Updated: Jun 18
As an industry, we are adjusting to scenarios which change by the day. Whether you’re dealing with cancellations, refunds or credits, or whether you’re trying to support your business without any revenue, your current position may start to feel like a legal mind field. Luckily, Aaron Zoanetti, Head of Travel and Events at Pointon Partners Lawyers and tour operator and founder of Green & Gold Army, agreed to give the TTIH community some legal guidance in the wake of the pandemic. Aaron gives an overview of key legal implications, including obligations to refund customers, employment support schemes, rental waivers and deferments and business exposure. Here are some suggestions to help navigate through the unchartered waters of the shutdown and the recovery.
Obligations to Refund Customers
· Picture the travel industry as an ecosystem, involving contracts and layers of relationships.
· Booking an overseas trip through a travel agent, doesn’t stop there. The travel agent books with a tour operator, who then contracts a DMC, who has local relationships with hotels and hospitality etc. who put the trip into effect. The customers contract is with the tour operator, and often the money is paid and most of the work has been done before the customers starts the trip.
· Force Majeure. Within a tour operator’s booking conditions there will be a Force Majeure provision which states that if an event, like COVID-19, was to occur, the party’s obligations are suspended – meaning the contract comes to an end. However, Aaron advises that this is not enforceable and risks customers making a claim, causing the business to most likely have to pay 100% back. A properly drafted Force Majeure should state: if we have to cancel your trip due to an event (like COVID-19), we will refund you but it will be reduced by the expenses already incurred or committed to incur, plus a reasonable amount for our own internal expenses for work already done. This would be enforceable against the customer if specified in the provisions.
· Frustration of Contract. Often booking conditions do not specify what will happen if a trip needs to be cancelled due to an event like COVID-19. This is when we need to look at principles of contract law, specifically, Frustration of Contract. This involves an objective party deciding what is a fair and reasonable outcome. In Aaron’s example from Victorian legislation, if a contract has been frustrated, the party in the contract who has paid money across, is entitled to a full cash refund. However, the court has the discretion to reduce the refund by amounts already incurred by the counter party to the contract, plus reasonable amount for work already done and overheads.
· The obligation to give cash refunds is limited, unless you haven’t occurred any expense yourself.
· We’re seeing a move to issuing credits across the industry, which protects cash flow and the whole ecosystem. If one element of the ecosystem falls over, the whole industry will follow.
· Issuing credits that are 100% or 110% of the booking value, means the customer is agreeing to a variation of contract. However, customers are better off accepting a credit than a limited cash refund.
· Given that operators are issuing credits, if their supplier becomes insolvent in this intervening period, it doesn’t excuse the operator from delivering the travel service. When an operator issues the credit, they should allow the customer to accept the risk of the insolvency of the end supplier.
· Operators cannot retrospectively change their booking conditions. Businesses should look at their conditions, see what the process is and work through the conditions with their customers.
· It is important to not mislead or take advantage of customers.
Employment Support Schemes
· If you’re a small business of 15 employees or less, you can make your staff redundant generally without paying redundancy pay. If you have more employees, there is a scale to determine how much pay is payable.
· Aaron advises that as business owners, you should stand down staff if you can.
· If you qualify for the JobKeeper program and you don’t have to stand down your employees, you can keep them working for your business. Remember, you’re still paying them; the government is just paying you that money first. Think about how you can utilise your staff right now, in terms of marketing your business and maintaining relationship with clients.
Seeking Rental Waivers and Deferments
· We are currently waiting for changed principles to be reflected in state legislation.
· From the commercial tenant’s point of view, if you qualify for the JobKeeper program, there are two options available: rent waiver and deferral. You’re entitled to a rent waiver that is 50% of the amount that your revenue has decreased by. For example, if your revenue has decreased by 80%, you’re entitled to a rent waiver of 40%. The other 60% would be deferred for the period of the coronavirus, and a reasonable period of recovery.
· Aaron suggests signing a lease variation, which puts into place these waivers and deferrals.
· This is something to be negotiated with your landlord. The negotiation points are: what is the coronavirus period and what is the recovery period. Negotiation should happen once these principles are reflected in law.
· Don’t rely on an email, make sure it’s official.
· Businesses trading whilst insolvent are liable for the debts incurred in this period.
· There have been some reasonable changes to the Corporations Act. For 6 months, there is a temporary suspension of director liability for insolvent trading claims. If you operate your business in the ordinary course, you won’t be liable for these expenses even if your business was considered insolvent.
· The ATO will not be serving director penalty notices – but is essential is that your company is still reporting the debt. If you do not report, when you receive the DPN you cannot do anything to absolve personal liability other than pay it.
· Keep trading, be careful about the debts that are incurring, and keeping reporting tax obligations.
To watch the full, Survive and Revive webinar with Aaron, head to our Facebook page. You can also contact him directly using the contact information below. To register for our upcoming live sessions, click the following link.