The travel firm Sun 4 U collapsed, leaving around 1,200 British holidaymakers stranded abroad. A spokeswoman for the travel organisation ABTA said those already abroad with ATOL (Air Travel Operators' Licensing) packages should be able to continue with their holidays as planned.

She said that people who have booked holidays with Sun 4 U through their travel agent but have yet to travel would be able to get their money back if they were covered as an Atol package. However, she said they would not be able to go on the holiday.

She added that those who had booked the whole holiday through Sun 4 U - which specialised in Spanish holidays - would have to check with the airline and hotel to see if they could still travel.

She said such customers were likely to be able to continue with their holiday, as separate contracts exist between them and the hotel and airline.

The names and contact details of the hotel should be on the travel documents, the spokeswoman said.

The Birmingham-based firm announced it had ceased trading on its website. Sun 4 U's demise is likely to generate fears that more travel companies could meet a similar fate. The firm is understood to have been a victim of a downturn in bookings due to the ash cloud crisis earlier this year. According to reports, some 40 members of staff at its call centre were informed of the collapse on Thursday morning.

A statement on the company's website read: "Sun 4 U Limited has ceased trading as of 11th August 2010 at 2100hrs. For further information please contact ABTA's claim handlers CEGA on 01243 621 500."

ABTA said that people who were abroad should check-in for their flights as normal although hotels may require customers to pay for their accommodation again.

The Civil Aviation Authority (CAA) has stepped in to protect holidaymakers currently abroad. The CAA estimates that around 13,000 people are currently overseas – all of them should be able to complete their holidays as planned and return to the UK thanks to the CAA’s ATOL protection. The CAA will be arranging repatriation for all customers in line with the scheduled end of their holiday.

Passengers who booked package holidays with Holidays 4 U will be able to claim a full refund for their holidays through the CAA. Passengers who just booked a flight only will be able to claim this element.

Commenting on the situation, David Clover, Spokesperson for ATOL, said: “There is never a good time for a travel firm to fail; unfortunately the height of summer is the worst possible time. However people who booked ATOL-protected holidays with Holidays 4 U who are currently abroad will be able to complete their holiday or claim a refund from the CAA.

“We would always advise people to check with their holiday company that the trip their booking is protected by ATOL.”