FRC eyes up probe into Thomas Cook collapse

The Financial Reporting Council (FRC) is considering launching an investigation into the collapse of Thomas Cook

‘In light of recent developments at Thomas Cook we are considering whether there is any case for investigation and enforcement action as a matter of urgency and in cooperation with the Insolvency Service,’ an FRC spokesperson said.

FRC disclosed no details about any potential investigation but the regulator is wary about holding back on announcements about investigatory action, following its slow response to the collapse of Carillion.

The company was audited by EY, who was appointed as auditor in 2017, taking over from fellow Big Four firm PwC, who had audited the business since 2008. EY earned £3m in audit fees and a further £1m in non-audit services (NAS) for year end 2018, although there are no details in the annual report about the type of NAS provided.

The government is also concerned about the conduct of the senior management in the run-up to the company’s liquidation. Business secretary Andrea Leadsom has asked the head of the Insolvency Service to prioritise work on the investigation into the collapse of Thomas Cook as a matter of urgency and to probe the actions of top management.

‘I am aware that the investigation is currently underway and given the significance of this case and its implications for thousands of customers and employees, I would be grateful if he could treat this as a priority,’ said Leadsom.

‘I ask that the investigation by the Official Receiver looks, not only at the conduct of directors immediately prior to and at insolvency, but also at whether any action by directors has caused detriment to creditors or to the pension schemes.’

There has also been widespread criticism of the large remuneration packages paid to top executives including £732,000 basic salary for chief executive Peter Fankhauser with a total remuneration package of £1.02m in FY18, down from £1.8m in FY17, with potential bonuses up of 225% of salary in performance related bonuses.

There have also been numerous changes at the top of the finance team, with group chief financial officer (CFO) Sten Daugaard only hired in October 2018 on an interim basis. Previously he was on the board of Thomas Cook's German division. Daugaard replaced group CFO Bill Scott, a chartered accountant who trained at PwC, and left the company after less than a year in the top finance job. He had been a member of the finance team at Thomas Cook for six years, previously as director of financial reporting at the group.

Scott, who was paid £390,000, including bonuses, replaced Michael Healy as group CFO when Healy, also a PwC alumni, moved across to chair Thomas Cook Money in December 2017.

Scott and Healy had both worked at eBookers and KwikFit prior to joining Thomas Cook.

The company has faced a difficult 12 months’ trading, with a large debt burden of £1.2bn reported in the latest half year accounts. At the time of its collapse, Chinese investor Fosun, which had a stake in the company was offering to support a £900m rescue deal, but Thomas Cook needed an emergency loan of between £150m and £300m, which it failed to raise in time to avoid liquidation. The government is now funding a multimillion repatriation of UK holidaymakers currently on two-week Thomas Cook holidays around the world, which is being run by the Civil Aviation Authority (CAA). 


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