Virgin Atlantic Files For Chapter 15 Bankruptcy

@Josh — Any company with assets in the U.S. can file for bankruptcy protection in the U.S. This is true even if the assets are of little or no value. Many companies chose to file for chapter 11 protection in the U.S. because it is a fairly unique and extremely predictable insolvency regime. Among other things, chapter 11 allows the company to continue operating, management stays in place absent compelling circumstances, the company can borrow additional money despite its insolvency, and there are powerful tools for shedding burdensome contracts, leases, and other obligations. Plus, chapter 11 has a concept called “cram down” where a company can confirm a plan of reorganization without the consent of all of its creditors or other stakeholders. Many of these are features unique to chapter 11 that do not exist in other countries‘ laws. Believe it or not, many countries do not even have an insolvency proceeding where the company can continue as a going concern. In many countries, once the company becomes insolvent, it is required to liquidate or else its officers and directors may be personally liable for unpaid debts of the company that are incurred after the company reached insolvency (this is known as “trading while insolvent”). The suggestion by some that the UK has a superior insolvency or restructuring regime is subjective, but largely false. You need look no further than the UK’s adoption in June of this year of amended laws modeled after U.S. insolvency laws. In order words, the UK knew the U.S. was doing it better and modeled their law after the U.S. Virtually every other “reorganization” or “restructuring” legal regime in world is modeled after U.S. chapter 11 in at least some respect. Even with that, the U.S. typically is still the preferred place to seek reorganization. This is why many Latin American Airlines that have recently filed for chapter 11 protection in the US, rather than in their home countries (or the UK). All of that said, the UK’s regime is a very good one. Canada and many commonwealth countries also have very good regimes. The US, the UK, Canada, the Cayman Islands, and Bermuda are probably the top 5 most favored places to seek creditor protection to reorganize, restructure, or liquidate. So why did Virgin Atlantic file for protection in the UK versus the U.S.? Likely for three reasons. One, VA is based int the UK and, as mentioned, the UK has a very good regime. Two, VA is actually doing a “solvent” reorganization, meaning creditors will ultimately be paid in full, albeit over time. This means that VA does not have a need to use the “cram down” feature of US chapter 11. Three, VA can still access the U.S. courts through the chapter 15 filing it made. Chapter 15 is different than chapter 11. Chapter 15 is the U.S.’s adoption of UNCITRAL’s Model Law on Crossborder Insolvency. The UK and many other countries have adopted this law as well. Countries that have adopted the Model Law will typically “recognize”—i.e., give full force and effect to—insolvency or restructuring proceedings in another country and orders entered in those proceedings. In a chapter 15 case, the foreign company files for protection in another country (typically its home country) and then almost immediately also files for recognition of that protection in the U.S. With few exceptions, the U.S. courts grant recognition and extend key protections of U.S. bankruptcy law (such as the automatic stay against creditor collection efforts) to the foreign company’s assets that are in the territorial jurisdiction of the U.S. The corollary is true, too. When a company with significant overseas operations files for chapter 11 protection in the U.S., it typically will commence the equivalent of a chapter 15 case in each foreign country where it has assets or operations to be sure to enjoy protection from creditors in those countries. In some cases, there may be several, if not dozens, of parallel insolvency proceedings. The Model Law allows these proceedings to all be coordinated and for the value of assets that are collected or realized upon to be streamed to the main proceeding (e.g., the U.S. chapter 11 proceeding, or the UK administration proceeding, or what have you). An equitable distribution to creditors will then be made in the main proceeding. Without the Model Law, it would be a piecemeal patchwork of regimes across the world with people racing to take action against the company or the company’s assets, resulting in preferential outcomes to some creditors at the expense of others.

A lot of misinformation in these comments about chapter 15, chapter 11, UK proceedings and US litigation, all from people who seem to haven’t a clue.

Not familiar with these proceedings however just one question: I've had my flights cancelled way back in June and still waiting a refund from Virgin. Does this in any way affect me getting a refund?

@Josh It’s already explained. Read the post and the comments

@Takhliq Khan, Many of us did question Delta's moves at the time. Throwing money at firms with poor fundamentals is never wise. Delta's management culture is very hubristic and thinks they cannot somehow fix carriers that other talented and resourceful management teams have been unable to turnaround just because they are Delta.