08 JUN 2015:  Last November TravelBrands threw a party for industry partners at which CEO Frank DeMarinis boasted that the company they had bought from Thomas Cook just 18 months earlier had returned to profitability.  So what happened? Last week, barely six months later, Travel Brands owes its creditors $115.9 million and is under credit protection while it restructures.

TravelBrands commenced these proceedings under the Companies' Creditors Arrangement Act  (CCAA) to provide it with the necessary time and stability to restructure certain isolated areas of its business.

A press release says, “After acquiring what was then Thomas Cook Canada Inc., the Company made significant effort to address challenges associated with the business – and has been largely successful. There are certain remaining isolated legacy issues that are significantly impacting TravelBrands' financial performance that can only be sufficiently addressed within the confines of CCAA legislation.”

Legacy issues

So the question is, were these “legacy issues” not apparent six months ago?  

In fact when Red Label Vacations bought Thomas Cook North America for a jaw dropping bargain rate of $5.3 million the company had a reported asset value of $255 million – so it seemed reasonable to assume that the deal had some hefty liabilities that Harriet Green the canny (then) CEO of the UK parent company of Thomas Cook who was slashing costs and dumping underperforming assets was determined to lose.

Insiders guessed (correctly as it turns out) that a hefty piece of those liabilities pertained to the Sears deal and the office building at 75 Eglinton Avenue.  However, no mention of any liabilities was made in the announcements at the time.

According to an internal memo from Dean Moore, the (then) CEO, the company was to have two principal shareholder Groups - the majority shareholder, Red Label Vacations Inc (RLV) with certain members of the TCNA senior management team having a minority interest.

Moore said that in the short-term, "it is very much business as usual.”

Business as usual

Moore was gone within months, but Frank DeMarinis holds to the same party line – it’s “business as usual.”

"TravelBrands enters CCAA with the support of its creditors and investors. We will emerge from creditor protection financially stronger, more competitive and well-positioned for the future."

“Customers are not affected,” he said.

Except, of course, it’s not business as usual and customers are affected.

The F word

TICO told us that TravelBrands continues to hold both a retail and wholesale registration with TICO and that TICO Management is monitoring the situation closely.

But is that enough?  Let’s think the apparently unthinkable … that TravelBrands does not pull out of this crisis.  Given that it operates a fistful of wholesale and retail brands the hit on the Fund would almost certainly be substantial – perhaps the highest ever.

A large number of TravelBrands creditors are travel agents and tour operators, and here’s who, according to TICO,  can claim from the fund.

1.    Consumers – a consumer may claim when they have purchased their travel services from an Ontario registered travel agency and they have not received their travel services due to the bankruptcy or insolvency of either a registered Ontario travel retailer, Ontario travel wholesaler or cessation of an airline or cruise line.

2.    Travel Agents – an Ontario travel agency may claim when they have provided a reimbursement or alternate travel services at their expense to reimburse a consumer who purchased travel services which were not provided due to the bankruptcy or insolvency of a registered Ontario travel wholesaler, airline or cruise line.

3.    Travel Wholesalers – an Ontario travel wholesaler may claim when they have provided a reimbursement or travel services at their expense to reimburse a customer who purchased travel services which were not provided due to the bankruptcy or insolvency of a registered Ontario travel retailer.

The Compensation Fund does not protect trade debts between registrants and suppliers, nor does it reimburse travel agents for any outstanding commissions that may be owing as a result of a failure.

For travel agents that’s not “business as usual.”

Now here’s another curious fact – a number of creditors on that list are owned by TravelBrands.  How does that work?  As registrants could they apply to the fund for reimbursement?

In fact the largest (by far) creditor is 2224855 Ontario Inc. at TravelBrands' 5450 Explorer Drive Mississauga address. The   holding company is owed a whopping $71,450,000.

30 days

Under the Initial Order, among other things, TravelBrands was granted a 30 day stay of proceedings (though the company may apply for an extension), preventing creditor claims against the Company and its subsidiaries during the CCAA process.

The court also noted that the TravelBrands is “entitled but not required to pay” (our italics) – “all outstanding and future wages, salaries, employee and pension benefits, vacation pay and expenses payable on or after the date of this Order.”

They are also not required to pay, “all outstanding or future commissions, loyalty points, override payments, marketing funds and amounts owing to travel agents in connection with the company’s sale of travel products.”

A Notice to Creditors from the Court stipulates:

all persons having oral or written agreements with the Company or statutory or regulatory mandates for the supply of goods and/or services, are hereby restrained until further Order of this Court from discontinuing, altering, interfering with or terminating the supply of such goods or services as may be required by the Company, provided that the normal prices or charges for all such goods or services received after the date of this Initial Order are paid by the Company in accordance with normal payment practices of the Company (our italics) or such other practices as may be agreed upon by the supplier or service provider and each of the Company and the Monitor, or as may be ordered by this Court.

“The Initial Order prohibits the Company from making payments relating to the supply of goods or services prior to May 27, 2015, other than payments to certain parties specified in the Initial Order and in accordance with the Initial Order.”

How enforceable that must-continue-to-do-business clause will be in regard to non-Canadian suppliers remains to be seen.

At IPW 2015 in Orlando last week, a cheerful Frank DeMarinis and his more subdued team, were in ‘Business as usual’ mode - in fact they received a Chairman’s Circle award - but off the record, some suppliers said they would take a ‘wait and see’ position with regard to the future.

Certainly everyone hopes TravelBrands will extricate themselves from this situation with as little damage or fallout as possible.

But hotels, airlines, other tour operators, car rental companies, media outlets (though not Travel Industry Today) and any number of travel and non-travel businesses, are all owed varying amounts by TravelBrands.  

While not all the amounts are large (though some are substantial)  many companies will be able to shrug it off for the moment and proceed with their business.

However, smaller companies, independent travel agencies, home based agents and others reliant on regular payments on the work they do to earn a living could face serious difficulties faced with a hold on payments due.  Can they afford to continue booking TravelBrands?

It’s not business as usual for these people.

It's not business as usual for staff who have been terminated or laid off or who are worried that they may be.

It’s not business as usual for suppliers waiting to be paid.

It’s not business as usual if the fund gets hit.

Last November Frank DeMarinis was quoted as saying the success of the turnaround plan and the company’s return to profitability, was a result of “thinking outside the box.”

Six months later with now almost $116 million owed creditors - perhaps it’s time for a new look in a new box.

List of creditors

Notice to creditors

Initial order

 

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