At the end of last week, it was announced that Truly Travel Ltd, trading as Teletext Holidays, was another company in a long line of travel providers to enter into liquidation. Companies House information shows that Truly Travel Limited entered into a Creditors Voluntary Liquidation, as did their holding company, Truly Holdings Limited, but what is a Creditors Voluntary Liquidation, and what does it mean for consumers?
What is a Creditors Voluntary Liquidation (or CVL)?
Liquidation is a process to wind up a company that is usually insolvent, i.e. it cannot pay its’ debts as they fall due, or where its’ assets are less than its’ liabilities. A CVL can be used when a company is insolvent and the directors wish to instigate the process. The directors of the company have a board meeting to discuss the financial position of the company. They then enter into resolutions approving that the company should enter into liquidation and approving the appointment of a liquidator. As part of the process, the company has to prepare financial statements showing the state of affairs of the company, which creditors are entitled to see.
As the directors have accepted it is not financially viable for the company to continue, the purpose of the process is to realise assets for the benefit of creditors and distribute to them in a certain order. It is a terminal process as opposed to a rescue regime. This is why the website for Teletext Holidays states they are no longer taking new bookings.
Why would directors choose to put the company into liquidation?
Directors have many duties, including to promote the success of the company, avoid conflicts of interest and exercise reasonable care, skill and diligence. Once a company enters into insolvency, or is likely to enter into insolvency, the directors have a duty to the creditors of a company. The directors need to take advice on the financial position before placing the company into liquidation. If the company goes into liquidation and the directors have not acted in the best interests of creditors, they may be investigated for fraudulent or wrongful trading, which can have personal financial implications for the directors. For this reason, it is important for directors to seek financial and legal advice if they are concerned about the financial position of the company.
What if I was due to go on holiday?
Generally, most contracts will be terminated on liquidation, but if they are not terminated automatically, the liquidator also has the opportunity to terminate contracts. This means that usually the liquidator does not need to fulfil the duties of the company in terms of the contract, e.g. in this case honouring the holiday booking, however, the travel industry is in a unique position as the Travel Trust Association (TTA) provides support to consumers. The TTA have stepped in for those who have currently booked holidays to ask that all bookings are honoured. They have also confirmed that all package holidays should be able to proceed, after being re-contracted with TTA. In any event, the travel industry also has the additional benefit of ATOL protection.
What can I do if I am owed money?
Teletext Holidays previously made news headlines by not taking sufficient steps to provide refunds within 14 days during the early stages of the Covid-19 pandemic. As a result of this, many consumers did not secure refunds and the Competition and Markets Authority raised court action against Truly Holdings. The liquidation will have an impact on court action.
Anyone who is owed money and can’t secure a refund through ATOL protection or their credit card providers, can rank as a creditor in the liquidation. The creditors are invited to lodge a claim detailing how much they have lost. The liquidator will then consider the claims and either accept or reject them. Once all claims have been determined, and all assets have been ingathered, the liquidator will rank each claim based on a statutory order contained within the Insolvency Act 1986. If there are sufficient assets, the liquidator will, over time, pay out assets to the creditors.
Those that are owed money for refunds of holiday need to be aware that they are unlikely to be the only creditors. Companies which enter liquidation often have employee claims (which can include pay, pension contributions and redundancy payments), securities over properties and business creditors. Often these claims rank above general consumers meaning that consumers should consider other methods of refund such as using ATOL or their credit card provider.
If you require assistance with lodging a claim in a liquidation, or any other matter relating to liquidations, please speak to a member of the Blackadders Insolvency and Dispute Resolution Team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland.
Susan Currie, Senior Solicitor
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