The unexpected failure of On Holiday Group last week has thrown into focus the status of bed banks and the potential consequences of a major failure, writes Alan Bowen of AGB Associates
The unexpected failure of On Holiday Group last week has thrown into focus the status of bed banks and the potential consequences of a major failure.
The good news, such as it is, is that OHG reports that travel agents’ funds have been ring‑fenced in a separate bank account and, provided the banks accept the situation, agents should be able to claim a refund.
Whose agent are you?
The collapse, only 48 hours after a Supreme Court decision that seemed to free bed banks of the obligation to pay VAT through the Toms scheme, has thrown up the question ‘whose agent are you?’
The bed banks nearly all claim to be an agent of the hotel, which makes the hotel the principal in the sale of accommodation.
But with the collapse of OHG, there is evidence that customers are being asked to pay the hotel again to remain in their accommodation.
That is contrary to what English law would consider to be a principal/agency relationship: it should be the hotel that stands the loss.
Flight-Plus in spotlight
The second issue relates to agents who sold Flight-Plus arrangements using OHG as the bed bank.
There is already evidence that some agents have told customers that they will have to pay again or that the accommodation can only be rebooked at a higher cost.
CAA rules clearly say it is the responsibility of the agent to rebook at no extra cost to the customer or, as a last resort, offer a full refund including the cost of flights.
This is the first time that Flight-Plus has come under major scrutiny and many agents do not realise the real cost of operating Flight-Plus arrangements.
The reality is the majority of bed banks offer no form of financial protection at all and there is no legal requirement to do so. So who pays now?
Agents should have insured against supplier failure, and many have – but those that haven’t and want to sleep at night should consider buying it immediately. I suspect, however, that the price may have risen since last week.
Who pays the tax?
The Supreme Court decision last week also leaves tax collectors throughout Europe scrutinising who pays VAT.
The whole issue began when Spanish and other EU tax agencies discovered hotels in
their country weren’t paying VAT and claiming that the bed banks were responsible.
Hotels are likely to find their local tax collector far less friendly in the near future, and potentially it could be the hotels that fail next.
And there’s another good reason to ask some searching questions of the bed banks in future. If they really are just an agent of the hotel and the hotel closes, who pays the agent back?
Liquidators of hotels may well come calling to the bed banks for the money held on behalf of the hotel, so insurance against failure becomes even more important.
For some agents, this may be a moment to revisit selling packages and avoiding the risks altogether.