Ooooh, oooh, here\’s a nice little scandal I hadn\’t known about.
The £100 million owed to creditors by the collapsed credit card company E-Clear has disappeared, according to administrators.
Sources close to the investigation into the company, which was put into administration by court order this week, have confirmed to The Times that no trace of the missing money has been found after three days of examining E-Clear’s records.
One of the things the company did (in fact, perhaps the major thing it did) was process credit card payments for cheapo airlines. And as is normal in the field they kept part of the payments for a couple of months before passing them on.
The reason being that if an airline goes bust before you fly but after you\’ve used a credit card to pay for it then you get your money back: the credit card company is liable. This leads to chargebacks….and the possibility of chargebacks leads to witholding some of the money until the possibility of default on providing the flight has passed.
Now this leads to problems for airlines that look like they might go bust….the percentage of witholding for potential chargebacks rises the worse things look. Bit like a bank run really: it snowballs. As the risk of bankruptcy rises then the cashflow coming in declines as more is kept to potentially pay the credit card company and the more likely bankruptcy is and so on in a vicious downward spiral.
This is what happened to Globespan back in December: E-Clear had upped the witholding to £35 million and the airline went bust. So far so normal: a number of airlines have gone under in the same manner in the past.
However, the scandal now seems to be that E-Clear wasn\’t just witholding the money, in an escrow account, as it should have. The money just isn\’t there at all: it\’s been spent on something else.
If this is true (and this report is all I\’ve seen on it) then there are some juicy jail terms to come.