The bankruptcy of travel-colossus Thomas Cook earlier this year left behind ruins, perils, and questions. With 9,000 UK jobs thrown out of the window and 150,000 British citizens abroad, we consider the profound legal implications of this headline news.
Thomas Cook’s bankruptcy was partly caused by several managerial mistakes, such as risky mergers, ill-advised investments, and the company’s slow reaction to a changing market. All these decisions led to a £1.7 billion debt – an amount the company could not repay for years.
However, if the times were different, the tour operator might have survived. Following the UK’s 2016 European Union (EU) membership referendum, Thomas Cook’s financial problems deepened. Since the Brexit announcement, the value of the pound has fallen, putting even more pressure on the company given all costs in the travel industry are calculated in dollars. Additionally, UK travellers had less purchase power and were not able to afford to go on so many holidays. The economic instability caused by Brexit in recent years further weakened an already vulnerable Thomas Cook.
Although the UK government did not provide a ‘bailout’ to Thomas Cook, Operation Matterhorn, the biggest ever peacetime repatriation of UK citizens, brought home 150,000 holidaymakers stranded overseas because of Thomas Cook's collapse.
Adam French, a Which! consumer rights expert, explained "ATOL protection will mean that they will be flown back home free of charge." ATOL protected customers usually are those who booked their package holiday for flights and accommodations. The good news is, the Civil Aviation Authority (CAA) will fly home both ATOL and non-ATOL protected customers as long as their flights have been confirmed on www.thomascook.caa.co.uk. If ATOL protected customers have paid in advance, they "should be entitled to a refund as part of the scheme."
Unfortunately, the same cannot be said for thousands of Thomas Cook's employees. The collapse will put 21,000 jobs at risk worldwide - including 9,000 in the UK. Employees may have the right to claim payments under the Trade and Labour Relations (Consolidation) Act 1992.
Thomas Cook will be able to compensate its employees as it is expected to receive money for arrears of pay, statutory redundancy, holiday and notice payments from the insolvency service. Additionally, they have been trying to raise money through auctions. If payments go through promptly, employees will at least have time to catch their breath while looking at alternative jobs elsewhere.
Amid our domestic chaos, Condor, the German subsidiary of Thomas Cook was bailed-out by the German federal government and the State of Hessen. Condor was offered a bridging-loan of £336m to keep the carrier afloat until spring. Condor has been portrayed as a victim of its British parent’s decisions; a profitable company able to rebirth from its ashes.
Where’s the catch? The loan is subject to approval by the European Commission, which must assure itself the ‘bailout’ does not breach EU laws on state aid to sustain failing companies.
A competition policy applies rules ensuring fair competition between companies through reviewing mergers, abuse of dominant position, and state-aid cases exactly like the Condor case.
When a Member State of the EU grants aid in any form to a company, this action is subject to the strict policies of EU Competition Law and must be compatible with the internal market.
In this case, the Commission will consider whether Condor was chosen on preferential terms? Was the character of the aid social? What constitutes a ‘fair’ competition in this case? Has competition been distorted, or might it be in the future? The ruling on Condor’s future is expected in the following weeks.
The British Government has already revealed its intention to copy Germany’s law relating to insolvency rules. Grant Shapps, UK’s Secretary of State for Transport, told parliament that the new laws would enable collapsing travel firms to be taken down in a more orderly way, which should protect holidaymakers from being stranded overseas in the event of a similar collapse.
Although airlines insolvencies are rare, the rise of internet bookings represents a tangible threat to the industry. Therefore, to avoid requiring the government to repatriate passengers which cost the taxpayer money, new laws should be introduced to reduce risk.
It is also important to consider whether imposing a levy to protect customers overseas would be suitable. The costs for industry are already high, and in reality, many people continue to fly without protection. MPs have to find the appropriate counterpoise between consumer protection and the proper use of taxpayers’ money.
After almost two centuries of operation Thomas Cook’s chances of survival have been blown away by a combination of several factors which created the perfect storm, leading to its liquidation. Although all holidaymakers have been successfully brought back home, there are still a lot of uncertainties around whether remedies will be made, and if yes - how and to whom.