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photo: Hilaire Buller
Air Vanuatu may reach a deal with a new entity under the country’s Ministry of Foreign Affairs.
Ernst & Young Australia has completed a revised report Air Vanuatuproposed a compromise with creditors, with a vote scheduled for Wednesday.
This is a legal arrangement in which a proposed settlement of debts owed by creditors is put to a vote by the company’s creditors.
A creditor’s compromise may involve paying a portion of the outstanding debt, or it may involve concessions from the creditor, such as agreeing to accept less than the full amount owed, or extending the payment period to allow the company more time to pay.
Air Vanuatu has a long list of creditors, with total claims from creditors, including unsecured creditors, amounting to US$124.57 million.
The proposal was made by an entity called AV3, which is wholly owned by Vanuatu’s Ministry of Foreign Affairs and was established on June 5.
“No commitments have been made at this stage, but it is our understanding that AV3 intends to enter into an agreement with a third party interested in providing funding for the business to support the company’s future operations if the creditors approve the proposed creditors’ compromise,” the liquidators wrote in their report.
It is a Vanuatu government entity “and therefore it is likely to have the financial resources to complete the proposed recapitalisation and fund the restoration of services”.
Under the proposal, AV3 would contribute $3.3 million in three installments to a fund established under the terms of the creditors’ compromise plan.
“Once the Creditors’ Settlement Fund has been distributed to affected creditors, the company will be discharged and released from all creditors’ claims (except those which have been specifically determined to be unaffected by the Creditors’ Settlement),” the liquidators wrote in their report.
But it has been criticized by one creditor – former aviator Charles Perry.
“EY is proposing and driving a recapitalisation proposal from the newly created government entity, AV3,” he wrote in an email to EY. “We are told this is the best outcome for creditors, but I believe this is far from the truth.”
One of Perry’s biggest concerns is the involvement of AV3, which he suspects will be run by the same board and directors that governed Air Vanuatu during its financial crisis.
He said this raised serious doubts about whether the airline could successfully turn itself around.
If creditors approve AV3’s settlement proposal, the liquidators will apply to the Supreme Court of Vanuatu seeking an order to terminate the liquidation of the company.
“The creditors’ compromise will enable the company to continue as a going concern, thereby preserving its business, maintaining employment for as many employees as possible and mitigating the potential materialization of claims by contingent creditors,” the report said.
If creditors decide they are unwilling to approve the creditors’ compromise plan, liquidation will proceed – closing the business, liquidating available assets and distributing proceeds to creditors, the report said.
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