Lessons from Thomas Cook’s Insolvency: How to oppose a winding up petition

It has been widely reported that the UK Travel Group, Thomas Cook, has ceased trading and collapsed this week due to insolvency following a failed effort to secure £200 million funding from the UK Government. On 23 September 2019 winding up orders were made against Thomas Cook Group plc and its’ associated companies. The court appointed the Official Receiver liquidator of the Thomas Cook companies in liquidation.

What has happened to Thomas Cook?

The 178 year old travel company, Thomas Cook, collapsed on Monday leaving hundreds of thousands of travellers stranded and 21,000 jobs at risk. A deal was with the government could not be agreed on ultimately leaving the company to enter into compulsory liquidation.

The UK Governments disclosed that the proposed bailout of £200 million would only have kept the Travel Group afloat for a short period of time as they believed ultimately the company had systematic issues overall, with comments that the business model was flat-footed and the company was unable to adapt to the digital age causing share prices to plummet.

What effect will Thomas Cook’s insolvency have?

Following the collapse, the government and the travel industry’s insurance scheme could be faced with a bill of more than £500 m according to estimates. Other financial fall out has also occurred following the collapse of Thomas Cook, hitting lenders, suppliers, partners and landlords of its high street shops. Furthermore, Turkish hotels which were ranked the second most popular on the company’s website are expected to suffer greatly with some hotels solely working for Thomas Cook.

Why is Thomas Cook insolvent?

Previously Thomas Cook faced trouble in 2011 when it was able to scrape together a deal with lenders, however, this time was unable to do the same. Management has pointed to weather issues in particular destinations, a fall in sterling and fuel costs as reasons for the collapse, however, a debt burden has been a lingering issue.

It has also been reported that by the time of Thomas Cooks’ collapse the travel company faced a balance sheet deficit of £3.1 billion with less than £1 billion in cash reserves with CEO, Peter Fankhauser, estimating the company would have run out of cash by 4 October or sooner.

What are the consequences for a company if a winding up order is made?

If a winding up order is made by the court, this will ordinarily signal the beginning of the end for the company. The following consequences occur automatically on the making of a winding up order against a company:

  • The official receiver becomes the liquidator of the company (section 136, 1986 Act).
  • The powers of the company’s directors cease (Measures Brothers Ltd v Measures [1910] 2 Ch 248).
  • The liquidator takes control of the company’s assets (section 144(1), 1986 Act).
  • Any disposition of the company’s property by anyone other than the liquidator is void (section 127(1), 1986 Act).
  • All company papers must state that the company is in liquidation (section 188(1), 1986 Act).
  • The winding up order operates as notice terminating the employment contracts of all the company’s employees, who are thereby automatically dismissed (Re Oriental Bank Corporation, MacDowall’s Case (1886) 23 Ch D 366).
  • There is a stay on the commencement or continuation of proceedings against the company except with the permission of the court (section 130(2), 1986 Act).

The liquidator of the company will seek to wind up the company’s affairs, get in all the company’s assets and then distribute those assets to creditors and members in the statutory order of priority. Once this has been done the company will usually be dissolved by the liquidator.

Exceptionally, a company which is being wound up by the court may come out of liquidation and recommence trading its business. This can occur where the court rescinds the winding up order or grants a stay of the winding up proceedings. 

How can my company oppose a winding up petition?

Where the grounds to challenge the petition exist it would be sensible to oppose the winding up petition.  A winding up petition may be challenged by a company on the following grounds:

  1. The debt alleged in the demand to be owing is genuinely disputed on substantial grounds by the company.
  2. The company has a genuine right of set-off against the creditor which exceeds the amount claimed in the demand.
  3. In certain other limited circumstances (for example such as Jurisdiction, Company likely to become insolvent, Technical or procedural error or Delay).

The procedure to oppose a winding up petition is to file a witness statement in opposition in court not less than five business days before the date of the hearing of the petition (rule 4.18(1), Insolvency Rules). A copy of the evidence must also be sent to the petitioning creditor as soon as reasonably practicable (rule 4.18(2), Insolvency Rules).

The company is entitled to appear at the hearing of the petition and to oppose the making of a winding up order. It is usual for a company to instruct solicitors and/or counsel to appear on its behalf at the hearing.

If the company chooses not to instruct legal representatives, any director is entitled to appear at the hearing on the company’s behalf, but other agents (such as the company’s accountant) cannot.

Where a petition is opposed by the company on grounds which require the consideration of evidence (for example, where the company disputes the petition debt) the practice of the Registrars of the Companies Court at the Royal Courts of Justice is to adjourn the hearing to allow for the issue to be argued before the Registrar in Chambers.

Instruct Specialist Insolvency Lawyers

We provide a no cost initial case review to establish whether or not we can help you. We are a specialist City of London law firm made up of Solicitors & Barristers and based in the Middle Temple Inns of Court adjacent to the Royal Courts of Justice.  We are experts in dealing with matters surrounding insolvency in particular issues.  Our team have unparalleled experience at serving statutory demands, negotiating with debtors/creditors, setting aside statutory demands and both issuing and defending winding up petitions vigorously at the Royal Courts of Justice (Rolls Building), or the relevant High Court District Registry or County Court with jurisdiction under the Insolvency Rules.

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