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Administrators’ report makes startling Bestjet disclosures

January 24, 2019 Headline News 1 Comment Email Email


Failed online travel company Bestjet may have been trading while insolvent; it routinely sold tickets for less than their cost, and it failed to maintain client funds in a separate account “resulting in a deficiency in client funds to meet current outstanding to ticket issuers”, according to a report to creditors released by administrators Pilot Partners.

The administrators have recommended to creditors that winding up Bestjet Travel Pty Ltd would be in their best interests.

Bestjet and its subsidiaries Wynyard Travel Pty Ltd and Brooklyn Travel Pty Ltd, went into voluntary administration on 18 December 2018. Nigel Markey and Bradley Hellen of Brisbane-based accounting firm Pilot Partners were appointed as administrators.

Rachel James founded Bestjet in 2012, weeks after her husband Michael James’ international budget airline, Air Australia, went under with debts of up to AUD 100 million.

Rachel James sold Bestjet to McVicker International six weeks before Bestjet  collapsed. She has blamed the new owners for the collapse, though McVicker International was in charge for a just a few weeks before the company went bust.

Above: Screenshot from www.bestjetfiasco.org, a website set up by creditors 

The administrators say they have reported Michael and Rachel James to corporate watchdog ASIC “for failing to provide information in relation to the Company’s affairs” (“the Company” being Bestjet Travel Pty Ltd). Additionally, a report has been made to Queensland police over allegations of removal of computer and security equipment from Company premises. “It is currently unclear who removed this equipment…”

Among points the report makes is that the administrators believe “Mr Michael James may have acted as a de facto or shadow director of the Company.” It lays out reasons for that belief, including: “Mr James was a signatory on the Company’s bank accounts up to 20 November 2018. Mr James also had transactional payment rights on the Company’s accounts.”

The administrators say: “Our investigations have revealed that the director, former director and de facto/shadow director may have breached their obligations to act in good faith and in the best interests of the Company pursuant to section 180 and 181 of the Act.” [The Act being the Corporations Act 2001.]

The administrators feel that the following factors were significant in leading to the collapse:

  • The Company historically sold tickets for less than their cost;
  • The Company’s inability to maintain client funds in a separate account resulting in a deficiency in Client funds to meet current outstanding to ticket issuers;
  • Rebates historically received from Bestjet Singapore failed to materialise. The Company’s inability to obtain and recover rebates was critical to its ongoing viability; and
  • IATA seeking daily payments instead of weekly, thus reducing the Company’s working capital. This was in place from the change of ownership in November 2018 until our appointment. 

As for the sale of Bestjet to McVicker, the administrators note that McVicker International Pty Limited was trustee for the McVicker International Trust.

“The Share Sale Agreement dated 2 November 2018 executed by McVicker International Pty Ltd and Rachel James (both on her own behalf and on behalf of the Company) provided for:

  • The sale of 75,060 ordinary shares by Rachel James to McVicker International Pty Ltd as trustee for The McVicker International Trust for $1,500,000 payable on 31 October 2020.
  • A condition precedent to the sale, being the execution of the following documents by the parties:
    • Shareholders Agreement
    • Bare Trust Deed
    • Put and Call Option Agreement
    • Deed of Warranty

The effect of these conditional documents we believe is as follows:

  • Rachel James transfers her remaining 50% (75,060 ordinary shares) of her shareholding to McVicker International Pty Ltd to be held as trustee for Rachel James.
  • The Put and call Option Agreement allows McVicker International Pty Ltd as trustee for Rachel James the option to purchase 60,048 ordinary shares (40% of the share capital) in October 2020 from McVicker International Pty Ltd as trustee for The McVicker International Trust.
  • In the event that either the put or call options are exercised, Rachel James would control 90% of the issued capital of the Company by October 2020.

