Indications that Crystal's 'reserve accounts' won't be reserved for refunds: Travel Weekly

Q: In your March 14 “Legal Briefs” column (“Who can tap Crystal’s ‘reserve accounts’?”), you stated that the assignee, like a bankruptcy trustee, had declined to agree to freeze the funds in these so-called reserve accounts. You wrote, “It is not clear whether the assignee refused because he does not distinguish between these accounts and any other money belonging to Crystal or whether he is just waiting for the court to determine the issue. However, my guess is that the assignee does not make the distinction.” Do you have any update?

A: My guess was correct: The assignee refuses to consider the money in the “reserve accounts” as anything special. So, unless the court orders otherwise, which is unlikely, the money will be subject to all creditors’ claims.

The assignee has filed a “motion to strike” the group travel creditor’s motion for a temporary injunction, stating starkly:

“There is no dispute that the subject funds were held in a bank account owned exclusively by [Crystal], commingled with funds paid … by others. There is no dispute that the subject funds were transferred from the [Crystal] bank account into an assignment estate bank account established by the assignee. There is no dispute that the assignee is in possession of and has control of the subject funds. There is no dispute that [the group travel creditor] does not now possess and has never possessed a security interest in the subject funds. There is no dispute that no escrow agreement signed by [the group travel creditor], Crystal Cruises and an escrow agent exists concerning the subject funds.”

More on obtaining Crystal Cruises refunds

• Federal agency offers guidance on Crystal Cruises refunds
• Legal Briefs: Obtaining Crystal refunds not as easy as ABC
• Website established to file Crystal Cruises claims

The group travel creditor had paid its deposits into a “Citibank Reserved Funds Account,” and it argued that the “reserve” designation somehow required the court to recognize the money’s special status. The assignee has asserted that there is nothing special about that money, and I believe that the court will eventually agree.

The Citibank account was one of the bank accounts that Crystal was referring to when it issued a letter to the travel trade on March 21, 2021, that claimed the following:

“For our valued guests’ and travel partners’ confidence, Crystal has established secure, nonoperating reserve accounts with our financial partners to hold all refundable payments, allowing us to process future refunds in a timelier manner. … Refundable payments will be deposited in these new reserve accounts and, along with additional channels of available funds and credit, will ensure 100% coverage of all refundable payments.”

However, it turns out that these “secure, nonoperating reserve accounts” were basically no more than ordinary bank accounts. Crystal made a promise not to touch them except to make refunds, but that promise is unenforceable in an insolvency proceeding like this one. Unless these accounts had been set up as three-party escrow accounts or had a lien filed on them, the money is subject to the claims of all creditors.

In my view, Crystal misled travel advisors into continuing to do business with it by implying that these accounts were somehow special. Perhaps we will eventually find out if my view is correct. 

Source: Read Full Article