Virgin Australia bondholders fail to derail sale to Bain

Virgin Australia’s sale to Bain Capital is a done deal, the Federal Court has found.

Virgin Australia aircraft parked at Brisbane Airport. Picture: Patrick Hamilton/AFP

A bid by bondholders to disrupt the sale of Virgin Australia has been shot down by the Federal Court, in a move welcomed by prospective new owners Bain Capital.

Two key bondholders, Broad Peak Investment Advisers and Tor Investment Management, had sought court orders to allow their proposal for the airline to be put to creditors for a vote.

The firms were hoping their deed of company arrangement (DOCA) would be preferred by creditors over that of Bain Capital, handing them a better return on their investment in the airline.

Their barrister, Ian Jackman, argued his clients were lawfully entitled to propose an alternative DOCA and have it voted on by creditors at the next meeting on September 4.

But the barrister for the administrators, Dr Ruth Higgins, said there was a binding deal between Deloitte and Bain Capital that made the bondholders’ bid futile.

“There is a not a circumstance in the procedures as we understand it for the bondholders’ DOCA to be voted on at that second meeting and we want to avoid the impression that could occur,” Dr Higgins told the court.

She said under the agreement signed with Bain, if their DOCA was not supported by creditors, the deal would still go ahead as an asset sale.

“The structure of the arrangement is the sale will be implemented either via a transfer of shares to Bain if the creditors vote in favour of the Bain DOCA or by way of an asset sale,” Dr Higgins said.

She said the bondholders had an opportunity to challenge the sale before the deal was signed on June 26.

“When we came before you on July 10, I said the power of sale has been exercised and the bondholders will have to submit to set that aside if they are to continue,” Dr Higgins said.

“There was a time and a place if the bondholders sought to challenge the sale and it was some time ago. The bondholders were on notice that a sale was to occur by the end of June.”

Barrister for Bain Capital, James Peters, was more scathing of the bondholders’ bid, saying they seemed to be suggesting the second creditors meeting should “trump the administrators’ valid power of sale”.

“There is no coherent argument being put, let alone any argument that the administrators have done the wrong thing by entering into this agreement,” Mr Peters said.

“The administrators wouldn’t have had a purchaser, they wouldn’t have had an ongoing administration without Bain committing on the basis of a final, binding and exclusive transaction.”

After hearing arguments from all sides, Judge John Middleton said: “The application is rejected. There’ll be no orders made for a ballot.”

Any alternative proposals would be included in the report to creditors due on August 25 but could not be the subject of a vote, Dr Higgins said.

A spokesman for Bain Capital said the decision to dismiss the bondholders’ application in its entirety was welcome.

“Bain Capital’s key focus is getting through administration to ensure Virgin Australia fights another day and has the chance to rebuild.

“We all want a stronger, more profitable and competitive Virgin Australia coming out of voluntary administration, and will continue to focus on making that happen,” he said.