Colossal creditor pool a hindrance in the Rex Airlines administration?

Freeman, in the matter of Regional Express Holdings Limited (administrators appointed) [2024] FCA 929
Will a court require strict compliance with the notice provisions of the Corporations Act and Insolvency Practice Rules where the creditor pool is vast and not yet fully known?

Overview

In this case, the administrators of Rex Airlines sought relief from compliance with various requirements of the Corporations Act, the Insolvency Practice Schedule and the Insolvency Practice Rules, including with respect to how notice should be given to creditors during the administration. The administrators had identified tens of thousands of creditors (the majority being customers with cancelled bookings) but had not been able to obtain email addresses for many of them. Accordingly, they sought orders approving a bespoke and common-sense procedure for giving notice to creditors which involved, among other things, emailing all creditors for whom the administrators have email addresses, regardless of whether those creditors elected to receive electronic notifications.

The Court approved the process, finding that the preference of a creditor as to the mode of notice is not a matter of significance. The Court also noted that sufficient precautions were in place to ensure creditors will otherwise receive notice of steps taken in the administration. The decision significantly alleviates the administrative and financial burden of requiring all creditors to receive notice by post, and serves as an example of how the Court can tailor an administration process to ensure a just, practical, expeditious and cost-effective solution.

Background

Samuel Freeman, Justin Walsh and Adam Nikitins of EY were appointed voluntary administrators of certain entities within the Rex Airlines Group, which provides passenger and freight airline services in Australia. These include regional flights and, up until recently, domestic trunk route services between major cities (metropolitan routes).

Since their appointment, the administrators have continued to trade the Rex Group’s business other than in respect of the metropolitan routes, which have been discontinued. The administrators have done significant work to locate potential creditors of the companies to provide them with notice of the administration.

The administrators are not treating customers with bookings on the regional routes as creditors because services for those customers are continuing to be provided. They are, however, treating customers with bookings on the metropolitan routes as actual or contingent creditors on the basis that there is no certainty as to whether these bookings can be accommodated by an alternative airline. Virgin Australia has offered to re-book some of the Rex Group’s customers whose flights on the metropolitan routes have been cancelled, but there is no guarantee that all affected customers can be re‑booked on an equivalent flight.

The total number of creditors affected by flight cancellations on the metropolitan routes (customer creditors) is still unclear, and the administrators have not been able to obtain email addresses for all of them. However, as at 5 August, the administrators had identified 54,013 email addresses for the customer creditors.

In addition to the customer creditors, the companies have approximately 4,450 known creditors, including trade creditors and nearly 600 individuals whose employment has been terminated since the administrators’ appointment. The administrators have email addresses for approximately 3,977 of these creditors, although they expect the total number of creditors to increase as more information becomes available, in part due to the approximately 185,597 text messages sent to and received by customers whose flights have been cancelled.

The administrators brought an application seeking approval of a bespoke process for providing notice of the first meeting of creditors and subsequent steps taken in the administration. The administrators proposed to give notice as follows:

• for creditors for whom the administrators have email addresses, notice to be sent by email regardless of whether the creditor has elected to receive electronic notifications;

• for creditors for whom the administrators don’t have email addresses but have postal addresses, notice to be sent by post; and

• notice to also be published on ASIC’s public notices website, if required, and on the creditor portal for the administration.

The administrators had followed this process in giving creditors notice of the first meeting. They also sought to abridge the notice period given to customer creditors of the first meeting from the prescribed five days to two days given the difficulties in identifying and obtaining email addresses for those creditors.

The Court’s Decision

The Court granted the application, finding that sending communications to creditors by email is an appropriate mode of delivery, particularly where, as here, the number of creditors is large, the timely delivery of notices is important, and electronic delivery is efficient and cost-effective.

Section 110D(1)(c) of the Corporations Act 2001 (Cth) provides for the sending of documents in electronic form by means of an electronic communication, but this is only where the recipient has provided a nominated electronic address: s 110D(6)(b). It was not readily apparent that each intended recipient of notices to be given in the administration has or will have “nominated” an electronic address for the purposes of this provision, and the Court stated that it was important that the administrators not be left in doubt about this matter.

The Court found that orders for the delivery of notices by electronic means are now commonplace, including in the context of company administrations, and cited the Virgin Australia case, among others, as precedent. Interestingly, the Court also stated that the preference of a recipient as to the mode by which notices are to be given is not a matter of significance in any event.

The Court also noted that the administrators sought to include the added precaution of notifying creditors by publishing the notices on ASIC’s published notices website and on the creditor portal which is accessible on the Rex website.

The Court also granted the order as to the abridgement of time for providing notice to customer creditors, finding that it was preferable to abridge rather than delay the holding of the first meeting of creditors. The Court noted that even customer creditors will have known of the administrations through the text messages sent, and will have had access to at least the Rex website where notice of the administration was posted. Although the period of notice (two days) was relatively short, it was not unreasonable in the circumstances, particularly when the first meeting will be held using virtual meeting technology.

The Court also accepted that the efforts taken by the administrators were consistent with the statutory obligation in s 436E(3) of the Corporations Act to give notice of the first meeting to “as many of the company’s creditors as reasonably practicable”.

Conclusion

Accordingly, the Court granted the application.

Judge: Yates J

Counsel for the plaintiffs: Daniel Krochmalik of 3 St James' Hall and Brandon Smith of Banco Chambers

Solicitors for the plaintiffs: White & Case