Permanently Grounded: Travel giant Thomas Cook collapses

October 1, 2019

3 min read

Sign up to our mailing list! 👇

What's going on here?

British global travel group Thomas Cook has filed for bankruptcy after rescue talks fell through. The company’s fall from grace initially meant 150,000 British tourists were stranded abroad and it left others with nothing to show for their pre-booked holiday plans. It is also thought to have cost 9,000 British employees their jobs.

What does this mean?

Firstly, it is pertinent to look at how the collapse happened. For some time Thomas Cook has been treading water. Its most recent attempt to stay afloat sought (and failed) to raise £900 million from Chinese investment company Fosun and from traditional lenders (banks and bond holders). Those creditors with existing unpaid debts demanded a further £200 million be raised to cover the risk that Thomas Cook could compound their losses over the winter season when bookings are at their lowest

Thomas Cook’s executives and stakeholders were unable to reach agreement on the future financing of the company in a meeting on the 22nd of September, which triggered the company’s declaration of bankruptcy. 

So what are the effects? The immediate effect of Thomas Cook’s collapse is that many holidays and flights have been cancelled, leaving British citizens stranded. The UK government is stepping in to ensure that holiday makers are able to get home. Many of the package holidays are protected under the ATOL scheme which means that travellers will be supported while abroad and/or be financially reimbursed for future plans. It is estimated that the cost of refunding bookings could amount to over £500 million. 

The High Court has appointed an Official Receiver to administer the winding up of the company, who will be advised by law firm Ashurst, in cooperation with KPMG and Alix Partners. Their role will be to collect and protect what remains of the company’s assets. Thomas Cook will be advised by Latham & Watkins and Slaughter and May.

What's the big picture effect?

The fall of Thomas Cook poses a number of challenges for the government. Prior to the collapse there were calls for the state to intervene by way of a bailout, but they were ignored and now the taxpayer is footing a large (if as yet unascertained) bill. As to legislature, Thomas Cook’s demise brings corporate governance rules back into the spotlight and calls for reform have been revived. As such, the Prime Minister has hinted that there could be legal action against the company’s former directors and suggested that stricter rules may be needed.

A likely follow on effect has already seen European subsidiaries of Thomas Cook being advised or forced to file for insolvency as a means to extricate themselves from the parent company and avoid related liabilities. Law firms may further need to prepare themselves for further insolvency talks across the travel sector where a snowball effect is likely to take hold, enveloping small businesses who previously depended on Thomas Cook. Cyprus, for instance, estimates that its hospitality industry could lose €50 million. 

The fall of such a large company inevitably impacts many sectors. Aside from the advice on insolvency, law firms are likely to find work pursuing legal action across a variety of other sectors ranging from employment, corporate, personal injury and insurance. Seemingly, lawyers are the only party to come out positively in this unfortunate debacle.

Report written by Julie Lawford

If you’d like to write for LittleLaw, click here!

Share this now!

Check out our recent reports!