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Comment: How will traffic light changes impact travel’s future?

Green list additions may reduce firms’ financial worries, says Paul Zalkin, managing director at business advisory firm Quantuma

In normal times, most company failures are down to poor management and only in a minority of cases do external events alone precipitate corporate failure.

The unprecedented assault on the travel sector since the Covid-19 pandemic hit is a rare example of such an external event, the likes of which were last seen after 9/11 and, prior to that, because of the first Gulf War.

While furlough and other support measures have enabled companies to mitigate the impact of travel restrictions, few businesses are sufficiently well-capitalised to endure such damaging external events over a sustained period without consequence.


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Government ‘not being open’ on traffic light list decisions


The expectation is that corporate restructurings will rise sharply from as early as Q3 2021. An increase in voluntary liquidations is also expected for smaller companies less able to afford restructuring costs.

The industry is crying out for consistent, universally-accepted, international travel protocols which cater for disparate infection and vaccination rates globally.

Only then will consumers have the confidence to book and travel without fear of last-minute cancellations and financial loss.

Until that happens, all elements of the UK travel industry’s supply chain will be forced to operate in an environment which makes it all but impossible to plan and allocate resources accordingly.

As the UK government announced changes to the green travel list, France and Germany led discussions regarding quarantine restrictions for British arrivals into the EU.

Consumers making last-minute summer booking to the Balearics, and travel businesses seeking to meet that demand, have been left scratching their heads, wondering whether they were too early out of the traps.

The list of ‘safe’ destinations, according to the UK government, is of limited use. Malta was recently added to the list, but the Maltese government then imposed quarantine restrictions upon non-vaccinated UK arrivals. It remains to be seen whether other popular EU destinations will apply similar measures.

Directors of travel businesses planning beyond the next few weeks will need follow the golden rule and seek early advice from qualified professionals.

This is not only the right thing to do for their companies and creditors but, in certain circumstances – under UK company and insolvency law – the directors of a company may be held personally liable if they fail to act accordingly. Seeking professional advice to mitigate the threat makes sense.

We are fortunate in the UK to have a well-developed statutory framework which clearly defines ‘insolvency’. The law sets out what directors should do when they conclude all is not well and, crucially, what they should not do if they are to avoid sanctions which may have personal financial implications.

Experience tells us that the earlier the approach the broader the range of options, which might include raising fresh debt or equity finance, reorganising a group to dispose of non-core assets or appointing corporate finance adviser to explore a sale or a merger.

However, in some cases – Virgin Atlantic being a high-profile recent example – the use of a statutory restructuring tool may be central to the rescue strategy because the ability to compromise liabilities will be critical to the ability to continue trading.

In Virgin Atlantic’s case, a relatively new process was used under Part 26a of the Companies Act 2006, commonly known as a Restructuring Plan.

More familiar terms will be the CVA – Company Voluntary Arrangement – and administration, both of which are rescue tools under Insolvency law designed to deliver continuity for a company, or its business and assets.

Only in the most extreme cases, when there is no business to rescue, do we turn to voluntary liquidation.

For any business, and any board of directors struggling to navigate unchartered waters, all is not lost; help is at hand. Just remember the golden rule.

More: Summer booking caution revealed ahead of traffic light system review

Government ‘not being open’ on traffic light list decisions

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