In the matter of The Project Volar Creditors’ Trust established in the... [2021] NSWSC 688 | Case summary

Supreme Court of NSW|2021-05-31|Before: Black J, Mr J

Solicitors: Clayton Utz (Plaintiffs) File Number(s): 2021/84223

Judgment - ex tempore (Revised 4 June 2021)

On 6 April 2021, I made certain orders ("Earlier Orders"), primarily under s 63 and 81 of the Trustee Act 1925 (NSW), on the application of Messrs Algeri, Hughes and Greig in their capacity as joint and several trustees of the Project Volar Creditors' Trust ("Trustees") established in the administration of each of Virgin Australia Holdings Limited and other companies ("Creditors' Trust"). I set out the reasons for those orders in my judgment delivered on 27 April 2021 [2021] NSWSC 425 ("Earlier Judgment").
By further application made on 28 May 2021, the Trustees seek orders, again under ss 63 and 81 of the Trustee Act which will have the commercial effect of extending the time available to adjudicate claims of creditors in respect of the Creditors' Trust, largely by varying the Earlier Orders.
I will first refer to the evidence led in support of the application, then to the submissions made by Mr Hutton who appears for the Trustees, then I will follow the approach adopted by Mr Hutton in considering several of the orders in turn.

Affidavit evidence

The Trustees rely on the affidavit dated 25 March 2021 of Mr Hughes, who is one of the Trustees, which was read in respect of the earlier application. That affidavit is background to this application, so far as it sets out the basis on which the Earlier Orders were made, which contemplated a timetable for the adjudication of proofs of debt, which is now sought to be extended.
By a further affidavit dated 28 May 2021, Mr Hughes refers to developments in the process of the adjudication of proofs of debt and, in particular, to complexities which have arisen in respect of proofs of debt by lessors of aircraft and engines within the Virgin aircraft fleet. Mr Hughes notes that some 217 proofs of debt have been lodged by lessors or financiers in respect of leased aircraft and engines, with total claims of nearly AUD $3.6 billion. Mr Hughes identifies the components of those claims, and notes the process which has been adopted, with expert assistance, by the Trustees to analyse those proofs of debt. Mr Hughes also identifies that, significantly, the Trustees and their staff have identified missing information or evidence in relation to a large number of proofs within this category, being approximately 85 to 90 per cent of the lessor proofs. That will have a significant effect upon the conduct of the adjudication of claims under the Creditors' Trust if some 85 to 90 per cent of claims constituting AUD $3.6 billion were rejected, because of insufficiency of information, particularly if many of those objections were, as may be predictable, later challenged by lessors and financiers given the significant amounts of their claims.
Mr Hughes in turn addresses the approach which has been adopted to seek further information, where information is identified as missing, but also refers to matters which have influenced the time frame for addressing those requests for further information, including the significant complexity of the analysis, the time taken by lessors to respond, and the fact that the vast majority of lessors are foreign companies which are unaccustomed to the Australian formal proof of debt process, and many of which have approached the formal proofs in a similar way to informal proofs of debt, by providing a lesser amount of information.
Mr Hughes, responsibly, observes that the Trustees wish to afford all creditors, including those with more complex claims, the opportunity properly to substantiate their claims, and, on that basis, Mr Hughes indicates that the Trustees wish to extend the time period for admission of information in respect of creditors' claims, extend the period by which they would conclude the adjudication of proofs of debt, and anticipate they would then be able to adjudicate such proofs by 17 August 2021 or earlier. At the same time, Mr Hughes recognises that the Trustees should not continue to extend that process indefinitely, and the Trustees seek an order that they are justified in requiring that trust creditors provide further evidence in support of their claims by no later than 14 June 2021.
That approach seems to me to be a reasonable one, so far as, in principle, the Trustees' role is advanced by their seeking relevant information from trust creditors, rather than proceeding to adjudications that reject proofs of debt where they are aware that information is missing. It is also pragmatic, so far as it is likely to reduce the risk of further disputes as to adjudications, involving appeals from adjudications, if those adjudications are conducted with access to relevant information where it is possible to do so. Mr Hughes, consistent with those observations, identifies a benefit to trust creditors of taking that approach, by enabling all relevant claims to be assessed with the benefit of evidence and particulars, where the rejection of such claims because of insufficient information would increase the prospect of appeals.
In those circumstances, Mr Hughes expresses the view that the approach now proposed by the Trustees, while possibly delaying the assessment of some straightforward claims, would be to the advantage of trust creditors generally. That position is reinforced where, as Mr Hutton points out, a number of lessor creditors are, or claim to be, priority creditors, and monetary distributions are not likely to be able to be made to other creditors until the position in respect of the aircraft lessors' claims is determined.
By a further affidavit dated 31 May 2021, Ms Adams, a solicitor acting for the Trustees, refers to service of the interlocutory process upon the Australian Securities and Investments Commission ("ASIC"). ASIC has not expressed a view, noting that it has had insufficient time properly to consider the application, but has not sought an adjournment of the application. It seems to me that, in substance, it has left the issues raised by the application for determination by the Court. Creditors have also been notified of this application, albeit that they have also had a relatively short period of notice, in which to determine whether to participate in the hearing of the application. I bear in mind, however, that it would be difficult to see the basis on which a creditor could oppose the application, on the basis that it was preferable that claims be adjudicated on incomplete rather than complete information, including in respect of the claims of other creditors.