The panel above shows an extract from the adminstrators’ report to creditors concerning Bestjet Travel Pty Ltd

 

The administrators also note:

Unreasonable Director Related Transactions 

We have identified three (3) transactions totaling $49,127.64 made on the date of our appointment to a related party of the director. Further transactions totaling $292,052.88 have been identified in the month leading up to our appointment. We are yet to determine if these transactions constitute unreasonable director related transactions. Further investigations will be undertaken by the liquidator should creditors resolve to place the Company in liquidation.

Another intriguing point in the administrators’ report relates to an entity called OTAlab Pte Ltd.

The report says:

“OTAlab is a related company registered in Singapore of which Mr James (amongst others) is a director. OTAlab is wholly owned by ‘Sea Wagon Investments Limited’ which is incorporated in the British Virgin Islands. Searches requested from the BVI Financial Services Commission indicate that the register of directors is private and not able to be disclosed to the public. 

“We have not been appointed as administrators of OTAlab.  

The Company is in receipt of an invoice from OTAlab dated 17 December 2017 for ‘Philippines Payroll, Annual Leave and Termination Notice’ in the amount of USD 98,679.82. 

The 2017 financial year accounts we have reviewed indicate the Company’s principal activity was other IT and computer service activities and business and management consultancy services. 

Another section of the report reads:

“It appears as though some tickets purchased through the Company [Bestjet] were purchased with Wynyard’s IATA BSP. Whilst we are still investigating this, it appears that the Wynyard purchased tickets for the Company, as its agent. 

 “We believe that this was done because Wynyard appeared be able to secure better commercial arrangements with airlines than the Company could obtain. Our investigations suggest that Wynyard may have purchased tickets for the benefit of the Company’s customers, in circumstances where the Company has not paid for the tickets. It is therefore likely that Wynyard is a significant creditor of the Company in respect of monies owed to Wynyard in relation to these transactions which remain unpaid. 

 “Given the high turnover of the Company, the client monies received in these periods were considerable and accordingly the liability created may well have exceeded AUD 10 million.” 

 Wynyard Travel Pty Limited (Administrators Appointed) may be a creditor of the company for Bestjet tickets purchased through Wynyard’s IATA BSP on behalf of Bestjet. This claim is yet to be quantified but could be up to $6.7 Million.

A notable section of the report reads:

Offences

We have reviewed the books and records and affairs of the Company to determine whether a past or present officer of the company may have been guilty of an offence in relation to the Company. 

Our investigations have revealed that the director, former director and de facto/shadow director may have breached their obligations to act in good faith and in the best interests of the Company pursuant to section 180 and 181 of the Act.

The administrators have completed and lodged with the ASIC a report which outlines the  offences that may have been committed.

As previously advised, the Administrators have also reported Mr and Ms James’ to ASIC for failing to provide information in relation to the Company’s affairs.

Further investigations will be undertaken should the creditors resolve to place the Company in liquidation. A liquidator may take action against the persons identified as breaching their duties for any loss caused to the Company or recovery of any benefit obtained at the expense of the Company.  

The administrators’ report contains many revelations, some startling, others matter-of-fact. The report can be downloaded from Pilot Partners’ website here.

Written by Peter Needham



Currently there is "1 comment" on this Article:

  1. Frank Perry says:

    Is the following take on Bestjet a fair assessment? Bestjet was effectively an AFTA sanctioned ponzi scheme. AFTA, dominated by a major chain, orchestrated the lobbying of politicians to do away with the effective Travel Compensation Fund. That left the way open for any agent to sell tickets for less than cost thereby getting a reputation of being cheap. Consumers via the internet flocked to the “cheap” Bestjet (often directed to that OTA by the infamous Sky Scanner). Looking at their trading figures published by the Administrators, all Bestjet was doing was, year by year, increasing the size of the deficit in what was, or should have been, their client funds held account. As with all ponzi schemes, it was bound to blow up in the disaster it is.

    Consumers will never learn that if it looks too good to be true, it probably is. Ignorant as they are, consumers will flock to the next one to take advantage of the “cheap” fares. Who knows when and which company will be that next one? You can bet there will be more as there is no prohibition to the unscrupulous operator.

    Of course, the fallout to the legitimate trader is, he/she loses out in the form of unfair competition in the market.

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