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BBT March/April 2019 cover
March/April 2019

Legal: When the money stops

A pile of past due bill notices

What can TMCs and corporates do to ensure payments flow efficiently in hard times?

In an uncertain economy, travel bookings might fall, suppliers may become insolvent and clients fail to pay on time. Steps can be taken to protect cash flow to shield your business.

Clarity in contracts
Contracts between TMCs and corporates should be clear on what happens when payments run into default. Point-of-sale payment systems, such as a lodge card, should be considered, and a method for commissions to be paid regularly. This should ensure that the TMC can pay BSP payments on time.

Contracts can provide that the buyer offers security, often in the form of a deposit, or a cap on total credit, an insurance policy against supplier failures or trade indemnity. General indemnities can guarantee payments for breach.

Termination clauses
Contracts should set out all the circumstances when you can terminate, including stopping working for the client in default, and to stop providing tickets until all outstanding payments have been met. You should be sitting across the table from the debtor understanding how quickly payments can be met and how your outstanding amounts can be top of his pile rather than at the bottom.

When all else fails
If you have exhausted the remedies in the contract, you may need to discuss next steps with lawyers, or consider getting far more aggressive in seeking to collect the sums due:

1 Statutory demand
This is a form that is easy to complete and it will set out how the debt has arisen and its full value and must be served at the debtor’s registered office. The debtor has 21 days in which to make payment or to challenge the demand by saying it is disputed. Disputed claims cannot be dealt with under this method and you may wish to consider legal steps to start a court claim to recover the monies due (see below). If the 21 days runs out without payment for an undisputed debt, you are entitled to issue a petition to wind up the debtor. This is a significant step as the petition and the hearing date endorsed on it must be advertised in the Gazette, which will have the effect of freezing the debtor’s bank accounts. If the debtor disputes the debt, it must seek a court injunction to avoid this.

2 Collections and part payment
If you are making a partial collection of the monies due, be careful that this is not seen as a settlement of the debt for a lower value. It should be made clear that until the debt is finally discharged, default on any instalment will mean that the full balance falls due. This will allow you to serve a statutory demand for further default.

The downside of winding up
The procedure is not cheap – there are substantial court fees payable on the issuing of the petition. Even if successful, your debt is likely to be one of many trade debts and you have no priority to be paid.

Debt recovery in the courts
You can bring a claim to recover the monies due to you, but the procedure is expensive and slow. There are provisions allowing you to seek early judgement when there is no reasonable defence to your claim. However, you won’t get paid until you either succeed to get summary judgement or win at trial. By that stage the debtor may have been wound up by other creditors.

In a post-Brexit world, poor cash flow makes it imperative to ensure payments for travel bookings are made promptly.

Ian Skuse is a partner in Blake Morgan’s travel team (blakemorgan.org.uk). He welcomes your feedback at ian.skuse@blakemorgan.co.uk

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