Virgin Atlantic files for Chapter 15 protection in New York
Virgin Atlantic filed for protection from creditors today in a New York court under Chapter 15 of the U.S. Bankruptcy Code, which allows a foreign debtor to shield assets in the US. The move, which was expected, comes after the company’s announcement in July that it has agreed a rescue deal worth £1.2bn, following the almost complete shut down of the travel industry due to the impact of Coronavirus related lockdowns around the world.
The filing in the New York court took place shortly after a case was presented in a British court, also on Tuesday, where Virgin Atlantic was granted approval to convene a meeting of creditors to allow them to vote on the rescue plan, which has already been approved by a majority of the company’s shareholders. It has been reported by Bloomberg that Virgin Atlantic told the British court that it will run out of money in September without the rescue package.
The simultaneous filing in both countries means that the US and British courts can coordinate with each other, providing Virgin with protection from creditors coming after US-based assets while the rescue deal is worked out in the UK.
Virgin Atlantic, which flies solely long haul routes was heavily impacted when the airline industry came to an almost complete halt in April of this year, as countries shut their borders in an attempt to protect themselves from the spread of Coronavirus. The company stated in its court filing that year on reservations are currently down 89% and that future reservations for the second half of 2020 are roughly a quarter of what they were last year.
Founded in 1984, Virgin Atlantic is 51% owned by Richard Branson’s Virgin Group and 49% by US airline, Delta. Earlier this year, as the impact of the Coronavirus shutdown took hold, Virgin closed it’s base at London’s Gatwick Airport and shed more than 3,500 jobs in an effort to cut costs. Billionaire, Branson, was heavily criticised at the time for asking for government help to shore up the airline’s finances to help it surive the crisis.
What is Chapter 15?
Introduced into the US Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Chapter 15 governs the provision of relief under US bankruptcy law to non-US companies and individuals in foreign insolvency proceedings that seek to protect their US-located assets from enforcement proceedings or direct appropriation by individual creditors.
In short, it means that, while under the protection of Chapter 15, Virgin Atlantic’s creditors in the US cannot instigate insolvency proceedings against the company’s US based assets. This will allow the company time to have its rescue deal approved in the UK. Affected creditors are due to vote on whether to accept the deal on August 25th.