Cessation of an airline’s activities

When the reason for the flight cancellation is due to the cessation of the airline’s activities, the remedies available to passengers may be limited. By contracting with a carrier, the risk of closure or bankruptcy of the latter can be worrying. In fact, in some situations, a passenger may even be stranded in a foreign country.

However, when an airline is in insolvency and files for protection under the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act or other similar legislation, the possibility of obtaining the relief sought against it is limited

Airline Refund

Obtaining a refund directly from an airline that has gone bankrupt is very difficult, if not impossible, in most cases, since its assets will be frozen.

This is because when a company goes bankrupt, it loses the ability to process its financial obligations in a normal way, including repayments. The company’s assets were frozen, and a trustee in bankruptcy was appointed to manage its finances. The available funds are then redistributed among the creditors according to an order of priority set by law.

Indeed, in bankruptcy proceedings, certain creditors have priority, including employees, governments (for unpaid taxes), and secured creditors (such as banks). Passengers who have purchased tickets are considered unsecured creditors, who are usually at the bottom of the priority list for refunds.

It is possible to submit a claim to the trustee responsible for the bankruptcy, but it is rare that sufficient funds are available to fully compensate passengers.

Alternatives

The restructuring procedure

If the airline is in restructuring ( rather than outright bankruptcy) proceedings, arrangements may be made to partially refund passengers or offer future credits for flights. However, this depends on the type of bankruptcy (liquidation vs. restructuring) and the financial situation of the company.

On the one hand, the objective is to liquidate (sell) the company’s assets to repay its debts. Once the liquidation is complete, the company ceases to exist. The company closed its doors for good. Passengers are therefore usually among the last to receive a refund, and it is likely that they will only get back a fraction of the amount paid, if at all.

On the other hand, the main objective of the restructuring is to save the company. Rather than closing its doors, it is looking to adjust its debts, renegotiate with creditors, reduce its costs or sell certain assets to remain operational. If the restructuring is successful, the company continues to operate, but with a lighter or modified financial structure. Creditors (in this case passengers) can accept discounts on the amounts due, or longer payment terms.

There is then a hope for passengers and creditors to get some or all of their money back.

Credit card chargebacks

If a credit card was used to purchase the ticket, the credit card may be able to offer you refunds for services already paid for but not received. You can dispute an amount charged by sending a claim to your credit card company at the address indicated on your monthly account statement.

You must also include:

• Your account number;
• A photocopy of the ticket, itinerary or receipt;
• If any part of the transport was performed, indicate which segments were used and which were not;
• Mention that your airline has ceased operations, you have not received the service charged to your card, and you are requesting a chargeback.

Recourse to the travel agency

If the ticket was purchased from a travel agent registered in Ontario, Quebec or British Columbia, it is possible to obtain a refund from the provincial government authorities responsible for travel.

In addition, if the plane ticket was purchased through a travel agency holding a permit issued by the OPC, the passage will be protected by the FICAV (Fonds d’indemnisation des clients des agents de voyages). This fund can compensate travellers in certain cases, such as the bankruptcy of an airline.

• Conditions of compensation : You must have purchased your ticket from an agency licensed by the OPC.
• Procedure : Submit a claim to the Fund by providing proof of purchase and required documents

You can consult the website for more information.

In the case of taking out travel insurance, it is possible that it provides for reimbursement in the event of bankruptcy. However, it is important to review the terms of the contract to see if such coverage applies. You can consult our capsule on “The role of travel insurance” for more details.

Finally, although theoretically possible, getting a refund directly from the bankrupt airline is extremely rare. It is generally more effective to explore other remedies, such as credit card chargebacks, the use of the FICAV (if applicable), or to make a claim with your insurance company, all to at least try to obtain partial compensation.