Agents have been promised they will be reimbursed for bookings made through OHG Accommodation, which has gone into administration.
Bookings are no longer being taken via Holiday Brokers and its partner Euro Rooms Direct.
OHG was in dispute over a £4.5 million TOMS VAT payment that HMRC was holding.
OHG chief executive Steve Endacott said the timing of the failure – just days after Medhotels won its long-running VAT battle with HMRC "could not be more ironic and maddening".
Endacott said: "We are obviously glad that it gives a virtually guaranteed £4.5m pay out to our hotel partners, however it is likely that this will take a further six to nine months to secure from HMRC and we have had legal advice that we can not trade until this point, without going into administration."
In a statement, OHG said: "OHG has had lengthy discussions with most of the major bed banks over the last week, to try to persuade one of them to take over the client account and the £19m of forward bookings carrying £600k of profit.
"We are saddened to report that only one bed bank was willing to complete a deal to help travel their travel agency partners.
"Unfortunately, the deal floundered last night, because of deliberate and inaccurate leaks to the Spanish press along with legal complexities relating to the client account.
"All monies received from agents is held in ring fenced client accounts and will be returned by the On Holiday Group to agents in the next few days along with the bookings effected in resort.
"Unfortunately, this does mean customers will have to pay their bills in resort and reclaim the funds from our travel agency partners."
