When Chris Mottershead was suspended as chief executive of Travelzest, the AIM-listed holiday group, in April over “a potential misappropriation of company funds”, he must have wondered whether his 20 years in the travel industry were over. Even when he was cleared of any wrongdoing a month later there were doubts that he would easily be able to pick up the pieces of his shattered career.

But The Times has learnt that Mr Mottershead, who resigned from Travelzest in May after agreeing a confidential legal settlement, will shortly join TUI Travel, Britain’s biggest tour operator, to work on the merger of its struggling Canadian business with Sunwing, a family-controlled rival.

Mr Mottershead is expected to join the owner of the Thomson and First Choice brands on January 1, the date on which the non-compete clause in his settlement with Travelzest expires. It is understood that once the integration of the enlarged Canadian venture is completed he will take another role.

The allegations that caused his suspension have never been made public and are the subject of a compromise agreement that prevents the group from making any comment. However, The Times can disclose that they concerned the purchase by Mr Mottershead and a close relative of a hotel in Turkey to which Travelzest sent its customers.

The group is understood to have had doubts over the way in which he funded his £350,000 portion of the £1 million purchase price. He is alleged to have used cash from advance payments made by Travelzest to the hotel to secure rooms for its customers.

In the wake of his suspension, the Welshman served libel proceedings against the company over its Stock Exchange statement alleging the misappropriation of funds. His lawyers described the claim as “an extremely serious and defamatory allegation”, adding that the travel industry veteran “strongly denies any wrongdoing”. The following month Travelzest lifted the suspension after completing its internal inquiry and issued a statement regretting “any upset or distress” caused to him. It added: “The allegation is unsubstantiated and all monies have been accounted for.”

Mr Mottershead’s move to TUI will represent a return to old pastures, because he was managing director of TUI UK from 2001 to 2004. A year after quitting TUI UK he became chief executive of VFB Holidays, the French gîtes specialist, changed its name to Travelzest and listed the company on AIM in order to raise funds for further acquisitions.

Over the next three years Travelzest acquired or launched another 11 businesses, including Peng Travel, the UK’s biggest naturist tour operator, and Tapestry Travel, the Turkish and Greek specialist. The group’s biggest coup came in September 2006 when it bought itravel2000, the Canadian online travel agent founded by the Carroll family. The group paid a total of C$52.2 million in cash and shares and gave Jonathan Carroll, who went on to succeed Mr Mottershead as chief executive, a seat on the board.

The purchase of iTravel, as it is now called, made Travelzest a target for TUI, which had been looking for a solution to Signature, its struggling Canadian unit. The added incentive was that Mr Mottershead and Colin McKinlay, Travelzest’s finance director, would remain with the business and run the enlarged Canadian unit.

The approach from TUI came in August last year just as Travelzest was struggling to fund further acquisitions due to the credit crunch. The offer from TUI was pitched at 115p a share, valuing Travelzest at £35.6 million, or about £45 million including debt.

But in November, less than 48 hours before a recommended deal was to be announced, Travelzest reported that its suitor — never formally identified as TUI — had withdrawn its interest “as a consequence of the current uncertainties in financial markets”.

Analysts have always been sceptical of the reasons, given TUI’s financial strength. One factor in the collapse of the talks may have been Takeover Panel concern over the level of the financial incentives available to Mr Mottershead and Mr McKinlay in the event of the deal going through.

The Times understands that the duo could have earned a bonus of £10.4 million based on the performance of the enlarged Canadian operation over the three years after a takeover. But the Panel was more concerned over a further £1 million incentive payable to the two men on completion. The payment, of which Mr Mottershead would have received £750,000, was structured by TUI as a “business protection agreement” — effectively a non-compete clause in the event of the men leaving TUI. But the Panel expressed concern that it could be construed as a completion-related bonus, requiring a separate shareholder vote.

The other problem with the £1 million incentive was that the Travelzest board was made aware of it only shortly before the deal was due to be formally announced. The Times understands that the disclosure prompted some directors to question whether Mr Mottershead was acting in the company’s best interests.

Boardroom relations appear to have soured further five months later when it emerged that, after the collapse of the bid, the two men were holding talks with TUI that could have seen him and Mr McKinlay quit Travelzest to take charge of TUI’s Canadian business.

The situation was further complicated by growing concerns among the group’s bankers over trading. The impact of the trading deterioration can be seen in the recent £5.7 million equity fund raising, priced at 5p a share. The equity raising, which was a condition of refinancing its debt, diluted existing shareholders to about 21 per cent of the enlarged share capital.

Schillings, lawyers to Mr Mottershead, reiterated last night that the Travelzest inquiry into possible missing funds had cleared him of any wrongdoing. It also denied any suggestion that he had held back from revealing any incentive payments to his fellow board members.

Path clears for Thomas Cook

The downhill spiral in Travelzest’s fortunes since the collapse last year of a takover bid by TUI Travel could soon see an upturn amid speculation that it will attract fresh bid interest. While TUI Travel, which withdrew a 115p-a-share offer in November, is unlikely to return, City bankers believe that Thomas Cook could decide to pounce.

While Travelzest is best known for brands such as Best of Morocco and Peng Travel, the naturist tour operator, its most valuable business is iTravel, the Canadian online travel company it bought three years ago.

The Canadian travel market has been difficult for many years and TUI and Thomas Cook have for some time sought consolidation opportunities as a means of cutting capacity and improving margins. Last month, TUI announced a joint venture with Sunwing, an independent Canadian operator, leaving the way clear to Thomas Cook, if it wishes, to make a bid for Travelzest.

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