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A media appearance by the former chairman of Virgin Australia, in which she said Virgin was “over-leveraged” ahead of entering voluntary administration, has been raised as evidence in an ongoing class-action suit by former bondholders.
Virgin’s ex-chairman Elizabeth Bryan made the comments on ABC’s Four Corners program in mid-2020, following the collapse of the airline, which the bondholder’s legal team claims prove she knew Virgin’s financial position was not as strong as suggested in a 2019 notes prospectus.
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Investors were invited to buy unsecured notes at $100 per note, and a minimum of 50 notes.
It comes just days after former Virgin bondholders filed a class-action suit in the Federal Court, which alleges that Virgin failed to disclose its true financial position ahead of its planned $700 million capital raise to fund its acquisition of the Velocity Frequent Flyer program.
According to The Australian, court documents allege that Bryan’s 2020 media appearance shows she knew of Virgin’s true financial position before the notes prospectus was issued.
“As soon as I started to understand my way around the numbers and where it all worked out, it was very clear to me that the company was over-leveraged and that it needed a capital raise,” she said.
“(Former CEO) John Borghetti did build Virgin and he did build a good airline. He did not build a good enough business.”
The documents also outline key “omissions” made by Virgin’s then-leadership team which failed to show that the airline was already having difficulty paying its debts.
The prospectus in question, issued on 5 November 2019, stated that Virgin had its “highest ever cash balance” of $1.74 billion in June 2019, of which $1.33 billion was unrestricted, however, documents have come out later to suggest that in November 2019, Virgin’s unrestricted cash balance had actually decreased to $642.8 million.
“Virgin Australia’s cash balance as at June 30, 2019 included substantial amounts payable to (the airline’s) trade and other creditors, including amounts which were overdue for payment,” the court documents stated.
It comes after unsecured creditors, including bondholders, received between just nine and 13 cents on the dollar on their investment following the sale of Virgin Australia to Bain Capital in 2020.
“As a consequence, Virgin’s liquidity position was overstated when compared to its actual liquidity position once payments were made to creditors.”
The claim also stated the cash balance presented in the prospectus was misleading or deceptive, in breach of the Corporations Act.
Virgin stated it is aware of the legal proceedings, however “does not expect any financial consequence to the company from these proceedings”, as it was extinguished of any such responsibility during its sale to Bain Capital in November 2020.
Meanwhile, Bryan, and former CEO Paul Scurrah, both of which are named in the suit, have both pledged to “robustly defend” the allegations.
