Q: In past columns, you have urged buyers of
travel agencies not to wait for ARC approval of the change of
ownership of the seller's location. When you are advising sellers,
is your advice the same?
A: No. Unless you trust the buyer with your
money and your future happiness, you should wait until ARC approves
the change of ownership of your location.
The huge risk here is that, if you turn over your blank ticket
stock to the buyer prior to ARC approval, the buyer could issue
lots of tickets and not pay for them. As far as ARC is concerned,
your agency is liable for the debt. It makes no difference if the
parties already have applied for ARC approval but have not yet
obtained it. The pendency of the application means nothing to
ARC.
If the buyer intentionally fails to pay for tickets, ARC will
not only hold your agency responsible but will also try to come
after you personally.
ARC believes that these facts constitute fraud by the selling
owners, and that fraud constitutes grounds for personal liability
for stockholders in a corporation.
Despite this risk, in my experience, most sellers "jump the gun"
and go to closing in advance of obtaining ARC approval of the
change of ownership. They apparently trust the buyer, believe that
the benefit of controlling the timing of the transaction outweighs
the risk or are simply oblivious to the risk.
If you are fairly certain that you can trust the buyer, but you
are not entirely sure, you can adopt interim measures designed to
prevent a default from happening prior to ARC approval.
For example, you could require that no ticket or e-ticket be
issued without your approval, that you have the right to monitor
the ARC bank account and that the buyer cannot grant credit to any
new clients. If you are still not comfortable, you could maintain
control over the door locks, safe deposit box and safe.
All these protections must be carefully spelled out in the
acquisition agreement. Otherwise, once you go to closing, you have
no rights whatsoever to continue to control any aspect of the
business.
If you still have qualms, then you should definitely delay
closing until after ARC approval, as such approval relieves you
from liability for tickets issued after the effective date of
approval.
Mark Pestronk is a Fairfax, Va.-based attorney specializing
in travel law. He answers your questions in the Crossroads' Legal Issues Forum.