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Potential investigation into Thomas Cook collapse

Member: Roger Isaacs

Business Secretary Andrea Leadsom has asked the Insolvency Service to open an investigation into the collapse of travel firm Thomas Cook “as a matter of urgency” and the Official Receiver will now look into the company’s failure and the conduct of its directors.

Following her announcement, Shadow Chancellor John McDonnell said that the directors had a “moral responsibility” to return their bonuses, which amounted to £36 million for the three previous Chief Executives of Thomas Cook. Ms Leadsom agreed that the Government must “do more to align directors’ pay to performance”.

The company went into liquidation recently under the weight of £1.7 billion of debt. As a result, the Government is having to fly home around 155,000 customers from 18 countries, while some 22,000 jobs worldwide are at risk – 9,000 of them in the UK.

The Insolvency Service has the power to disqualify people from serving as company directors for up to 15 years if it finds them guilty of misconduct and can pass information to criminal enforcement bodies in the most serious cases.

Any forensic investigation into the behaviour of directors before the collapse of a business is thorough and far-reaching.

The investigation will look for potentially fraudulent activity, such as repaying loans where there are personal guarantees or clearing balances with preferred suppliers.

According to the firm’s Chief Executive Peter Fankhauser, Thomas Cook’s balance sheet had a ‘black hole’ of more than £3.1 billion shortly before its collapse.

If the investigation unearths any untoward actions, then the Official Receiver could “seek to overturn a range of transactions made prior to the liquidation, which includes things like bonuses”, according to Transport Secretary Grant Shapps.

Roger Isaacs, Forensic Partner at Milsted Langdon, said: “The collapse of Thomas Cook has had a devastating impact on holidaymakers and staff of the now-defunct firm. It has also led to more than £100 million of taxpayers’ money being spent on emergency flights to rescue those stuck overseas.

“The large bonuses paid to Thomas Cook’s former executives have drawn much scorn considering that they were being paid, while the company was failing.

“It will be interesting to see what investigators uncover. This case will once again demonstrate the importance of forensic accountants.”

Author: Roger Isaacs
27 September 2019