COVID-19 Woes Land JustFly, FlightHub In Ch. 15 In Del.

By Jeff Montgomery
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Law360 (May 22, 2020, 10:24 AM EDT) -- Largely idled by the COVID-19 pandemic, U.S. affiliates of third-party airline ticket booking agents JustFly Corp. and Canada's FlightHub Group sought Chapter 15 recognition in Delaware's bankruptcy court Friday for the Canadian bankruptcy of a parent company holding at least $28 million in debt.

The six airline booking and travel-related firms that filed in Delaware all are tied to what Canada's Companies' Creditors Arrangement Act described in a May 8 case opening as a "flight-centric" travel agency. The business served more than 5 million travelers and reported more than $3 billion in gross merchandising revenues last year.

Earlier this year, however, the business saw its monthly revenues plunge drastically as COVID-19 suppressed traveler movement globally, with revenues falling by more than 90% in two months compared with prior years.

According to the company, the pandemic stands out as "the overarching event at the root of the debtors' current financial difficulties." Those difficulties include slashing of the venture's Canadian workforce by 49% and its American staffing by 90%.

"A significant number of highly skilled jobs are at stake and could potentially be lost if the applicants were to cease their business operations," FlightHub said in a filing with the CCAA.

At present, the company's assets include $13.8 million in cash and $6.4 million in accounts receivable, as well as intellectual property not yet valued and potentially vulnerable to the ongoing plummeting of economies. Liabilities include $26 million in accounts payable and $2 million in corporate taxes due as well as potential liabilities in at least three major government-related actions.

Recognition of the Canadian proceeding in Delaware's bankruptcy court would promote a fair and efficient administration of the cross-border reorganization procedure," JustFly said in a motion filed in the U.S. case. It als would protect the interests of parties on both sides of the border.

Prior to the actions in Canada and the U.S., Toronto-Dominion Bank, or TD Bank, held most of the company's debt in the form of a $45 million revolving credit agreement.

A group of shareholders later purchased TD Bank's interest in the debt, however, along with security interests in the JetFly-FlightHub enterprise, in what was described as an effort to head off TD's right to force a liquidation in the event of a default.

Shadowing the businesses, meanwhile are regulatory investigations over their business practices by the U.S. Department of Transportation and the Canadian Competition Bureau.

The city attorney of San Francisco separately sued JustFly and FlightHub in September 2019, accusing the businesses of unlawful and deceptive business practices. In announcing the action, City Attorney Dennis Herrera accused JustFly of being "not in the travel business. They're in the hidden fee business."

In its Canadian petition, FlightHub said all three actions are being contested. Recognition of the Canadian proceeding, the company noted, could allow the U.S. court to invoke a provision of the Bankruptcy Code to stay, or pause, any actions against Canadian affiliates in America.

The case has been assigned to U.S. Bankruptcy Judge John T. Dorsey.

Counsel for the Foreign Representative include David M. Klauder of Bielli & Klauder LLC and Marc J. Carmel and Serena G. Rabie of McDonald Hopkins LLC.

The case is In re: JustFly Corp., case number 1:20-bk-11204, in the U.S. Bankruptcy Court for the District of Delaware.

--Editing by Katherine Rautenberg.

Update: This story has been updated with additional information about the case.

For a reprint of this article, please contact reprints@law360.com.

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