The 178-year-old operator had been desperately seeking GBP 200 million ($250 million, 227 million euros) from private investors to save it from collapse.
"Following the collapse of Thomas Cook and the cancellation of all its flights, Transport Secretary Grant Shapps has announced that the government and UK Civil Aviation Authority has hired dozens of charter planes to fly customers home free of charge," a separate statement said, describing it as the largest repatriation in peacetime history.
"All customers currently abroad with Thomas Cook who are booked to return to the UK over the next two weeks will be brought home as close as possible to their booked return date."
Thomas Cook chief executive Peter Fankhauser called it a "deeply sad day".
"It is a matter of profound regret to me and the rest of the board that we were not successful," he said.
"This marks a deeply sad day for the company which pioneered package holidays and made travel possible for millions of people around the world," he added in the group's statement.
The firm's creditors held a marathon meeting on Sunday to try and work out a deal, followed by a meeting of the board of directors.
Reports said a collapse of the group would mean the repatriation of 600,000 tourists, including around 150,000 seeking government help returning to the UK.
Two years ago, the collapse of Monarch Airlines prompted the British government to take emergency action to return 110,000 stranded passengers, costing taxpayers some Â£60 million on hiring planes.
As well as the grounding of its planes, Thomas Cook has been forced to shut travel agencies, leaving the group's 22,000 global employees - 9,000 of whom are in Britain - out of a job.
Holidaymakers had already reported problems, with guests at a hotel in Tunisia owed money by Thomas Cook being asked for extra money before being allowed to leave, according to a tourist interviewed by AFP.
Chinese peer Fosun, which was already the biggest shareholder in Thomas Cook, agreed last month to inject Â£450 million into the business as part of an initial Â£900 million rescue package.
In return, the Hong Kong-listed conglomerate acquired a 75 percent stake in Thomas Cook's tour operating division and 25 percent of its airline unit.
Thomas Cook in May revealed that first-half losses widened on a major write-down, caused in part by Brexit uncertainty that delayed summer holiday bookings. The group, which has around 600 stores across the UK, has also come under pressure from fierce online competition.
Cabinet maker Thomas Cook created the travel firm in 1841 to carry temperance supporters by train between British cities.
It soon began arranging foreign trips, being the first operator to take British travellers on escorted visits to Europe in 1855, to the United States in 1866 and on a round-the-world trips in 1872.
The company was also a pioneer in introducing "circular note" - products that would later become traveller's cheques.
Thomas Cook collapses: What next and why?
What happens now and why did it collapse?
Who is affected?
The firm ran hotels, resorts and airlines for 19 million travellers a year in 16 countries, generating revenue in 2018 of 9.6 billion pounds ($12 billion). It currently has 600,000 people abroad, including more than 150,000 British citizens.
Thomas Cook employs 21,000 people and is the world's oldest travel company, founded in 1841. The company has 1.7 billion pounds ($2.1 billion) of debt.
What happens to tourists?
The British government has asked the UK Civil Aviation Authority to launch a repatriation programme over the next two weeks, from Monday to Oct. 6, to bring Thomas Cook customers back to the UK.
"Due to the significant scale of the situation, some disruption is inevitable, but the Civil Aviation Authority will endeavour to get people home as close as possible to their planned dates," it said.
A fleet of aircraft will be used to repatriate British citizens. In a small number of destinations, alternative commercial flights will be used.
The Civil Aviation Authority has launched a special website, thomascook.caa.co.uk, where affected customers can find details and information on repatriation flights.
For those customers not flying from Britain, alternative arrangements will have to be found. In Germany, a popular customer market for Thomas Cook, insurance companies will coordinate the response.
What is the advice to passengers?
"Customers currently overseas should not travel to the airport until their flight back to the UK has been confirmed on the dedicated website," the Civil Aviation Authority said.
"Thomas Cook customers in the UK yet to travel should not go to the airport as all flights leaving the UK have been cancelled."
What did the CEO say?
"I would like to apologise to our millions of customers, and thousands of employees, suppliers and partners who have supported us for many years," Thomas Cook CEO Peter Fankhauser said.
"This marks a deeply sad day for the company which pioneered package holidays and made travel possible for millions of people around the world."
Thomas Cook said it had entered compulsory liquidation and an order had been granted to appoint an official receiver to liquidate the company.
AlixPartners UK LLP or KPMG will be appointed as special managers for the different parts of the business.
Why did it collapse?
Hurt by high debt levels, online rivals and geopolitical uncertainty, Thomas Cook needed another 200 million pounds on top of a 900 million pound package it had already agreed, to see it through the winter months when it receives less cash and must pay hotels for summer services.
The request for an additional 200 million pounds torpedoed the rescue deal that had been months in the making.
Thomas Cook bosses met lenders and creditors in London on Sunday to try to thrash out a last-ditch deal to keep the company afloat. They failed.
Under the original terms of the plan, Fosun - whose Chinese parent owns all-inclusive holiday firm Club Med - would give 450 million pounds ($552 million) of new money in return for at least 75% of the tour operator business and 25% of its airline.
Thomas Cook's lending banks and bondholders were to stump up a further 450 million pounds and convert their existing debt to equity, giving them in total about 75% of the airline and up to 25% of the tour operator business.
Thomas Cook arranged the first known organised trip in Britain in 1841, offering a round trip by train from Leicester to Loughborough for 500 people at negotiated rates.
In 1872, Thomas Cook took intrepid travellers on the first escorted round-the-world trip in 200 days.
Both a tour operator and an airline, the group currently generates almost Â£10 billion in annual turnover, transporting around 20 million customers across the globe each year.
Destinations include The Maldives, Thailand and China, but it focuses mainly on Southern Europe and the Mediterranean with Mallorca and Antalya (Turkey) its main resorts.
The group owns 200 hotels, separated into different brands depending on who they cater for, whether it be families, budget travellers, young people or top-of-the-range guests.
It also owns the Jet Tours travel brand, Neckermann in continental Europe, and around 100 aircraft under its own name and the Condor brand.
The operator has experienced difficulties for several years, but the situation has deteriorated in recent months.
The group announced an eye-watering loss of Â£1.5 billion in the first half of the year due to the fierce competition from online travel and also the tremors caused by Brexit, which it said had led to potential tourists delaying travel plans amid the uncertainty.
The weak pound, another consequence of Brexit, also reduced the purchasing power of British holidaymakers abroad.
The setbacks caused its stock price to fall in recent months, plummeting to just a few pence.
Fosun, the Chinese owner of Club Med, was Thomas Cook's largest shareholder, owning around 17 percent of its capital.
The Chinese firm had planned to take over the British group's tours business as part of a Â£900 million refinancing package, of which it would have contributed half.
But creditors later asked for a further Â£200 million to refinance the tour operator, arguing that it would not be sustainable otherwise.
Creditors, executives and shareholders were locked in a series of meetings from Friday to try and release pension funds, secure a government bailout or cut the Â£200 million sum.
But it was all in vain, with the travel giant declaring bankruptcy early Monday.
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