On Tuesday Virgin Australia went into external administration after being crushed by a $4.8bn debt mountain and failing to secure a federal government bailout.
The decision affects about 10,000 staff and 6,000 contractors who work for the airline, along with 4,000 suppliers and customers who have bought tickets worth more than $1bn but haven’t yet flown, as well as holders of Velocity frequent flyer points.
Here’s what it means and how it affects you.
What is voluntary administration?
It’s against the law for company directors to continue to trade when they know the company can’t meet its debts as and when they fall due. When directors realise their enterprise is in danger of going broke, they can appoint insolvency practitioners to act as administrators.
The administrators step into the shoes of the directors and have additional powers, including the ability to disclaim contracts or property that are costing money.
They can also negotiate an exit from administration, handing the company back to directors, through what’s called a “deed of company arrangement”, or Doca.
This is what Virgin Australia’s administrators, Deloitte, are aiming for.
Under a Doca, debts can be settled for cents in the dollar and different…