IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY		V 3046 of 2001
IN THE MATTER OF:
HAZELTON AIR CHARTER PTY LIMITED                                       (ACN 065 221 356)                                       HAZELTON AIR SERVICES PTY LIMITED                                       (ACN 000 242 928)                                       HAZELTON AIRLINES LIMITED                                       (ACN 061 965 642)                                       (All Administrator Appointed) AND                                       MICHAEL JAMES HUMPRHIS                                       (As Administrator)                                       Plaintiff
JUDGE:	GOLDBERG J
DATE:	12 OCTOBER 2001
PLACE:	MELBOURNE

 

THE COURT ORDERS THAT:

 

1.            Pursuant to s 447A of the Corporations Act 2001 (Cth) (“the Act”), s 447D(1) of the Act is to operate in relation to Hazelton Air Charter Pty Limited, Hazelton Air Services Pty Limited and Hazelton Airlines Limited so that in an application by the plaintiff for directions pursuant to s 447D(1) in relation to a Memorandum of Understanding dated 3 October 2001 referred to in the application, the Court may give a direction that it approves the Memorandum and that the plaintiff may properly perform and give effect to the Memorandum of Understanding.

 

2.            Pursuant to s 447D(1) as it operates in accordance with para 1 of this order, the court directs that:

 

(a)        The Court approves the Memorandum of Understanding which is Schedule B to the judgment;

 

(b)        The plaintiff may properly perform and give effect to the Memorandum of Understanding.

 

3.         The costs of the plaintiff and Australian Council of Trade Unions and its associated parties be costs in the administration of the said companies.

 

 

 

Note:            Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

 

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V 3045 of 2001 IN THE MATTER OF:
ANSETT AUSTRALIA LIMITED                                       (ACN 004 209 410) & ORS                                       (All Administrators Appointed)                                       (see Schedule A) AND                                       MARK FRANCIS XAVIER MENTHA and                                       MARK ANTHONY KORDA                                                   (As Administrators) Plaintiffs V 3046 of 2001 IN THE MATTER OF:                                       HAZELTON AIR CHARTER PTY LIMITED                                       (ACN 065 221 356),                                       HAZELTON AIR SERVICES PTY LIMITED                                       (ACN 000 242 928)                                       HAZELTON AIRLINES LIMITED                                       (ACN 061 965 642)                                       (All Administrator Appointed) AND                                       MICHAEL JAMES HUMPRHIS                                       (As Administrator) Plaintiff
JUDGE:	GOLDBERG J
DATE:	12 OCTOBER 2001
PLACE:	MELBOURNE

 

REASONS FOR JUDGMENT

 

1                     On 12 and 14 September 2001, Messrs Peter Hedge, Greg Hall and Allan Watson (“the first administrators”) were appointed administrators of Ansett Australia Limited and the other companies set out in Schedule A to this judgment in accordance with the provisions of Pt 5.3A of the Corporations Act 2001 (Cth) (“the Act”).  I will refer hereafter to these companies and to Ansett Australia and Air New Zealand Engineering Services Limited collectively as “the Ansett group”.  Those appointments occurred as a result of resolutions of the various companies in the Ansett group on 12 and 14 September 2001.  The first administrators caused the airline operations of the Ansett group to cease at 2.00am on Friday 14 September 2001.

2                     On 17 September 2001, I ordered that Mark Francis Xavier Mentha and Mark Anthony Korda (“the administrators”) be appointed joint and several administrators of the Ansett group other than Hazelton Air Charter Pty Limited, Hazelton Airlines Limited, Hazelton Air Services Pty Ltd (“the Hazelton companies”), and that Michael James Humphris be appointed administrator of the Hazelton companies with effect from the time that Messrs Hedge, Hall and Watson gave notice in writing of their resignation as administrators of the Ansett group.  On 17 September 2001 Messrs Hedge, Hall and Watson resigned as administrators of the Ansett group and thereupon the administrators were appointed administrators of the companies in the Ansett group and Mr Humphris (“the Hazelton administrator”) was appointed administrator of the Hazelton companies.  On 4 October 2001, the administrators were appointed administrators of Air New Zealand Engineering Services Limited pursuant to the provisions of Pt 5.3A of the Act.

