On 23 September 2019, Thomas Cook Group PLC and associated companies were placed into insolvent liquidation.
As with all insolvent liquidations upon the granting of the winding up order, the Official Receiver was appointed as the Liquidator to commence the administration of the liquidation. This, however, is a liquidation of monumental proportions and will have a ripple effect across the UK for many months, if not years, to come.
It is quite usual to appoint insolvency practitioner firm(s) and other professionals to assist in the administration. AlixPartners have been appointed as Special Managers of the airline and tour operator companies within the group, whilst KPMG LLP will act as the Special Managers of the retail division and aircraft maintenance companies.
With nearly 150,000 Britons abroad at the time of collapse, it has been reported that this will be the largest repatriation incident in history. Further information on the Government’s and the UK Civil Aviation Authority’s efforts can be found here: https://www.gov.uk/government/news/government-and-uk-caa-launches-largest-repatriation-in-peacetime-history-after-collapse-of-thomas-cook
The collapse of Thomas Cook has followed a number of big names in the last few years being written into the insolvency history books; notably, BHS in 2016, Toys ‘R’ Us in 2018, Debenhams in 2019, which was sold in a pre-pack administration situation in April, and Patisserie Valerie, which also went into administration in January 2019, causing an immediate closure of 70 stores and circa 900 staff losses.
Whilst the immediate media attention is unyielding, for those not directly affected by the events, there is often an air of matters ‘dying down’ within a few weeks and little more is reported after the initial catastrophe – it is not particularly headline grabbing.
But what actually happens when a company is wound up?
Upon the granting of the winding up order by the Court, the Official Receiver automatically becomes the Liquidator. The Official Receiver may stay as the Liquidator, or an insolvency practitioner may be appointed. It is the Liquidator who steps in to take control of the company.
Upon the winding up order and appointment of the Official Receiver the director(s) automatically and immediately cease to have any power in the company, and the company’s employees are automatically dismissed with any unpaid salaries then forming part of their unsecured claim against the company.
One of the first tasks of the Official Receiver is to notify Companies House and advertise the fact in the Insolvency Notices section of the London Gazette (https://m.thegazette.co.uk/insolvency).
The Official Receiver has numerous statutory duties to perform, which are not always immediately apparent to those outside the office, and may not result in any immediate benefit (or any benefit at all) for the company or its creditors but which will nonetheless involve a significant amount of time.
One such example is information gathering. The Official Receiver/Liquidator will be the one to obtain all information from the company’s bank(s) and other institutions in order to properly ascertain the company’s financial position, as well as collect in all creditors’ claims and scrutinise these. From the information obtained about the company, it will be for the Official Receiver or Liquidator to contact known creditors to invite them to submit a proof of debt form setting out details of their claim against the company.
During this initial stage, significant work is undertaken to gather in the information and so, as one can imagine, the larger the company, the more information, the longer it takes.
In this particular instance, the insolvency covers not just one company but a group of companies, and therefore, the scale of the operation and work to be done will be staggering. It is, however, a crucial part of the process. It is during this time that the Insolvency Practitioners involved will ascertain the true financial position during the months, even years, leading up to the collapse and the directors will be under significant scrutiny for their actions – not only by the Insolvency Practitioners, but the media as well.
As part of the overall administration of the insolvency, there are two main things that creditors will want to know:
- How much will they get paid? And;
- If there has been wrongdoings by the directors, will they be ‘prosecuted’?
There is a legal hierarchy of distribution to company creditors of funds received (if any);
- Secured creditors, being those who hold a fixed secured charge over a company asset;
- Preferential creditors, namely, employees who are owed salary or wages. These claims are however, capped at £800 per employee (and unpaid holiday) and any unpaid wages over this amount will fall into the ‘unsecured creditors’ category.
- HMRC was downgraded as a preferential creditor in 2002, whilst they do not have preferential status as yet, this will change from April 2020, with HMRC becoming, once again, a preferential creditor along with employees. It is understood that this will only be for PAYE and VAT. HMRC will remain an ‘unsecured creditor’ for taxes owed directly by a company.
- Secured creditors with a ‘floating charge’ (as opposed to ‘fixed’), and subject to the requirements to provide a ‘prescribed part’ (a statutory prescribed sum that must be ring fenced from any sale of assets subject to a ‘floating charge’ for the benefit of the unsecured creditors).
- Unsecured creditors. Including, customers, suppliers, contractors and any employees’ claims over the cap of £800.
- Shareholders of the company. Shareholders will not be entitled to take any money unless and until everyone else is paid.
Therefore, as to “how much” a creditor may recover, this is largely dependent on where they stand in the list. In each group, there may be more than one creditor owed money and so the money available is then shared equally amongst that group. This is known as the “pari passu” principle.
During the initial stages of information gathering and throughout the process the Insolvency Practitioners will be considering whether there are any potential claims against directors, or possibly even former directors, or against associated companies/individuals that may be successfully litigated to recovery funds for the benefit of the creditors as a whole.
For example, claims may be brought against directors for ‘wrongful’ trading, or for transactions that they have authorised the company to make, which in fact should not have been made.
The Insolvency Practitioner however will have to take advice on the merits of those claims and risks involved in taking legal action and whether the costs that could be incurred, by the insolvent company (or outside funders, if available), will actually result in a bigger monetary reward for the company creditors.
The Insolvency Practitioner ultimately has a duty to the creditors to return as much of the debt owed as they can, but alas, sometimes, if there is nothing in the pot, then there is nothing to give.
If you need advice in respect of any aspects of insolvency, or in particular, your rights as a creditor, our Insolvency team at Grant Saw Solicitors are more than happy to assist. Please do not hesitate to contact us further for more information.
This is not legal advice; it is intended to provide information of general interest about current legal issues.