The Grounding of Bray Travel

Less than three months after the collapse of Bray Travel Ltd, the company's founder and managing director, Mr. Adrian Hopkins, is already planning to re-enter the travel business. This time he will start with personal wealth of more than a quarter of a million pounds.

More than £340,000 in cash and cheques disappeared when Bray Travel collapsed in December. The money was paid by would-be holidaymakers, much of it in the last ten days, in response to telephone threats that holidays would be cancelled if they were not immediately paid in full. Some of the cheques were cashed hastily by special clearance.

The financial controller of Bray Travel, Mr. Heath Tyrell, drew up a rough statement of affairs for the provisional liquidator, purporting to show the position on December 17. The statement makes no reference to any cash or bank accounts whatever. The staff had not been paid for three weeks. The liquidator, Mr. Michael Gribben, says he is "very concerned about where this money went". He has requisitioned bank statements to check the matter, but "at this point in time he cannot comment, other than that it appears to have been used to pay pressing creditors for previous periods."

A number of creditors of the failed travel firm are still considering whether to hold their own investigation of the company's affairs, in an attempt to examine if the directors continued to trade even when they knew it was insolvent. If this were so, it would mean that Adrian Hopkins and his wife, as rectors, would become personally liable for Bray Travel's debts. Creditors argue that the telephone appeals for cash several days before the crash, and the sheer scale of Bray's insolvency - it is some £ 1.5 million in the red - suggest that the directors must have known things were out of control for some time.

This is strongly denied by Adrian Hopkins. Although his travel agency and tour operations had been in difficulties for several months, at the last moment a Dublin bank seemed to come to the rescue. They had not dealt with Bray Travel before, but thought there should be no difficulty in providing a six-figure guarantee, secured on Hopkins' personal assets. But the bank's board refused to sanction the deal. Hopkins never received a letter of confirmation. The cash squeeze became critical.

On December 12, Hopkins was obliged to write a letter to Blandford and Houdret, handling agents for the Spanish airline Aviaco, acknowledging a debt of just over £56,000 stg. and paying IR£16 ,000 as a first instalment. But by December 15, Bray was unable to meet its regular mid-month payment for IATA tickets it had sold in its role as retail travel agent. In the light of the massive sums owed by Bray, it seems unlikely that the bank's failure to fulfil its commitment made much difference.

As early as April last year – seven months before the collapse – Bray Travel wrote a letter saying that "...the package holiday business in Europe from the end of last year to the present time has been absolutely disastrous . . . we have no choice but to drastically reduce our commitments for both accommodation and aircraft seats. . . we regret that we shall not be in a position to guarantee contract for the forthcoming Summer. . . if we were to be fully realistic, the right decision for us would be to cancel our entire operation."

But the letter concluded "we believe matters will improve in the long term, and we are therefore prepared to carry on. . . "

Bray did seem to think it could keep going. As late as November 26, Bray was advertising for a senior manager to run the business in Northern Ireland. (Despite the rumours in the travel trade about Bray's troubles, they found someone for the job.) Less than three weeks before the crash, the company was still entering in to contracts with hotels in the Canaries. The end came only when Aer Lingus withdrew the IATA tickets and Aviaco suspended flights. When the liquidator, Michael Gribben, arrived on the afternoon of December 18, the staff were holding a Christmas party.

Bray Travel had been one of the pioneers of the tour business in this country. Along with JWT it was largely responsible for bringing in foreign airlines - notably Transamerica and Aviaco - to compete with Aer Lingus for charter business. (It was partly to compensate for the sharp loss of business this caused that Aer Lingus itself went into tour operation with Enterprise and Blueskies.) Bray Travel began in 1969 from a leasehold shop in Main Street Bray. Last year, despite the recession, it had an estimated turnover of some £7 million, accounted for some 20 per cent of the Irish tour market, and 35 per cent of holidays to the Canaries.

The company appears to have had only an approximate idea of its true financial position. Not only had there been no audited accounts since 1975, but the accounts for 1978 were only being finalised when the crash came at the end of 1980. (The accounts for Bray Travel Holdings Ltd., the private company controlled by Hopkins, and which owns the group's properties, are fully up to date and have been audited for the year ended June 1980.) According to the statement of affairs drafted by Heath Tyrell for Bray Travel Ltd. on December 17, all the unsecured creditors should get 79p in the pound.

This was calculated on the assumption that Aer Lingus and Enterprise together owed Bray some £400,000, and that the airlines and trade creditors together were owed only some £541,000. Within weeks, these creditors had submitted claims for well over double that amount. The Aer Lingus and Enterprise sums turned out to be legal claims which had not been pursued and were strongly disputed, while Aer Lingus counter-claimed for some £150,000 due for charter flights and ticket sales.