The Trustees' submissions and the orders sought

In submissions, Mr Hutton addresses the Court's jurisdiction to make the orders sought, under s 81 of the Trustee Act and on the basis set out in the Court's Earlier Judgment, where the trust deed does not address relevant matters, and that remains the case where the Court has previously made orders to fill that gap. Other orders sought are founded in s 81(3) of the Trustee Act, where the Court's jurisdiction arises from the fact that it has previously made an order under s 81 of the Act, which is now sought to be varied. Finally, the Trustees seek directions under s 63 of the Trustee Act, and the Court's jurisdiction to make such directions was also addressed in the Earlier Judgment.
Turning to the particular orders that are sought, the first order is that the Trustees be authorised to require that any trust creditor wishing to provide further evidence do so by 14 June 2021, and that they are empowered to process and adjudicate a trust creditor's debt on the basis of information and particulars provided by that time. That order is sought under s 81 of the Trustee Act on the basis that the trust deed does not provide for the relevant matter and it is expedient to provide for that matter. Mr Hutton acknowledges that, at the time the Earlier Orders were made, the Corporations Regulations as applied by the Creditors' Trust Deed imposed timing requirements in respect of the adjudication of proofs of debt; that they would not allow the process which is now proposed by the Trustees; and, to that extent, the process that is now proposed is a process that is not authorised by the trust deed, and it is within the scope of the Court's powers under s 81 of the Trustee Act to authorise steps that the trust deed does not authorise. I am satisfied that it is also expedient to do so, where the order is sought to achieve the balancing, to which I referred earlier, of obtaining sufficient further information from creditors where it is possible to do so, but not unduly extending the time taken for the adjudication process for creditors as a whole.
The second order sought is a direction under s 63 of the Trustee Act that the Trustees are justified in requiring that any trust creditor wishing to provide any further evidence do so by no later than 14 June 2021. That is consistent with the approach contemplated by the first order, and the direction which is sought is justified so far as the Trustees should have the assurance that that course, which is taken to achieve the balance to which I have referred, would not expose them to personal liability, and that assurance is given by direction made by the Court that they are justified in taking that course.
The third order seeks to vary order six of the Earlier Orders to extend the time for processing and adjudicating on creditors' claims and, in particular, for the admission or rejection of proofs of debt. The order operates to extend that time to the later of 28 days after the Trustees receive sufficient written answer to a notice seeking information or otherwise or 17 August 2021. As Mr Hutton points out, in some circumstances the time will be extended beyond 17 August 2021 if, for example, the Trustees have sought further information prior to that date and that information has not yet been provided to them. Mr Hutton also points out that the circumstances in which that will occur will be limited by the Trustees' discretion whether to seek that information in respect of a particular creditor, which will no doubt be determined by all the relevant circumstances, including the size of and issues relating to a particular claim, and the issues which will arise on further investigating that claim.
I am satisfied that the Court has power to make that order, where it is a variation of a previous order made by the Court, under s 81(3) of the Trustee Act, and I am satisfied that it is expedient to make that order, where it will give effect to the balancing to which I have referred above.
The fourth order seeks to vary advice previously given by the Court, under order seven of the Earlier Orders, under s 63 of the Trustee Act, that the Trustees are justified in admitting or rejecting proofs of debt within that time period. I am satisfied that such an order may be made, under s 63 of the Trustee Act, where it amounts to the Court directing that the Trustees are now justified in taking a different course, by determining the position in respect of proofs of debt within a longer period, because of the change of circumstances which has arisen here. That change involves, initially, the issues as to obtaining information about and determining proofs of debt to which I have referred above and, more narrowly, the amended timetable for the determination of formal proofs of debt and claim under the third order I have made. The effect of the fourth order is, in substance, that the Trustees are justified in acting in the manner that the third order contemplates, and I am satisfied that such an order should be made.
Similarly, the fifth order varies order ten of the Earlier Orders, again by reference to the extended time period which is to be adopted, in a similar manner to the variation of order six of the Earlier Orders. I am satisfied that that order may be made on the same basis. The eighth order provides a further order under s 63 of the Act, that the Trustees are justified in acting in the manner contemplated by the fifth order, which broadly corresponds to the approach adopted in respect of the fourth order. I am satisfied that that order may be made on the same basis.
Orders 7 - 9 are consequential and reflect orders which were made in the Earlier Judgment.

Orders

For these reasons, I am satisfied that orders sought by the Trustees should be made, in accordance with the form of orders initialled by me and placed in the file. I have deleted reference to r 36.15(2) of the Uniform Civil Procedure Rules 2005 in those orders, where that rule is no longer relied on in this application. I note that the orders are to be entered forthwith.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 June 2021

In the matter of The Project Volar Creditors’ Trust established in the administration of Virgin Australia Holdings Ltd & Ors [2021] NSWSC 688

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