Attempts to sell Lowcost’s assets thwarted by lack of interest and regulation

Attempts to sell Lowcost’s assets thwarted by lack of interest and regulation

The administrator of Lowcost Travel Group has confirmed losses of tens of millions of pounds from the collapse will be borne by banks and credit card companies.

The travel group, including OTA Lowcost Holidays and trade supplier Lowcost Beds, failed on July 15 with 27,000 customers abroad and 110,000 forward bookings.

In a statement released today, the administrator Smith & Williamson reveals attempts to sell the firm’s database were thwarted due to data protection regulations in Spain.

Ironically, Lowcost moved its OTA to Palma, Majorca, in 2013 to take advantage of the lighter touch regulatory regime in the country for protecting customer money.

Leaving the UK’s Atol financial protection regime was said to have been part of the reason why the firm failed following warnings to consumers at the time from UK regulator the CAA.

Addressing the firm’s assets, Smith and Williamson, said: “Once appointed, the administrators sought to preserve value although it was clear that the company had few realisable assets and that the value of those assets was fast eroding.

“Attempts to sell significant parts of the group’s business by the directors had failed in the immediate run up to the date of the administrations. Notwithstanding this, the administrators immediately sought to sell any parts of the group’s business which were saleable.

“As it transpired, there was unfortunately very little interest in acquiring any sizeable parts of the group’s business.

“The principal assets remaining were intellectual property assets (essentially IT systems and the group’s databases) and the administrators sold elements of these.

“There was considerable interest in the group’s database, held by the Spanish subsidiary, but despite extensive efforts it was not possible to conclude a sale of the database due to strict data protection provisions applying in Spain.

“The administrators continue in their efforts to realise value from other remaining assets of the group.”

The statement said the “total estimated shortfall in assets for the group and its subsidiaries… runs into many tens of millions of pounds”.

Smith and Williamson said the full financial shortfall will not be known for some time due to the complexity of the company and the number of “inter-group balances”.

However there was good news for customers in that many who paid by credit or debit card are getting their money back and an adjudication process is underway with Paypal.

The issue for the industry is that the losses are “simply moved elsewhere”, in this case to financial institutions so there will be a concern that they will revise their risk assessment of travel and what this means for merchant terms.

There was also bad news for any other creditors: “Due to the size of the financial losses facing Lowcost and its subsidiaries, compared to the value of the remaining assets and the number of creditors, it is likely that any eventual dividend paid to creditors will be negligible,” said the statement.

 Switzerland-based Lowcost Beds has entered the Swiss bankruptcy process on August 25, and an investigation is underway into the conduct of directors prior to the failure.

  “As with all formal insolvency appointments, the administrators  have a statutory duty to investigate the behaviour of the directors prior to the failure of the business and to make a report (which remains strictly confidential in all cases) to the Department for Business, Innovation & Skills.  These investigations are ongoing and will take some months due to the complexity of the business,” said Smith and Williamson.

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