But if the financial expertise was lacking, knowledge of the Companies Act was not. From the beginning Adrian Hopkins, advised by Matheson, Ormsby and Prentice, established separate, limited companies for each branch and expansion of what was acknowledged to be an unavoidably risky business. He began in April 1969 with Bray Travel Ltd., and Bray Caravans Ltd., (renamed Bray International ten years later). He built up a network of separate companies for the offices in Dun Laoghaire, Cork, Cathal Brugha Street and Belfast.

In the early seventies, he protectively registered a number of companies including Sky tours and Jetsave named after established English tour operators, who were thus prevented from setting up in the Irish market under the same names.

With minor exceptions, there were only two directors of these companies, Adrian Hopkins and his wife, Stephanie. The paid-up capital in most cases was also minimal - usually only £100, though for Bray Travel itself it was £3,000.

In 1974, Hopkins began the consolidation of the business with the setting up of Bray Travel (Holdings) Ltd. This had an authorised share capital of £5,000 from the start, though at first only two £1 shares were actually taken up. Holdings was not activated until November 1977. Its rules were amended to include four new purposes: it was to be able to provide computing, managerial, secretarial, actuarial and calculating services; it could provide industrial, business and management consultancy; it could act as financiers to make loans and promote sales of of equipment for cash or credit. Finally, Holdings was empowered to act as a general investment company to hold stocks, shares and bonds of all descriptions. It now describes itself officially as an investment company.

At the same time, the authorised share capital was increased from £5,000 to £200,000, notably by the creation of £150,000 of 10 per cent redeemable cumulative preference shares. On December 18, 1979 (ironically exactly one year before the collapse) Bray Travel and three of the other companies in the group pumped substantial assets into Bray Travel Holdings. Bray Travel (CB) Ltd. - the Cathal Brugha Street office - bought £10,000 worth of Holdings preference shares. So did the Dun Laoghaire and Cork companies. Bray Travel Ltd. invested £ 100,000 - all for a return of only 10 per cent p.a.

The preference shares carry no votes. They are not entitled to share in any profits made by Holdings. They are due to be repaid at face value in 1987, but can only be repaid before the date with the consent of the ordinary shareholders - which means Mr. Hopkins.

Bray Travel a!so bought 81 additional ordinary shares in Holdings, and the other three £10 each. But as Adrian Hopkins simultaneously subscribed for £800 of vote-carrying ordinary shares himself, control of Bray Travel (Holdings) was and still is firmly in his own hands.

These shares, according to the file in the Companies House, were allocated for cash. This implies that whatever the difficulties in the travel trade, Bray Travel was able to find £100,081 exactly 12 months before it ran out of money. At that time, cash of over £25,000 placed on deposit with a non-associated bank would have earned at least 16.5 per cent p.a.

So far as Bray Travel Ltd., its suppliers, employees and customers are concerned, the decision to invest £100,000 for up to eight years for a guaranteed return of only 10 per cent made no commercial sense. For Holdings, it made a lot of sense. Almost immediately, the money was used to buy most of the property used by the actual travel companies: the premises in Cork, the lease on Main Street, Bray, and St. Helens, Bray. Holdings was also to buy the interest in the Cathal Brugha Street office and provided the fixtures and fittings for Bray Travel (Dun Laoghaire) Ltd.

There is evidence that this process of transferring assets from Bray Travel - the company that incurred the day-to-day commercial risk - into Hopkins' Holding company, continued as late' as September last year less than three months before the end.

The properties were leased back to the operating companies on terms that would have resulted in substantial cash transfers from the tour operations to the Hopkins' Holding company in future years.

Thus the Cork company held a nine year lease from July 1978 at a rent of £6,000 a year for the first three years, payable to Bray Travel Holdings. But "in the absence of agreement between the parties" i.e. between Holdings, run by Hopkins, and Cork, run by Hopkins, the rent could have gone up to £25,000 a year from 1981 to 1984, and to £50,000 a year for the three years to July 1987. (This rent from the Cork operation a!one would have been sufficient to redeem the preference shares in full. In effect the companies, having lent Hopkins' company £130,000 were to repay themselves.)

The rent for the main property in the group, the St. Helens mansion at Killarney Road, Bray, could have climbed to £30,000 a year from 1982 to 1985 and to £60,000 a year for the three years ending July 1988. The official liquidator, Mr. Michael Gribben, has already commissioned Lisney & Son to value these properties. He says the possibility that the properties were "sold" to Holdings at below market value "has not escaped my attention over the past few weeks." But he does not expect to be in a position to comment further for another four to six weeks, when he will have reports from Lisneys and perhaps other auctioneers, together with reports from other investigations he is carrying out.

