Rex Airlines - Case Update

The Federal Court of Australia has granted orders limiting the personal liability of administrators Samuel Freeman, Justin Walsh and Adam Nikitins of Ernst & Young in connection with various contracts necessary to continue operating Rex Airlines regional airline services while the administrators continue to hunt for a buyer.

The administrators were appointed in July 2024 after a post-pandemic consumer reluctance to fly caused the company to discount its rates, which ultimately descended into a price war with other airlines. They continued to operate the Rex Group’s regional airline business while ceasing operations on its metropolitan routes.

The administrators have been able to sell off a number of non-core assets, but have yet to find a buyer for the business. In January of this year, they announced that a second sale process would commence in February 2025, with Houlihan Lokey engaged as sale advisors. Around the same time, the Government acquired $50 million in debt owed to PAG and became the principal secured creditor of the Rex Group. It has since said it will step in to buy Rex if no other buyer is found.

Now, the Court has given the administrators its blessing to carry out various agreements necessary for Rex’s operation, including (1) current agreements already entered into to support business continuity; (2) certain sales, cargo, software licensing and other agreements proposed to be novated from Rex Airlines to Rex Holdings as part of a restructuring strategy, and (3) future agreements that are anticipated to be necessary for the continued trading and sale of the business.

The Court found that these limitations on personal liability were justified and in the best interests of creditors, finding that the administrators may need to reconsider their continued trading of the business without this protection. The Court also emphasised that the administrators had proactively included limited recourse and liability clauses in the relevant contracts and provided notice to affected parties including ASIC and nearly 50,000 creditors and customers.

With respect to the novation of contracts from Rex Airlines to Rex Holdings in particular, the Court found that this step was necessary given that Rex Airlines was excluded from the sale process and no longer operated flights. The Court also found no prejudice to creditors of Rex Airlines, as pre-appointment claims would be preserved and the novated contracts were not revenue-generating.

Read the decision HERE.

Professionals involved: Daniel Krochmalik of 3 St James' Hall Chambers and Bradley Smith of Tenth Floor Chambers for the administrators.