Thomas Cook

Lord Stevenson of Balmacara Excerpts

Tuesday 5th November 2019 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

I am very grateful to the Minister for repeating the Statement made in the other place. The collapse of Thomas Cook is turning into an issue that needs to be carefully reflected on. It is a tragedy that it happened at all, but the more information that becomes available about the actions of the directors, and the action that they should have taken but perhaps did not, the more we are concerned about it.

There were 8,000 job losses. At the time it was widely reported that Ministers and BEIS officials had little or no discussion with the company before it entered liquidation. However, in the six days leading up to its collapse, government Ministers from Germany, Spain, Bulgaria, Turkey and Greece all made personal contact with the company with the aim of trying to rescue it. Reports from Unite the Union and Syndex have shown that £188 million would have been sufficient to prevent the collapse of the company. Yet we have heard that the Government have spent over £600 million —a lot more than £188 million—on compensation and the successful repatriation of the 150,000 stranded holidaymakers.

We have not had the benefit of a report from the BEIS Committee in the other place; it has not been able to complete its inquiry because of the Dissolution. However, I hope there will be more detailed investigations when we get back, and that we will get an idea of the proposals that might be necessary. Some issues include: audit quality problems, revealed by the fact that the auditors were not able to get to the bottom of this before the liquidation; the struggles that the auditors seem to have faced over how to value some of the financial instruments in the contracts; the fact that the same auditors had been around for far too long; and teams not using their own judgment but tending to accept what they were told by management, possibly because they were so conflicted by their having additional consultancy work. These findings have not been reported by Parliament but by the Financial Reporting Council, as I am sure the Minister is aware.

We have a bit of a mess here. Having said that, it is wonderful to hear that the Government have decided that the outstanding matter referred to in the Statement—the impact on customers who have suffered life-changing injuries or loss of income while on Thomas Cook holidays—cannot be allowed to pass. We will support that decision in any way possible if it is necessary to do so after the election.

The Minister mentioned in the Statement the success of the repatriation; we should perhaps record that too. He paid tribute to the Secretary of State, but the main burden of heavy lifting fell to the Civil Aviation Authority, which booked the planes and arranged the logistics so successfully that customers who could have been stranded for weeks, if not longer, got back within a few days of their original bookings. We should be very proud of that; the success of Deirdre Hutton and her team should be recognised.

On the substance of today’s announcement, it seems extraordinary that this should have been allowed to happen at all. The first question we need to ask is: how could it be that a company of such status and standing as Thomas Cook, which was in operation for nearly 200 years, let itself get into a situation where it deliberately insured itself against the tragedy and therefore abandoned its rationale for existing—the good care of its customers —as it went into liquidation? It is unlikely that any payments will be made to those who will be treated as unsecured creditors. We all know that. Compensation is going missing; the Government have recognised that this needs to be sorted out, and we are very grateful for that.

Can the Minister give us some idea of how this kind of situation will be prevented in future? Clearly, this was something that lay within the remit of the company’s own decisions. The fact that it had insurance cover for the very high end of the spectrum suggests that it was aware of the insurance requirement, but that cut-off is too high. Does the Minister have any ideas about how this might be addressed? I presume he is thinking about future legislation.

The statutory compensation scheme is a great idea and I am pleased that it is happening, but questions arise about how it will be financed and organised. Will it be based on ATOL and ABTA-type approaches or funded directly by the Government, or will some form of co-funding be laid against the other travel companies? If so, does the Minister have any ideas about this?

On the question of whether the official receiver would be passing on matters relating to the actions of the directors, that is clearly not a matter that we can deal with in this House. However, can the Minister say whether he has in mind that a criminal offence may have taken place? If so, it would be useful to know that this is the way the wind is blowing. If not—or if it is not possible to say—can he confirm that the legislation he is considering will ensure that companies trading on a near or actual insolvency basis will not be empowered to pay bonuses to themselves? We should be quite clear that that is what we are talking about at this stage.

I have one final question. Clearly the Government do not intend to become the lender of last resort for companies that get into trouble over travel arrangements, but this will possibly not be the only example of such things happening. Can the Minister offer some reassuring words about being prepared to look again at the wider context, should this turn out to be a more common issue? That would be helpful. Also, will this be a permanent arrangement, or just temporary until things become clearer?

[Baroness Randerson (LD)]

My Lords, I thank the Minister for repeating the Statement. It raises some very serious issues. I echo the concerns of the noble Lord, Lord Stevenson, and his inquiries about how Thomas Cook came to be in this very risky situation—risky for its customers. Is it because the law simply has no coverage of this area for companies? In other words, do we need to start absolutely from scratch in terms of legal requirements for companies? Or is it that Thomas Cook actually cut corners and could potentially be judged to be on the wrong side of the law in due course?

It is absolutely appalling that people who have suffered very serious injury, and indeed died, as a result of incidents when they were customers of Thomas Cook could find themselves in this very difficult position. We all know that when a company goes into liquidation, it takes years to sort it out, even in the best of circumstances. As it stands, who has priority as creditors for Thomas Cook? In addition to that, what are the Government’s plans for plugging the gap that clearly exists in this situation after the election? The Government are looking to add a capped fund. Of course, that means there will be people who remain badly out of pocket. They will not be compensated as they should be when things have gone wrong. The official receiver is conducting an inquiry into the situation for Thomas Cook. Can the Minister explain how long it is likely to take for the inquiry to report?

I want to raise one or two other issues of concern, following the demise of Thomas Cook. They are not of the order of magnitude of what was in the Minister’s Statement, but they are still serious. The CAA has done some amazing work to repatriate so many people. I know that CAA staff were literally sleeping in the office, because they were being called on to work such long hours. This is the second time in as many years that they have had to do this job and they are clearly getting quite practised at it. It is not acceptable that staff are being put under such huge amounts of stress. Are the Government considering additional resources for the CAA so that staff are not put under quite so much pressure when this happens again, as it almost certainly will?

There are still almost 2,000 Thomas Cook customers who paid by direct debit and have yet to receive their refunds. The original promised date for refunds was 14 October. These customers are a small percentage of the total, but this is a bad time of year for people to be owed money—significant amounts of money. I would like an explanation from the Minister as to whether the Government or any agency are able to provide support to those who are now having to fill in forms. There might well be vulnerable people who find this process extremely complex and our experience is always that the most vulnerable people find it most difficult to complete bureaucratic processes such as this.

Finally, the Government promised a review of insolvency legislation following the Monarch financial crash, the purpose of which was to enable companies to continue to trade long enough to bring customers home so that that responsibility did not fall on the Government again. It has happened again, and I would like to follow up with the Minister whether that work is still ongoing and whether the Government intend to introduce a change to insolvency rules to clarify that situation.