Mark Pestronk
Mark Pestronk

Q: I would like to sell my travel agency, but I am facing a problem that may prevent me from doing so. Specifically, I have a large shortfall bill under my GDS contract for failing to make sufficient bookings in 2020. Once I get my bill for 2021, the total due for both years will probably be tens of thousands of dollars. Is there any way to get out of this debt by selling my agency? Did I personally guarantee this debt to my GDS vendor? Could I even sell my agency at all with this debt hanging over it?

A: There are several solutions available to you, although not all are equally attractive. Going from worst to best, here they are, as I see them:

• First, as you probably suspected, you could not get out of this debt by selling your agency and then just closing your corporation. Your corporation's GDS contract would still be in effect, the corporation would still owe the money, and if you dissolved the corporation, your GDS vendor could sue you personally.

• Second, two out of the three vendors have clauses in their standard contracts providing that, if your agency goes out of business without an acquisition, and you settle any outstanding bills, the vendor will terminate the GDS contract. You could then go to work as a consultant to the agency that would otherwise have been your buyer, and your consulting fees could be geared to what would have been the purchase price if you had sold.

One problem with this approach is that it does not do away with the existing shortfall bill, although you could undoubtedly settle it for a much smaller amount if you are going out of business. Another problem is that consulting fees are taxed as ordinary income, while proceeds from the sale of assets or stock are taxed at a lower rate as capital gain income.

• Third, you can probably renegotiate your GDS contract to do away with some or even all of your shortfall bills and then sell. However, the revised or new contract would be seen as unattractive by most buyers. You would probably have both a longer term and lower incentives per segment.

• Fourth, you could try to find a buyer that is big enough to assume your existing contract and do away with your shortfall bills by having its own contract quotas increased proportionately. If the buyer is large enough and confident that it could take on the higher quota, the increase would be fairly insignificant to it and would not necessarily affect the purchase price for your agency.

The best ways to find such a buyer are through your contacts with your consortium, franchisor or trade association or by using a broker such as Innovative Travel Acquisitions.

By the way, I have never seen a GDS contract that was personally guaranteed. However, if you operate as a sole proprietorship or partnership, you are personally responsible for the contract debt, by definition. 

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