE
For, the sake of 'Clarity' (and 'probably' should have referenced the source material earlier and how the question/view formed for myself- my BAD, but do not have- the time...!!!!).
THE "POINT" being- the Submission/s of 1x 'Richard Hughes' in his Capacity as 'Liquidator'-
of each of VAH Newco No.2 Pty Ltd (in liquidation) and VB Investco Pty Ltd (in liquidation)
Extract (Bolding):
#14. While it was initially thought that the Companies were dormant entities with no liabilities, Mr Hughes now understands that:
(a) VB Investco and VAH Newco 2 is each a party to a deed of cross-guarantee dated 18 June 2007 (DOCG), including with certain other companies in the Virgin Group, which provides that upon the winding up of an entity to the DOCG (either in insolvency or as a creditor voluntary winding up), each other entity to the DOCG is liable for its debts: Hughes Affidavit at [19(c)]and [20(c)]; Exhibit RJH-1 at Tabs 14 and 15; and
(b) VAH Newco 2 is a guarantor of the following notes (Notes) issued by VAH: Hughes Affidavit at [20(d)]......
(a) VB Investco and VAH Newco 2 is each a party to a deed of cross-guarantee dated 18 June 2007 (DOCG), including with certain other companies in the Virgin Group, which provides that upon the winding up of an entity to the DOCG (either in insolvency or as a creditor voluntary winding up), each other entity to the DOCG is liable for its debts: Hughes Affidavit at [19(c)]and [20(c)]; Exhibit RJH-1 at Tabs 14 and 15; and
(b) VAH Newco 2 is a guarantor of the following notes (Notes) issued by VAH: Hughes Affidavit at [20(d)]......
Does, 'that' make sense- "each other entity to the DOCG is liable for its debts".......????, and 'that' therefore- for me, triggered 'the Solvency' question.
Then- 'when' does that Deed of Cross-Guarantee expire... vis, the 'process' and resultant Test of Solvency..???
Many thanks- and All the Best
rgds
S28- BE
Giday Mr Blackout & MickG-
For, the sake of 'Clarity' (and 'probably' should have referenced the source material earlier and how the question/view formed for myself- my BAD, but do not have- the time...!!!!).
THE "POINT" being- the Submission/s of 1x 'Richard Hughes' in his Capacity as 'Liquidator'-
Link to said 'Submission' to the Court here: https://www.fedcourt.gov.au/__data/a...on-2872020.pdf
Extract (Bolding):
And on it goes....
Does, 'that' make sense- "each other entity to the DOCG is liable for its debts".......????, and 'that' therefore- for me, triggered 'the Solvency' question.
Then- 'when' does that Deed of Cross-Guarantee expire... vis, the 'process' and resultant Test of Solvency..???
Many thanks- and All the Best
rgds
S28- BE
For, the sake of 'Clarity' (and 'probably' should have referenced the source material earlier and how the question/view formed for myself- my BAD, but do not have- the time...!!!!).
THE "POINT" being- the Submission/s of 1x 'Richard Hughes' in his Capacity as 'Liquidator'-
Link to said 'Submission' to the Court here: https://www.fedcourt.gov.au/__data/a...on-2872020.pdf
Extract (Bolding):
And on it goes....
Does, 'that' make sense- "each other entity to the DOCG is liable for its debts".......????, and 'that' therefore- for me, triggered 'the Solvency' question.
Then- 'when' does that Deed of Cross-Guarantee expire... vis, the 'process' and resultant Test of Solvency..???
Many thanks- and All the Best
rgds
S28- BE
Based on the information that Hughes uncovered Newco 2 and Investco need to be treated as insolvent. Hughes's recommendation was that they both be placed under administration the same as the other 39 Virgin entities. That's what his application sought and it's what Middleton J ordered in response to that application (see an earlier post by Blackout with the link to the order).
This little diversion is now essentially done - there are now 41 entities under administration, and the caravan rolls on.
No idea - there's just not enough publicly available data to say one way or the other. Any assessment would be a guess. The fact that the FIFO stuff continued to run while everything else was on the ground can be viewed instructively but only in the context that that's just a part of VARA.
That winding up now needs to be formally halted (stayed), hence the 482(1) order. The business's status needs to be formally amended from 'In liquidation' to 'Administrators Appointed'.
The whole sorry mess is just a shonky shell game with a net value of -$6.8 billion. Wind it all up and get the employees some entitlement. Virgin is a dead duck limping. Don’t let these crooked administrators take any more fees for doing essentially nothing.
good one ********
