We now live in a different world. Cash is king and guarantees might not be worth the paper they are written on. Some businesses fail, not due to their own performance, but because they cannot get paid by customers, or their suppliers are out of business. Business travel is no different, and in a way is more exposed than other sectors due to the concept of pipeline money, for example, money passing from the corporate to the TMC to the supplier who is to perform the service. Insolvency along the chain can give rise to difficulty. I set out below particular areas where corporates, TMC’s and suppliers need to take particular care:-

Getting Paid

• Contracts
  
  I cannot emphasise enough the significance of having a proper contract in place for your dealings with suppliers and customers. A well drawn Travel Management Services Agreement, or Airline Agreement will for example set out payment terms, the consequences of late payment, such as accruing interest, and the ability to terminate and its consequences.
  
  
• Negotiating Late Payment
  
  Payment default may be an early sign that the other contracting party is close to collapse. This should trigger negotiation and consideration of how to protect your business. The best position to be in is to take security against future non-payment. Taking cash is unlikely, but you may be able to negotiate a bank guarantee, or insurance bond, or obtain a personal guarantee or mortgage over a director’s property. Trade Indemnity Insurance is possible, but difficult and expensive to obtain in the current market.
  
  
• Limiting Credit
  
  One way to reduce your exposure to a failing business, is to agree that your supply will not exceed an agreed financial level. Often this is linked to the value of the security you may have obtained.
  
  
• IATA Agents
  
  If you are an airline, many IATA agents provide no bonds at all, and when there is a BSP default, any bond will be collected and set against the monies due to the airlines before any distribution takes place. Airlines who have taken security are often excluded from this process. IATA are in a strong position to collect money from the administrator of an insolvent agent due to monies collected for tickets being held by the agent on trust. However, collection distribution back to the airlines may take some time, even if the funds are there.
  
  
• ATOL
  
  ATOL protected products will normally protect pre-payments, and recovery is assured, although may take some time.

Making Payment

• Credit Card Payments
  
  Section 75 of the Consumer Credit Act 1974 makes a credit card company, whose card has been used for a transaction, jointly liable with the trader, where the trader does not provide the service, and this law now includes overseas transactions. This protection does not apply to debit cards.
  
  
• Airlines
  
  Scheduled airline failure insurance has got to be a sensible precaution against the failure of an airline.
  
  
• Contracts
  
  Again, a well drawn contract should protect your business and include your ability to terminate the contract, particularly where there is a suspicion that the other party cannot afford to pay its debts or provide the service, but before it falls into administration. You should avoid situations where you are using your own money to pay for your client’s services, unless you are sure that you are going to get paid yourself. For those organising conferences and events, beware using your own money to pay deposits overseas to book land arrangements and hotels if you cannot pass this risk back to your clients. Your contract should address the issue of who carries the risk when a supplier goes bust.

Making a Claim

It is always preferable to meet the other party and try to structure a settlement when financial default occurs. This may involve payment by instalments, the taking of security as indicated above, or trading on new terms. Stronger action might include the service of a Statutory Demand under the Insolvency Act, and if this does not produce money, then you may serve a Winding Up Petition to place the defaulting company into administration. Alternatively, legal action through your solicitor can seek a recovery and place you in a better position possibly, than the company’s other creditors. For companies that have fallen into administration, you will need to deal with the administrator. Sometimes all is not lost – you may be able to negotiate continued trading through the administrator, conditional upon increased rates, trading on a cash basis, or only trading on the basis of recovery of the arrears.

Getting out of trouble

For those coporates, TMC’s or airlines getting into financial difficulty themselves, directors have to be extremely careful that they do not trade unlawfully by continuing business when they are insolvent and unable to pay their debts – this carries a personal liability against the directors concerned. If in doubt, you will need urgent advice from a licensed insolvency practitioner.