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Thomas Cook: straight into liquidation rather than administration

Thomas Cook: straight into liquidation rather than administration

In most situations where a company the size of Thomas Cook becomes overwhelmed by its long-term debt and runs out of cash, the company will go into administration, at least in the first instance. With an administration, the company can continue to operate, at least to some extent, to enable the salvageable parts of the business to be sold off and to see out contracts for which it is still getting paid. You might think that would have been a sensible arrangement for Thomas Cook rather than immediately grounding all of its aircraft.

It is however the aircraft that are the main obstacle. The administrators are insolvency practitioners, most commonly accountants who are licensed to act on behalf of companies that are insolvent or facing acute financial distress. In the case of the bigger insolvencies, the insolvency practitioners are usually members of one of the big 6 accountancy practices, in the case of Thomas Cook it is KPMG.

Whilst the insolvency practitioners might have the necessary skills and resources to keep a multi-million pound company going so that the profitable parts of the business can be sold off as a going concern, they are not equipped or licensed to operate the aircraft. The financial situation is so dire with £1.7 billion of debt that the costs and complexity of keeping the aircraft flying was never an option for the Administrators and a trading administration was never going to get off the ground.

Instead, Thomas Cook will go directly into liquidation which is often the end result of an administration but it means that the whole of the business is shut down straight away and then dismantled to be sold off where possible, rather than any business operations being kept alive as a going concern. An immediate liquidation of this sort is often referred to in the insolvency world as a 'burial', so unfortunately it is definitely a case of 'RIP Thomas Cook age 178 years'.

If you have any concerns about the solvency of a business (your own or one that owes you money) please contact one of my colleagues - Raman Dhillon, Malcolm Thomas, Sean Byrne or Marta Fisher.

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