Virgin shareholders left high and dry

Virgin Australia Holdings shareholders will be left high and dry after a court ruled they will receive no shareholder compensation.

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Virgin Australia Holdings Ltd (formerly of the ticker symbol VAH) was one of the most high-profile casualties of the coronavirus pandemic that gripped the world in 2020.

It is a well-accepted fact that the global pandemic has been disastrous for every airline on the planet. As we revealed back in May, air travel plummeted by 99% in April 2020 compared with April 2019.

It’s almost literally impossible to travel overseas even today, with only Australian citizens and residents permitted to fly home. In addition, you need a pretty good reason to be permitted flight out of Australia as well. The Department of Foreign Affairs and Trade currently maintains a ‘travel ban’ on all international destinations. That still includes New Zealand incidentally. Further, domestic travel has had tight restrictions surrounding it for most of 2020 so far. Victoria has been a no-go zone for months now, whereas Queensland, Tasmania and Western Australia have effectively ‘shut their borders’ for most of the year.

All of these events have proven absolutely terrible for all airlines, and in Australia, it hit both Virgin and Qantas Airways Limited (ASX: QAN) hard. Qantas has managed to hang on, with the help of some government assistance and massive cost cutting. But unfortunately, we can’t say the same for Virgin.

Out with the old, in with the new for Virgin

Virgin went into administration in April. It was then sold to United States-based private equity firm Bain Capital in October for approximately $3.5 billion.

Devastated shareholders had hoped to recoup at least some of their losses. But reporting in today’s Australian Financial Review (AFR) reveals these hopes have been effectively dashed.

According to the AFR, a Federal Court has given the green light to Virgin’s administrators to transfer shares of Virgin to the new owner Bain. This transfer will be completed “without reimbursement to investors”. The AFR reports that some investors:

…chose to fight this at a Federal Court hearing on Tuesday, arguing there should be at least some residual value assigned to the shares given Virgin’s assets like the Velocity Frequent Flyer scheme. They also claimed there was not enough time to fully understand a 700-page independent report on the sale distributed by administrators to shareholders late last month.

But this view was thrown out of court, and has resulted in former Virgin shareholders receiving essentially nothing but regret for their shares. The AFR reports, however, that “secured creditors and employees will get all of their money back. While unsecured creditors will get between 9 cents to 13 cents in the dollar”.

No doubt a disappointing end for Virgin investors in what has been a disastrous year to hold ASX travel shares.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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