Sunshine, sandcastles and sadness… Thomas Cook: Who is to blame?
Most British people will be saddened by the news that iconic travel agent, Thomas Cook has gone out of business. The guardian reported:
“Thomas Cook has been brought low by a debt burden of £1.7bn, competition from online rivals and one-off factors such as Brexit uncertainty, all of which have weighed on Thomas Cook’s recovery after a near-collapse in 2011. High prices of jet fuel and hotels have also pushed up costs, while the heatwave in summer last year convinced potential customers to stay at home, with a further effect on earnings.”
A rescue deal seems to have foundered at the last moment. Thomas Cook issued a statement that included the following:
“Thomas Cook Group plc (“the Company”) continued to engage with a range of key stakeholders…in order to secure final terms on the recapitalisation and reorganisation of the Company.
Despite considerable efforts, those discussions have not resulted in agreement between the Company’s stakeholders and proposed new money providers. The Company’s board has therefore concluded that it had no choice but to take steps to enter into compulsory liquidation with immediate effect.’
Spare a thought though for customers who had paid for flights, not used a credit card (life hack: in the UK use a credit card for protection as a consumer) and did not purchase travel insurance. They have likely lost their money in entirety, and will be an unsecured creditor in the liquidation (with probably very poor prospects of receiving any significant dividend). Customers buying a package holiday should be separately protected by ABTA.
Almost inevitably questions will be asked about not only why Thomas Cook has entered Insolvency but also why it was allowed to continue to sell flights and holidays until shortly before entering liquidation.
The BBC reported ‘Business Secretary Andrea Leadsom has said she will write to the Insolvency Service urging them to “fast-track” their investigation into the circumstances surrounding Thomas Cook going into liquidation. The DfT said the investigation will also consider the conduct of the director’
S214 of the Insolvency Act 1986 provides that a Liquidator or a Creditor can make a claim against a former director of a company in Liquidation if they have been guilty of ‘wrongful trading.’ In those circumstances they may be personally liable to make a contribution to the liquidation. These circumstances are: ‘at some time before the commencement of the winding up of the company, that person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation.’
An investigation will now be held into the Thomas Cook demise by the liquidators and it is unwise to speculate what it may conclude given all relevant information is not likely to be in the public domain. The issue will be, however, whether at some point before flight and holiday sales were stopped the board of directors should have known there was no reasonable prospect of avoiding insolvent liquidation.
Despite the public anger that is a question the liquidator has to ask objectively. It is probably safe to assume the board had good Insolvency advice. It may well be that throughout the rescue talks they concluded there were reasonable prospects (for it is reasonable, not certain prospects that count) of avoiding insolvent liquidation. Time will tell whether the liquidator accepts their attitude was reasonable.
BBM specialise in Insolvency law, advising companies and directors on distress situations.