WELLS FARGO TRUST COMPANY , NATIONAL ASSOCIATION (AS OWNER TRUSTEE) V VB LEASECO PTY LTD (ADMINISTRATORS APPOINTED) [2022] HCA 8
Wells Fargo Trust Company , National Association (as owner trustee) v VB Leaseco Pty Ltd (administrators appointed) [2022] HCA 8
One of the consequences of Virgin Australia going into Administration in 2020 was the return of aircraft and engines to lessors. In this case the High Court unanimously dismissed an appeal from a decision of the Full Federal Court concerning the construction of the obligation to “give possession” under the Convention on International Interests in Mobile Equipment (Convention) and the Protocol on Matters Specific to Aircraft Equipment (Protocol). The decision sets out the procedure to followed in relation to enforcement of rights under the Convention and Protocol in insolvency proceedings in Australia.
VB Leasco, who leased aircraft engines from Wells Fargo, went into administration in April 2020 triggering Wells Fargo’s right under the lease agreement to demand redelivery of the aircraft engines to Florida. As the engines had been registered on the International Registry established under the Convention, the rules of procedure relating to the enforcement of rights was to be determined by reference to the rules in the Convention and the Protocol and these rules prevail to the extent of any inconsistency over any Australian state or federal law.
Article XI sets out the remedies available to a creditor on insolvency and Australia had previously made a declaration that the period in which insolvency administrator has to “give possession” of an aircraft object to the creditor is 60 days. The purposes is to allow the administrator a one-off 60 day opportunity to use the aircraft object to attempt to trade out of default. This is tempered by an obligation on the insolvency administrator to preserve and maintain the aircraft object and its value. At the end of this 60 day period, if the default persists, the insolvency administrator is required to “give possession” and by virtue of Article IX of the Protocol, the creditor is to exercise its remedy in a commercially reasonable manner.
To that end, Leaseco offered Wells Fargo the opportunity to take control of the engines at their location in Australia. This offer was rejected by Wells Fargo, and the Federal Court ordered Leasco to redeliver the engines to Florida.
The Court held that the obligation “to give possession” meant that Wells Fargo merely be “given the opportunity to take possession” of the aircraft engines in Australia. The administrators offer to Well’s Fargo to take control of the aircraft engines in Australia, fulfilled the obligation and Wells Fargo was required in the exercise its rights under the Convention in a commercially reasonable manner.