Firm linked to Flyglobespan collapse 'used cash to prop up sister company'

Credit card processing company E-Clear diverted 1.5 million into keeping struggling Allbury Travel afloat.

This was despite E-Clear withholding 35m from Globespan before the Edinburgh-based owners of holiday airline Flyglobespan collapsed in December.

Allbury Travel folded days later, while E-Clear was itself forced into administration last month by Globespan's administrators, in an effort to reclaim the missing cash.

Allbury had fewer than 100 holiday-makers abroad at the time and some 4,000 customers with bookings. It is believed E-Clear's total debts totalled 100m.

However, administrators PricewaterhouseCoopers said yesterday the money may never be recovered because it is feared it was pumped into stemming the losses of other firms linked to E-Clear.

Some 550 Globespan workers lost their jobs, with around one in eight customers with bookings – nearly 15,000 – unlikely to get their money back. This is mainly because they did not pay by credit card or only booked flights, which are not protected by an industry insurance scheme.

Bruce Cartwright, a partner at PricewaterhouseCoopers, said he was not surprised at the claims E-Clear had switched money into propping up Allbury Travel.

He said: "It is always a risk if the companies had the same account – it seems to be a mixing of funds."

The Globespan administrator said E-Clear's administrators BDO were still investigating where the 35m had gone, along with E-Clear's other assets.

E-Clear also owed substantial sums to other businesses, including 13m to the creditors of Slovakian airline SkyEurope.

Mr Cartwright said E-Clear's withholding of 35m had caused the "cash shock" which toppled Globespan because of its lack of reserves.

Globespan plunged to a 13m loss in 2007, then made a 1.3m profit the following year, but its recovery was delayed by the recession and a slump in air travel.

Mr Cartwright said: "For a small airline to lose that much definitely weakens the balance sheet, and they were certainly in a weakened position.

"If they had encountered difficult trading conditions and run at a loss, they had limited reserves."

The demise of Flyglobespan was the main factor in Ryanair's latest expansion in Scotland, its chief executive said on Wednesday as he announced three new routes and extra flights on 16 others from Edinburgh and Prestwick.

Michael O'Leary – who predicted Flyglobespan had "no future" six years ago – said it was bound to have failed in the recession.

He told The Scotsman: "I have never heard of E-Clear. Flyglobespan was always losing money and was always going to disappear.

"In a downturn it was always going to suffer and go bust."

The Liberal Democrats have welcomed Ryanair filling the gaps at Edinburgh airport left by the demise of Flyglobespan.

Alison McInnes, the party's transport spokeswoman, said: "The additional business from Ryanair means that the airport has managed to replace the seats lost by the collapse of Flyglobespan last year.

"This is good news for jobs and will lessen the impact of Flyglobespan's collapse on the capital.

"I hope that the announcement will build confidence across the rest of Scotland too, where some smaller airports are still concerned about the loss of Flyglobespan."

E-Clear chief executive Elias Elia has declined to comment.