The collapse of Thomas Cook: What is Compulsory Liquidation?

Long standing holiday firm, Thomas Cook, has ceased trading with immediate effect. This comes after the company’s failure to secure additional funding, during last minute negotiations over the weekend, sent the company into compulsory liquidation.

The collapse of Thomas Cook has lead to much disruption and stress. Holidays and flights have been cancelled, leaving 150,000 customers stranded abroad. With operations in 16 countries, there are also 22,000 jobs at risk worldwide, including 9,000 in the UK.

What caused the holiday firm’s collapse

Following a build up of losses, the holiday firm had secured a £900m rescue deal in August, led by their largest shareholder, a Chinese firm called Fosun.

Despite this, there was recent demand from their bank to raise a further £200m in ‘Contingency Funding’. This is a cash reserve which has the role of improving a company’s financial stability, by providing a safety net to use in the case of any emergency unforeseen circumstances or losses. Which Thomas Cook were unable to secure.

Thomas Cook have blamed a series of issues for their downfall and build up of losses. These include last summer’s heatwave, political unrest in certain holiday destinations, and the loom of Brexit causing customers to delay booking holidays.

However, it has been commented by travel experts that the 178-year-old holiday firm is not ready for the 21st century, and opportunities provided by the online market. These days anybody can be a travel agent and organise their whole holiday themselves, from flights to car hire, hotels to transfers.

Let’s breakdown the legal jargon

Upon visiting the Thomas Cook website, instead of taking a look at your next holiday destination,  you will now be met with the following message:

“Thomas Cook UK Plc and associated UK entities have entered Compulsory Liquidation and are now under the control of the Official Receiver. The UK business has ceased trading with immediate effect and all future flights and holidays are cancelled.” … but what does all the jargon mean?

Compulsory Liquidation’ is when a company enters into a state of insolvency where they can no longer pay money owed on time, and are therefore forcibly shutdown. Voluntary liquidation on the other hand is where the director opts to place their company into liquidation. This comes with a number of benefits in comparison to compulsory court-ordered liquidation.

These benefits might include directors still being able to retain an element of control over the liquidation process, and timings relating the companies closure; plus it reflects better on the directors as professionals.

An ‘Official Receiver’ is also known as a liquidator. They will take over full control of the company, beginning the process of liquidating its assets. This may include the sale of any stock, vehicles, property, and/or machinery.

Once all assets have been sold, proceeds are used to pay off the company’s debts as far as possible. Following the usual liquidation process, the company will then officially shut down. They will then be removed from the register at Companies House. The company will no longer exist, and any further outstanding debts at this point essentially written off.

Get the help you need

In situations like this, it is important you get the help and support you need, whatever your position.

Employees facing redundancy are likely to have concerns for the future, and what steps they need to take. Therefore it is important the right support is provided. Areas of Employment Law are forever being updated to reflect the issues of employees, and make sure their rights are being met.

It is also important for owners of a business to have access to the expert commercial advice they need to avoid serious issues, as best they can. It isn’t out of the ordinary for a business to face its fair share of challenges, but with the correct support and practical solutions, many can be overcome.

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