TGIF 30 May 2025 – Jet Midwest and Rex Airlines land in court to clarify proprietary rights during administration

This week’s TGIF considers a recent Court of Appeal decision concerning the extent to which an owner of property can pursue its proprietary rights whilst the company is in administration.

In the NSW Court of Appeal decision (Jet Midwest, Inc v Regional Express Holdings Limited trading as Regional Express Airlines (Administrators Appointed) [2025] NSWCA 101), Mitchelmore JA, McHugh JA and Ball JA determined that an owner of property could not pursue its proprietary rights against a company in administration.

Key takeaways

• During the administration period, third parties are precluded from commencing proceedings seeking to recover property in the possession of the company without the agreement of the administrator(s) or leave of a court.
  
  
• Where a company is in administration, it is more difficult for a creditor or owner of property to persuade a court that leave should be granted to pursue its proprietary rights. This is because the overarching legislative intent is to maximise the prospects of the company continuing in existence or return to creditors.
  
  
• An administrator is entitled to deal with property in the company’s possession that may belong to others, with leave of a court, provided there are sufficient arrangements in place to adequately protect the rightful owner of the property. This facilitates the administrator selling the business of the company as a going concern or preserving assets whilst formulating a plan during the administration period.

Background

Regional Express Airlines (Administrators Appointed) (Regional Express) is the parent company of Rex Investment Holdings Pty Ltd (Administrators Appointed) (Rex). On 15 October 2019, Rex entered into an agreement to purchase aircraft and parts from Jet Midwest, Inc (Jet Midwest) for US$2 million. Rex paid a deposit of US$200,000 (deposit) held in escrow by an American firm.

Delivery of the aircraft and parts was scheduled to occur by 31 October 2019, or otherwise, a date agreed between the parties. The aircraft were stored in Arizona until delivery. Jet Midwest was responsible for the payment of the monthly storage fee and paid those fees until February 2023. In February 2023, Jet Midwest learnt that Rex or Regional Express had arranged for the aircraft to be disassembled with parts either transported to Wagga Wagga, sold or scrapped.

Jet Midwest commenced proceedings against Regional Express claiming trespass and conversion. Shortly thereafter, Rex and Regional Express went into voluntary administration.

Jet Midwest’s application to the Supreme Court during administration

Jet Midwest made an application under section 440D of the Corporations Act 2001 (Cth) (the Act) seeking leave to join Rex to the proceeding and orders that Rex and Regional Express deliver up any aircraft parts in their possession and release the deposit to it.

In opposition to the application, an administrator of Rex and Regional Express gave evidence that the administrators had commenced a competitive process for the sale or recapitalisation of the companies.

Jet Midwest’s application for leave was refused by the Supreme Court of New South Wales. Jet Midwest appealed the decision.

The Court of Appeal reinforced the Supreme Court decision

The Court of Appeal (all three judges agreeing) dismissed Jet Midwest’s appeal. In doing so, the judges acknowledged that the appeal raised a novel issue as to the interplay between sections 440D and 442C of the Act.

The Court of Appeal determined that the primary judge did not:

• err in finding that section 442C of the Act protected Jet Midwest during the administration sale process;
  
  
• fail to give proper weight to Jet Midwest’s proprietary rights;
  
  
• err in finding that the granting of leave would substantially burden the administrators; or
  
  
• err in failing to grant leave to Jet Midwest to seek to recover the deposit.

Was Jet Midwest protected during the administration sale process?

The Court of Appeal agreed with the primary judge that Jet Midwest was protected during the administration sale process by section 442C of the Act. Under section 442C of the Act, if the administrators became aware of any parts belonging to Jet Midwest, the administrators would need to seek the consent of Jet Midwest or alternatively, the leave of a court, to dispose of those parts. A court would only grant such leave, if it was satisfied that appropriate arrangements had been made to adequately protect Jet Midwest’s interests.

Further, section 442C also provided for Jet Midwest to make its own application for orders that the administrators not carry out the sale.

Was there appropriate consideration of Jet Midwest’s damages by being deprived of the parts?

Jet Midwest argued that section 442C would not appropriately compensate it for the losses suffered. The Court of Appeal rejected this, finding that appropriate consideration had been given by the primary judge to Jet Midwest’s damages. In particular, the primary judge had drawn attention to the fact that if Jet Midwest’s claims remained unresolved after the administration period, it could bring a claim for diminution in the value of the parts being used by Rex.

Was proper weight given to Jet Midwest’s proprietary rights?

The Court of Appeal found the legislative framework of Pt 5.3A of the Act prohibited Jet Midwest from pursuing its proprietary rights during the period that Rex and Regional Express were in administration. The Court of Appeal agreed with the primary judge’s observation that the object of Pt 5.3A was to maximise the prospects of the company continuing in existence or return to creditors.

Therefore, in the absence of consent of the administrators or leave of the Court under section 440D of the Act, Jet Midwest could not bring its claim.

Would the administrators have been burdened had leave been granted to Jet Midwest?

The Court of Appeal held that Jet Midwest’s claim against Rex and Regional Express was substantially wider and more complex than contemplated by any application under section 442C of the Act. This is because Jet Midwest’s claim required the consideration of trespass and conversion, the determination of the applicable law (including limitation periods) and the quantification of damages.

Further, the Court of Appeal found that in any case, Jet Midwest’s claims were unlikely to be determined before the conclusion of the sale process. Until Jet Midwest’s claim was determined, Rex and Regional Express were not precluded from continuing to use the parts.

Should Jet Midwest have been granted leave to claim the deposit?

The Court of Appeal once again upheld the primary judge’s decision not to grant leave to pursue the claim for the deposit given the factual complexity and lack of urgency. The Court of Appeal observed that Jet Midwest’s claim could wait until the conclusion of the administration period.

Comment

This case demonstrates the difficulties owners face during the administration period in pursuing proprietary rights over assets in the possession of a company in administration, without the consent of the administrators.

Given that administrators can facilitate the sale of company property where questions of ownership exist, with leave of a court, administrators should carefully consider the impact of any sale on potential third party rights. Administrators should ensure that the disposal of assets is sufficiently structured to satisfy a court that the third party’s interests are adequately protected.