After 178 years in operation, a winding up order was made against Thomas Cook Group plc in September 2019. What next?
Unless you have been hiding under a rock you will be aware of the unfortunate recent loss of the UK’s oldest travel group – Thomas Cook.
After 178 years in operation, a winding up order was made against Thomas Cook Group plc and its associated companies on 23 September 2019. Following in the footsteps of Carillion and British Steel, an application was granted for Thomas Cook to enter into compulsory liquidation with the court appointing the Official Receiver as the Liquidator.
The chaos caused by the collapse of Thomas Cook led to the immediate closure of 600 high street stores, the loss of around 21,000 jobs and left 150,000 holiday makers stranded throughout the world. But what caused this turn of events?
Background to the insolvency
Earlier this year Thomas Cook announced that it was closing 21 stores around the UK with a loss to around 300 jobs. This decision followed on from a review of the retail workforce which showed that 64% of bookings were being made online in 2018. In reality, the firm has struggled with competition from low cost holiday airlines, online travel agents and a reduction in overall holiday bookings which could be linked to the onset of Brexit. This was followed by the hiring of restructuring specialists Alix Partners in April 2019. The warning signs were there.
Despite flirting with the well-known Fosun Group over a potential rescue package worth £450m, negotiations were in vain and the inevitable occurred. With an existing debt in the region of £1.7bn, the government defended its decision not to step in to assist the firm by claiming that a cash injection of around £1.1bn would only have been a safety cushion to help it survive in the short term. Thomas Cook’s board said that the failure of rescue talks between banks, shareholders and the UK government meant “it had no choice but to take steps to enter into compulsory liquidation with immediate effect”.
Where did it all go wrong?
Inevitably, when considering this question fingers will naturally be drawn towards the directors and chief executives. Government enquiries have already commenced into how the insolvency situation occurred. Part of the enquiry will involve the questioning of directors as to their handling of the business and their conduct in the years leading up to the liquidation.
It has been reported that the last three chief executives were paid £35m between them over the last 12 years. They are however protected from repayment of any of these sums by a clause in the directors’ contracts which imposes a two year limit on ‘clawback’ powers if they are deemed responsible for the financial downturn of the business. This could limit the recovery of these payments to a mere £1m.
The Official Receiver is able to reclaim sums paid to the directors before the clawback period but would need to be able to prove serious misconduct on their behalf. This will of course take some time to prove, if it ever is proven. The investigations continue.
What is certain is that no rescue of Thomas Cook will occur.
