The last twenty months have seen the collapse and winding up of several major UK companies.
The fall of British Steel and Carillion in 2018 was followed by a wave of administrations and winding up orders throughout 2019, particularly across the UK High Street. Against this backdrop, the announcement on the twenty third of September that Thomas Cook had collapsed came as a shock to some and as an expected outcome to others.
Often described as travel agency royalty and “the world’s most iconic travel brand,” Thomas Cook experienced a significant chain of events before its sudden fall. This article examines those events and the compulsory liquidation that followed. It also provides an overview of liquidation and administration, the precedent set in Re British Steel [2019], and the reasons why administration was never a viable option for Thomas Cook.
Background
Thomas Cook generated 9 billion pounds in annual sales and served 19 million customers each year. It held 800,000 future British bookings and employed 22,000 staff across 16 countries, including 9,000 in the United Kingdom.
The firm’s value lay primarily in its brand and customer loyalty, which made the summer of 2018 particularly difficult. Debt rose to 886 million pounds, and the company made a loss of 1.4 billion pounds in the first half of 2019.
Commentators attribute the collapse to a combination of meteorological, political and economic factors.
The unprecedented heatwave of 2018 meant customers stayed indoors rather than travelling abroad, causing a sharp decline in bookings. More broadly, customer habits have shifted, with many people now booking holidays independently rather than through travel agencies. Operational disruption within the aviation division and growing uncertainty over Brexit further weakened the firm.
Timeline of events
September 2018: Thomas Cook issued a profit warning following a decline in summer profits.
February 2019: The airline business was put up for sale to generate income.
May 2019: A CitiBank report valued the firm at zero and recommended selling.
June 2019: Bids for parts of the group failed to generate sufficient profit to address debt and liquidity issues.
August 2019: Thomas Cook announced that its long term future was secured after agreeing a rescue deal with Fosun, worth 750 million pounds.
September 2019: A last-minute demand for an additional 200 million pounds caused the rescue plan to collapse. Suppliers demanded prepayment, holidays were cancelled and a winding up petition was issued.
Thomas Cook had faced similar difficulties 8 years earlier and was rescued through emergency loans led by the Royal Bank of Scotland. This time, however, the company was not as fortunate. The government declined to provide a bailout, with some arguing that repeated bailouts create moral hazard by encouraging firms to take greater risks in the belief that the state will intervene.
Why compulsory liquidation rather than administration?
The starting point for understanding this question is Re British Steel [2019].
In that case, the court held that although administration was theoretically possible, it was not viable due to trading difficulties, debt issues and significant environmental, health and safety concerns. These concerns created a public interest issue that deterred professional firms from acting as administrators. As a result, British Steel entered compulsory liquidation.
This precedent has prompted debate about whether compulsory liquidation is becoming more prevalent in cases where administration appears possible. The public interest element is central to this discussion.
In the case of Thomas Cook, the collapse created substantial public interest concerns. 9,000 jobs were lost in the United Kingdom, customers were stranded abroad, and the aviation sector suffered significant disruption. Operational mismanagement and administrative flaws further weakened the company’s position.
Taken together, these factors made it impossible for Thomas Cook to satisfy the criteria for administration under the Insolvency Act 1986 (IA 1986) and the principles applied in British Steel.
Insolvency procedure: compulsory liquidation
Thomas Cook entered compulsory liquidation rather than administration. This indicated that no attempt would be made to rescue the company.
Compulsory liquidation is an insolvency procedure under the IA 1986.
It involves shutting down the company through a winding up petition issued by creditors or ordered by the court. The company’s assets are realised and distributed to creditors. Thomas Cook began this process on the twenty third of September, appointing an official receiver as liquidator and special managers to oversee the process.
Once a winding up petition is filed, a judge determines whether a winding up order should be made. If granted, an official receiver is appointed, and the company is dissolved after its assets are distributed. Secured and preferential creditors receive payment first, followed by unsecured creditors and floating charge holders on a pari passu basis.
Administration
Administration is generally the more common insolvency procedure.
Its primary objective, under the IA 1986, is to rescue the company as a going concern. If this is impossible, the administrator must achieve a better result for creditors than liquidation would provide. This reflects the rescue culture embedded in UK insolvency law.
A company’s ability to enter administration depends on whether a professional services firm or investor is willing to fund the company during the process and whether potential buyers can be lined up.
Under the Enterprise Act 2002, administration combines features of the earlier court-based procedure and allows certain parties, including floating charge holders, to appoint administrators directly.
Thomas Cook did not meet the criteria for administration. The scale of its collapse, the public interest concerns and the absence of a viable rescue plan made administration impossible.
Where does this leave Thomas Cook?
Compulsory liquidation has immediate consequences for employees. They may claim redundancy, holiday and notice payments from the Insolvency Service. In extreme cases, employees may claim damages for unfair dismissal, although it is unclear whether such claims would succeed here.
Customers who paid by credit card may recover their money under The Consumer Credit Act 1974. Others may face uncertainty regarding prepayments.
The collapse raises broader questions about regulatory oversight, the scope of insolvency law and future contingency planning for customer protection.
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