3                     On 5 October 2001, the administrators filed an application in the Court which was expressed to be made pursuant to ss 447A and 447D of the Act and the inherent jurisdiction of the Court.  The administrators sought the following orders:

“2. Approval of the Agreement entitled Memorandum of Understanding between the Ansett Group and the Air New Zealand Group and others (‘the Agreement’).

 

3.                  Further or alternatively to paragraph 2 hereof, that the Plaintiffs may properly perform and give effect to the Agreement.”

 

On 8 October, the Hazelton administrator filed an application in substantially the same terms seeking orders that the Court approve the agreement, or alternatively an order that he may properly perform and give effect to the agreement.

 

4                     The parties to the Memorandum of Understanding are the Ansett group set out in Schedule A to the Memorandum of Understanding, the Hazelton companies, the administrators, the Hazelton administrator, Air New Zealand Limited (“Air New Zealand”) and its subsidiaries (other than the Ansett group and the Hazelton companies) set out in Schedule B to the Memorandum (“the Air New Zealand group”) and each party who is, or was at any time since Air New Zealand acquired full ownership of the Ansett group a director or secretary of any company in the Air New Zealand group or the Ansett group as set out in Schedule C to the Memorandum (“the Directors”).

5                     I will consider the detail of the Memorandum of Understanding shortly but, for present purposes, it is sufficient to note that it provides for the New Zealand Government to pay the administrators $A150 million for the Air New Zealand group to waive various claims it may have against the Ansett group, and for the administrators and the Hazelton administrator to release Air New Zealand from any claims in relation to a Letter of Comfort dated 8 August 2001 and to release the Directors from certain claims which might be made against them.  (Money amounts are expressed in Australian dollars unless otherwise indicated.)

6                     At the final hearing of the applications, appearances were announced and submissions were made by the administrators, the Hazelton administrator, the Australian Securities and Investments Commission (“ASIC”), the Commonwealth of Australia, the Australian Council of Trade Unions (“ACTU”) and twelve specified unions and their members who were employees of the Ansett group, the Air New Zealand group and ten of the directors and one creditor, E/Wise Solutions Pty Ltd.  Only E/Wise Solutions Pty Ltd opposed the Court making orders sought, although there were differing views as to the form of order which should be made.

7                     It is helpful to rehearse the events which have led to the making of the applications.  The first Ansett airline operation commenced in February 1936 with one aeroplane.  In 1979 the Ansett group was taken over by TNT Limited and News Limited.  By the 1990s, the Ansett group had grown into a major national airline and was one of the two principal domestic airlines operating throughout Australia.  It also flew international routes.  Air New Zealand acquired TNT’s 50 per cent shareholding in the Ansett group in June 1996 and News Limited’s 50 per cent shareholding in the Ansett group in June 2000.

8                     The extent of the Ansett group’s airline operations and their significance for the Australian economy and the Australian community can be seen from the following statistics and circumstances which existed prior to the appointment of the administrators:

·                   The Ansett group employed approximately 16,000 people;

 

·                   The total wages and salaries paid by the Ansett group annually as at February 2001 was approximately $963 million;

 

·                   The Ansett group served over 130 domestic destinations and made approximately 900 flights per day across the Australian network;

 

·                   The Ansett group had approximately 130 planes in its fleet;

 

·                   In the 2000 financial year Ansett carried over 14.04 million passengers of whom 13.35 million were carried on domestic routes;

 

·                   The Ansett group contributed approximately $73.3 million in tax for the financial year ending 30 June 2000;

 

·                   The Ansett group carried 111,147 tonnes of cargo per year;

 

·                   The Ansett group provided services to numerous regional and rural areas.

9                     After Air New Zealand acquired 100 per cent ownership of the Ansett group in June 2000 a new Trans-Tasman Australasian executive structure was announced.  All the directors of the holding companies in the Ansett group were, at relevant times, directors of Air New Zealand, the holding company in the Air New Zealand group. 

