Compulsory Liquidation: What Does This Mean for Employees of Thomas Cook?

Year Published: 2019

On 23 September 2019, Thomas Cook entered into compulsory liquidation after last-minute rescue talks failed. This resulted in Thomas Cook ceasing to trade with immediate effect and its board of directors being replaced by a court-appointed liquidator known as the Official Receiver (OR).

The OR’s task over the coming months will be to liquidate Thomas Cook’s assets, such as aircraft, machinery, and property, in order to provide a return for its creditors. After this process has been completed, Thomas Cook will no longer exist and any debts outstanding at that point will be written off, save for those personally guaranteed by Thomas Cook’s directors.

What does compulsory liquidation mean for employees of Thomas Cook?

Thomas Cook has 22,000 employees worldwide, including 9,000 in the UK alone. Unfortunately, all of Thomas Cook’s employees were effectively dismissed as soon as Thomas Cook entered into compulsory liquidation.

Image for Thomas Cook complusory liquidation blogAlthough Thomas Cook’s employees may have various claims against the business – for example for unpaid salary, benefits, notice pay, statutory redundancy pay – many will be unsecured claims for the purposes of the liquidation. In essence this means that they are second to last in the order of priority when it comes to recovering any funds once the OR has finished liquidating all of Thomas Cook’s assets. This ultimately means that affected employees would most likely only receive a few pence in the pound of any monies owed, at best. 

However, there are still some options open to former employees of Thomas Cook. Some employment claims have what is known as “preferential status” – meaning they rank third in priority after secured creditors and the expenses of the insolvent estate. Examples of this would include unpaid wages, subject to the statutory cap of £800.00. As such, affected employees would be well advised to submit claims to the OR, or its nominated Special Managers, in the first instance in relation to any unpaid wages. However, given the relatively low statutory cap, many employees of Thomas Cook may not recover anywhere near their outstanding arrears of pay if they were to proceed solely down this route.

Affected employees can also submit claims to the Insolvency Service in relation to the following:

  • Arrears of pay – i.e. wages and other money owed to employees – for a period of up to 8 weeks for arrears of pay capped at £525.00 per week;
  • Protective award – i.e. compensation awarded by an Employment Tribunal (ET) due to an employer’s failure to inform and consult with employees prior to making them redundant – up to a maximum of 8 weeks’ pay capped at £525.00 per week. The ET will deduct any sums received in respect of arrears of pay from any protective award payments;
  • Holiday pay –up to a maximum of 6 weeks’ pay for accrued / unpaid holidays capped at £525.00 per week;
  • Statutory notice pay – one week’s notice for every full year worked, up to the maximum of 12 weeks capped at £525.00 per week. The Insolvency Service are required to deduct the value of any benefits that employees are entitled to claim during their notice period, irrelevant of whether they are actually claimed or not, and will also deduct the value of any wages earned from new jobs during this period;
  • Statutory redundancy payments – this will depend on the employee’s age, length of service and gross weekly wage, subject to a statutory cap of £525.00 per week. Affected employees must have at least 2 years’ continuous service to claim for a statutory redundancy payment and must submit their claims to the Insolvency Service within 6 months of their dismissal.

Even though there is some recourse to recover outstanding payments owed, for most employees of Thomas Cook this is not their current priority. Whilst there are provisions in place to bring holiday makers home, former employees of Thomas Cook have been effectively abandoned by the travel company and are having to make their own provisions to get home. As they are no longer employees of Thomas Cook, the company doesn’t have any legal obligation to get them home.

For further information on compulsory liquidation situations or any other employment law matter, please contact Charlie Wood in our Employment Law and HR team on 0161 475 7673.

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