We all woke up this morning to the news that at midnight Thomas Cook had entered into a liquidation after last-minute negotiations aimed at saving the 178-year-old holiday firm failed.

Whilst the administration of Monarch Airlines had previously been the largest peacetime repatriation in the UK's history, the repatriation of Thomas Cook's customers is predicated to be larger and involve bringing more than 150,000 British holidaymakers home.

The collapse of the 178 year old holiday company, has caused travel chaos and thousands of individuals have lost their jobs too, but what has caused it and what does liquidation mean?

What caused the Liquidation of Thomas Cook?

Ultimately we won't fully know what 'caused' the liquidation per se, but the rise of cheap flights, political unrest in holiday destinations such as Turkey, last summer's prolonged heatwave and customers delaying booking holidays because of Brexit have all been blamed.

"Once the company entered insolvency, the Air Operating Certificate it needs to be able to fly was effectively suspended, which is why all outbound flights were cancelled with immediate effect."

What does Liquidation mean for Thomas Cook?

Compulsory liquidation or "winding up" is a court-based procedure under which the assets of a company are realised and distributed to the company's creditors. The procedure is started by the filing (or "presenting") of a petition at court. A judge then decides at a court hearing whether it is appropriate to make a winding-up order. The most common reason for a winding-up order is that the company is insolvent. At the end of the liquidation, the company is dissolved.

An application was made to the High Court for a compulsory liquidation of the Company before opening of business today and an order has been granted to appoint the Official Receiver as the liquidator of the Company. We anticipate that the Official Receiver will make an application to the High Court for members of AlixPartners UK LLP to be appointed as Special Managers in respect of the Company, to act on behalf of the Official Receiver, and we further anticipate that an order will be granted to that effect. As part of this process, a number of other Thomas Cook Group companies have also entered into compulsory liquidation, with members of either AlixPartners UK LLP or KPMG LLP (depending on the company) being appointed as Special Managers in respect of the relevant Group companies.

We expect that AlixPartners UK LLP will now work very closely with the Civil Aviation Authority in the UK, to effect the repatriation of all UK customers impacted by this announcement. 

Lenders including RBS and Lloyds Banking Group released a statement overnight saying they had been “extremely supportive”.

“Unfortunately, and notwithstanding the efforts of all stakeholders, the £1.1bn funding requirement to adequately recapitalise Thomas Cook has ultimately proved too significant,” they said.

What does compulsory liquidation mean for an employee of the company?

All employees of a company are automatically dismissed if a winding-up order is made. As a former employee, you may be entitled to a redundancy payment, and may have a claim for damages on the grounds of wrongful dismissal.

What will happen now?

A liquidator's function is to collect in and realise the company's assets, and to distribute the proceeds to the company's creditors and, if there is a surplus, to the persons entitled to it, These distributions are made to unsecured creditors on a pari passubasis, which basically means a creditor may get paid a dividend on a pro rata basis to the debt they are owed at the end of the liquidation (and possibly also an interim dividend). In some cases, the dividend to unsecured creditors will be just a few pence in the pound, and in some cases it may be nothing at all. Given the level of debt with Thomas Cook, payments out to unsecured creditors are looking unlikely.