10                  The administrators and the Hazelton administrator are obliged to convene meetings of the Ansett group’s creditors and the Hazelton companies’ creditors by 12 December 2001 (in accordance with my order of 1 October 2001), so that they may present a report about the various companies’ business, property, affairs and financial circumstances at the meetings.  The administrators and the Hazelton administrator must, at those meetings, provide the creditors with a statement setting out the administrators’ opinion whether it would be in the creditors’ interests:

(a)        for the companies to execute a deed of company arrangement;

(b)        for the administration of the companies to end;

(c)        for the companies to be wound-up.

(Section 439A(4) of the Act).

11                  The administrators and the Hazelton administrator are presently actively pursuing the possibility of selling the businesses of the Ansett group and the Hazelton companies as going concerns and are operating the businesses in a limited manner.

12                  The administrators are presently faced with difficult and significant financial constraints, having regard to the nature of the assets of the Ansett group, its pre-administration liabilities and the liabilities which have been incurred, and will continue to be incurred if the administrators continue to carry on the business of the Ansett group, albeit in a limited way.  The Hazelton administrator negotiated loans with the New South Wales State Government and the Commonwealth Government and was able to recommence flights by the Hazelton companies on 21 September 2001 on a restricted basis.  The Hazelton companies has recommenced operating most of its routes.

13                  At the date on which the administrators were appointed, 17 September 2001, the major assets of the Ansett group were as follows:

(a)            Debtors.  The debtors have a book value of $400 million, but the administrators have assessed their realisable value to be between $60 million and $80 million because of charge backs and airline tickets not honoured.

 

(b)        Equity in leased aircraft.  The administrators said that the amount of this equity is incapable of precise quantification at the present time and that following recent events in America it is difficult to obtain any precise valuations of aircraft assets.

 

(c)            Miscellaneous other fixed and aviation assets, the valuation of which cannot be precisely quantified at the present time.

 

(d)        There was no cash available to the administrators on their appointment as the Ansett group’s airline operations had ceased on 14 September 2001.

 

14                  The administrators have made a more precise estimate of the realisable value of the unencumbered assets and the equity in the encumbered assets of the Ansett group which has been placed before the Court in a confidential exhibit.  For present purposes it is not necessary to disclose that value. 

15                  The administrators have identified approximately 17,000 creditors of the Ansett group.  This number does not take into account frequent flier members who have accumulated unused frequent flier points, as the administrators have not yet determined whether such persons are creditors.  The number also does not take into account the holders of unpresented airline tickets with a face value of between $300 million and $400 million as the number of those holders cannot be estimated at the present time. 

16                  The administrators believe that the total unsecured liabilities of the Ansett group, after allowing a fair value for the leased aircraft assets, is approximately $2 billion.  The principal creditors and the amounts owed to them are as follows:

(a)            employee entitlements, including wages, unpaid superannuation, annual leave, long service leave, sick pay, rostered days off and redundancies – $686 million;

 

(b)        holders of unpresented airline tickets – $300 million to $400 million;

 

(c)            National Australia Bank – $82 million;

 

(d)        Air New Zealand group loan balance – $81 million;

 

(e)        Credit Lyonnais (an aircraft lessor) – $420 million;

 

(f)         Caltex Australia Ltd and BP Australia – $16 million;

 

(g)        Telstra – $16 million.

In relation to these liabilities, the administrators note that:

·                   No wages are owing to employees as wages were paid in full by the first administrators from advances of $32 million made by Air New Zealand to the first administrators after the commencement of the administration;

 

·                   They presently estimate that the maximum exposure of the Commonwealth Government under the proposed employee entitlement scheme may be $351 million;

 

·                   The amount due to Credit Lyonnais will be reduced if its aircraft are assigned or sold.

 

17                  At the date on which the Hazelton administrator was appointed, 17 September 2001, the major assets of the Hazelton companies were as follows:

(a)        cash of approximately $2.2 million;

 

(b)        debtors with a book value of approximately $8 million which included a doubtful debt of approximately $6 million to Ansett and $0.8 million for charge backs and airline tickets not honoured;

 

(c)        equity in leased aircraft which is incapable of precise quantification at the present time;

 

(d)        equity in owned aircraft of approximately $1.6 million;

 

(e)            miscellaneous and other fixed and aviation assets, the valuation of which cannot be precisely quantified at the present time.

