Ten things insolvency practitioners and financiers should know about hotel management agreements

We have reached that point in the hotel and resort business cycle where insolvency practitioners and the financiers that appoint them need to be across some specific issues concerning the relationship between hotel owners and hotel operators. This relationship is generally governed by the terms of a hotel management agreement (HMA). There are other ways to fashion the relationship between owners and operators such as management leases or franchise agreements, but in Australia and most other parts of the world, the HMA constitutes the norm.

The means by which hotels are owned and operated is relatively unique when compared to other types of property related businesses and as a consequence the HMA structure throws up issues which are not found in relation to other classes.

For the purposes of this article, we have assumed that it is the hotel owner that is in financial difficulties and that its secured senior lender has decided to appoint a receiver with respect to the hotel business. There are, of course, other variations of insolvency administration which could occur (such as voluntary administration) but we consider that the receiver scenario draws out a great many of the issues which are most relevant to insolvency practitioners and the financiers that appoint them.

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