Towards the top of our frequently asked questions here at Travlaw is “Do I need insolvency protection” or perhaps “Do I need an ATOL?”.
Our answer is usually “Well, it depends!” before we have a more in depth conversation about the details and what they mean. In this article, Katherine Peatfield discusses the top level ins and outs of financial protection generally…
Financial Protection as set out under the Package Travel & Linked Travel Regulations 2018
If you are packaging two or more travel services, where one of those elements is a flight (such as where you combine a flight and hotel), and selling to a UK citizen then, yes you will need to acquire an Air Travel Organisers’ Licence (“ATOL”) – more on that below! However, if you are creating a package which does not include flights, you do not require an ATOL; though you do require a different type of protection through one of the types listed in the Package Travel Regulations.
Insolvency Protection is, in simple terms, a scheme in which protects the consumer monies once transferred to a package Organiser (or its Agent). If you do not have insolvency protection in place as a package Organiser, you will be committing a criminal offence under Regulation 19 of the Package Regulations – pretty serious stuff! This is why we always stress the importance of having such protection in place. As mentioned, there are multiple means (though quite prescriptive) to meet this obligation – either through bonding, insurance or trusts:
Bonding (Regulations 20 & 21):
If you opt to protect monies via a bond, you must do so via an authorised institution which will arrange the purchase of a bond as well as bind itself to pay out to the consumer, in the event of your insolvency. Typically, the value of the bond collected by the authorised institution is calculated based on a forward estimation of 12 month period of holiday bookings, and on various other financial assessments of the company.
Insurance (Regulation 22):
This is exactly what it seems – an insurance policy and therefore in simple terms works as such! Nonetheless, the insurance policy must specifically provide protection to the consumer’s monies in cases of insolvency of the package Organiser. Again, pricing is usually based on the estimation of risk based on forward booking expectations as well as other business financial assessments.
Trusts (Regulation 23):
If you opt to acquire insolvency protection via a trust, there are a few requirements which you must follow. Whilst the Regulations do not set out any great detail on that front, simply having a separate account for the monies and calling it a ‘trust’ will not suffice. Instead, the monies paid to you by the consumer for the package which you are selling them, must be:
- paid into a trust account;
- which is managed by an appointed trustee who is independent to your organisation; and
- the costs payable to the trustee for managing the trust account must be paid by the paid by the Organiser.
The Post-Brexit Effect
One last consideration to include is the effect which Brexit has had on this entire situation. Pre Brexit, insolvency protection providers, no matter where those providers were based, were recognised by all EU member states. Therefore if you had acquired insolvency protection from a UK provider, this would be recognised in any EU state and you would be meeting your obligations to provide packages to both EU and UK consumers. However, since Brexit, UK providers are still recognised by the UK, but not by any EU member state. Therefore, if you are also offering packages to any EU residents, you will need to acquire two different insolvency protection packages – quite a change, as things stand.
Feel free to watch this webinar which Travlaw Partner, Nick Parkinson delivered alongside Julie Jones from Arcus Solutions late last year, which discusses possible solutions to this post-Brexit barrier:
We realise this is quite a complex, but critical, component to ‘get right’ as a package Organiser-therefore, please feel free to contact us. We can talk through whether you require the protection, and put you in touch with any of the reputable insolvency protection providers throughout the UK whom we have as contacts.
For more information on this area please feel free to reach out to Katherine@Travlaw.co.uk or call 01132 580033.
This article was originally published on: 22 August 2023