If it were shown that the properties were sold cheaply, Bray Travel would have a claim against Holdings for the difference. But the amount, if any, is likely to be relatively insignificant in terms of Bray's total debts, and not sufficient to force Holdings into liquidation. Hopkins himself insists that investigations will prove Holdings did pay full market value.

It is true that Holdings did pay a certain amount more for the properties than it received for the preference shares, and it paid cash. But the preference share deal alone was "below market value". Fixed interest paper carrying a ten per cent coupon should really have been priced not at face value but at around 66 pence a share to give a more realistic yield of 15 per cent.

There is also evidence that the properties are undervalued in the Holdings balance sheet. The Cork premises - 1,600 square feet of offices on four floors on a 140 year lease - has been on offer at £ I 00,000 minimum. St. Helens, Bray, is estimated by local auctioneers to be worth perhaps £100,000 as it stands. But it is also prime building land covering nearly 2.5 acres. There is a request for full planning permission for 78 houses on some 7.5 acres behind and beside St. Helens, which if given the go-ahead will leave St. Helens almost an island in a housing estate.

On the other side land currently zoned for industrial use is likely to be re-zoned residential under the Bray development plan which is now in the final stages of preparation - a change which would further increase the potential of St. Helens. With sites in the area selling for £ I 0,000 to £ 15,000 each, the development value of St. Helens may well be in excess of £200,000.

Holdings audited accounts for the year ended June, 1980, show a surplus of £130,000 and no debts due to Bray Travel Ltd. An attempt to put Holdings into liquidation ended in the High Court on February 23 when Aviaco's agents, Blandford and Houdret, accepted a promise from Holdings that cash or property worth £60,000 would be frozen pending a final determination of the debt. B & H are claiming more than £50,000 on the basis of a letter written by Hopkins on Bray Travel Holdings notepaper, even though the debt was incurred by Bray Travel Ltd.

In court, counsel for Holdings, Frank Murphy, said Holdings, a property holding company, wanted the choice of freezing either cash or property "because the company does not want to be over-restricted in what it does." This appears to undermine an earlier pledge given by Adrian Hopkins to the liquidator, Michael Gribben. Gribben had demanded that Hopkins would not do or permit any transaction of any kind whatsoever concerning the assets of the companies - including Holdings - without his prior consent. In his reply, Hopkins said" . . . we do not contemplate anything which might be relevant, and all consent required from the official liquidator and the court will be obtained." He concluded "we are not remotely contemplating or engaged in any activity to the detriment of the assets available to you in the liquidation."

The assets which made it possible for Bray Travel to generate turnover of £7 million, are not available to the liquidator.

CLIENTS MAY YET BE REPAID

A SPLIT has developed within the Irish Travel Agents Association over possible compensation for people who lost their holidays in the Bray Travel collapse. Officially the Association says it is not responsible, and has offered only £35 credit to people who book and pay for another holiday before the end of March.

The Association has not even ruled that agents must hand back the 10 per cent commission which they pocketed from the sale of Bray Travel holidays which never took place - this is a matter for the individual travel agent to decide. Some have refunded clients in full from their own resources, others have done nothing.

A number of the retail agents around the country believe that this attitude is giving their business a bad name, particularly at a time when the Association is seen to be spending substantial sums on TV and elsewhere urging people to "get a professional working for you." Mr. James Loftus, managing director of Intercontinental Travel, has formed a committee to work for the eventual compensation of Bray clients in full. He hopes that this will be done through an interest-free loan from the Government to the IT AA, repaid through a levy on members, as proposed in the Bill being put forward by Fine Gael. Alternatively, a voluntary levy of £1 a head on every passenger leaving the country would raise about £700,000.

He puts the blame squarely on the successive Government ministers who, for the past five years, have ignored ITAA requests to introduce licensing for tour operators. The Association, he says, cannot oblige members either to pay levies or to remain in the Association. (A circular requesting funds has already been sent out by the Association, which if fully complied with, will raise £1 million by mid-summer.)

The committee representing the clients of Bray Travel now believe they have enough evidence to force the issue. They say the IT AA clearly accepted responsibility for compensating people who lost their holidays when Sunjet collapsed in February last year. The only difference, they say, is that the Association does not want to have to find the £300,000 plus involved in the Bray crash. The committee say they have been told of several instances where former Bray clients seeking to take up the £35 credit have been asked to sign documents which may take away their rights to any further compensation.

Their advice is to take the £35" if you can, but on no account to sign anything which might let the local agent or the IT AA off the hook.