USTOA In Travel Market Report

Published Jan 14, 2020 12:00AM

Do Travel Advisors Have Legal Recourse When a Supplier Goes Bust?

First, business failures, like Excite Holidays, typically occur without warning. Everyone is caught by surprise, especially when the failure involves a company with a long-standing business, good reputation and apparent financial health. Since these companies are almost always privately held, no one outside the inner financial circle ever really knows what the cash flow and other telltale signs are until it is too late.

Second, tour operators usually have few hard assets that can be converted to cash, even in the rare case when such assets can be sequestered for later liquidation. By the time the operator begins to dishonor payments to suppliers and other commitments, the cash supply has been exhausted. This happens even in the case of the most honest and committed managements. Unfortunately, in some cases, managements that see the handwriting on the wall will exhaust the cash and any other liquid assets by paying themselves or otherwise disposing of the funds.

Third, and this is important to understand when a company fails, the state and federal laws governing insolvency and bankruptcy come immediately into play. One very important effect of that is the “automatic stay.” Even if an advisor in a contractual relationship with the failing tour operator has an apparently ironclad agreement with financial protections, all litigation against the failed business is normally suspended immediately upon any filing for protection in insolvency or bankruptcy. The reason for that rule is that the law provides for certain priorities of distribution of any remaining assets of a failed business to prevent favoritism on behalf of the management or on behalf of some creditors over others. The bankruptcy regime is very complex and is designed to assure that all creditors are treated fairly if there are distributable assets remaining after the cessation of business. However, as noted above, in the case of most tour operators, there are no meaningful assets remaining by the time the failure is discovered.

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