 

18                  The Hazelton administrator believes that the total unsecured liabilities of the Hazelton companies, after allowing a fair value for the leased aircraft assets, is approximately $100 million.  The principal creditors and the amounts owed to them are as follows:

(a)            employee entitlements, including wages, unpaid superannuation, annual leave, long service and redundancy payments – $6.95 million;

 

(b)        holders of unpresented airline tickets – approximately $0.4 million;

 

(c)            financiers of aircraft, lease termination costs – approximately $78.8 million;

 

(d)        Ansett – approximately $19 million;

 

(e)        G E Engines – approximately $1 million;

 

(f)            unsecured creditors – approximately $7.5 million.

19                  The administrators took the view that it was imperative for the Ansett group to recommence flying operations as soon as practicable to minimise the damage which its cessation of operations had caused to the goodwill of its business.  The administrators developed a strategy for recommencing Ansett operations which became known as “Ansett Kick-Start”.  The aim of this project was to recommence flying a limited number of aircraft on the main trunk routes so as to preserve the name, mark and goodwill of Ansett.  A business plan was prepared which involved the flying of eleven A320 aircraft.  The administrators reached agreement with employees to limit the employees’ working conditions to the revenue which could be generated from the limited operations.  Support for the project was obtained from the Commonwealth Government which agreed to provide an indemnity to the administrators to fund the repayment of the value of tickets which were issued for the resumed operations, but which could not be used if the flying operations ceased and the administrators had insufficient assets available to refund the value of the tickets issued and not used.

20                  The administrators said that Ansett Kick-Start would operate at a modest trading loss but that the losses were worth incurring for the following reasons:

(a)        the value of the name, reputation and goodwill of Ansett would be preserved;

 

(b)        if the Ansett aviation assets were sold on a liquidation basis their realisable value would be diminished significantly in an amount greater than the projected trading losses;

 

(c)        Ansett Kick-Start met the objects of Pt 5.3A of the Act to maximise the chances of the Ansett business remaining in existence or, if that is not possible, to maximise the return to creditors on a sale of the business assets;

 

(d)            Although Ansett Kick-Start was justified as a stand alone project it was part of the larger project envisaged by the administrators to reconstitute Ansett in a new but reduced form which had been referred to as “Ansett Mark II”.

 

The projected trading losses have been calculated by reference to additional variable costs such as payments for leased aircraft, employees and fuel and are expected not to exceed $15 million.  At the present time, Ansett Kick-Start is cash-flow positive.

 

21                  A committee of creditors has been appointed in respect of each company in the Ansett group and the Hazelton companies.  The committees of creditors represent creditors with debts due of approximately $800 million which, at present, is of the order of 40 per cent of the total of unsecured creditors (after deduction of the estimated value of security held by lessors).  The committees represent, directly and indirectly, approximately 15,000 creditors by number, of whom approximately 14,500 creditors are employees who are represented by twelve unions.

22                  I turn to the circumstances which led to the execution of the Memorandum of Understanding dated 3 October 2001 by the Ansett group, the Hazelton companies, the administrators, the Hazelton administrator, the Air New Zealand group and the Directors.

23                  On 8 August 2001, Air New Zealand Ltd wrote a letter to the directors of Ansett Holdings Limited, Ansett International Limited and Ansett Australia Limited in the following terms:

“Dear Sirs,

 

Letter of Comfort

 

In its capacity as the ultimate parent company and sole beneficial shareholder of the Companies, Air New Zealand Limited (‘ANZ’) hereby confirms to you that it is its current policy to take such steps from time to time as are necessary to ensure that its wholly owned subsidiaries (including the Companies) are able to meet their debts as they fall due.

 

We will advise you promptly in the event of any change in this policy.

 

The previous paragraphs set out our bona fide intention in respect of the matters mentioned, but shall not create any contract between us and any of you, nor a guarantee nor indemnity in respect of our obligations hereunder, enforceable at law or in equity.

 

Notwithstanding the previous paragraph, we will make available to you on request in writing from time to time advances for the sole purpose of enabling you to pay working capital liabilities incurred by you in respect of property or services purchased or sold in the ordinary course of your business, subject to the following conditions: