MPs have criticised the private equity owner of City Link for “abandoning” nearly 4,000 staff and contractors when the delivery firm went into administration on Christmas Eve.
A joint report by the House of Commons Scottish Affairs and Business, Innovation and Skills committees said that the courier company and its owner, Jon Moulton’s Better Capital, were “morally, if not legally, responsible” for the difficulties of thousands of former employees and small businesses.
Many of the 2,727 staff and some 1,000 contractors who worked for Coventry-based City Link only learnt of its failure in the media on Christmas Day after administrators were called in late on Christmas Eve. Better Capital bought the struggling business from Rentokil Initial in 2013, pumping £40m into efforts to turn the company around. But losses mounted and Better Capital failed to find a buyer for the business.MPs said they were “dismayed” that small businesses and self-employed drivers were encouraged to take on extra costs to meet the pre-Christmas rush of deliveries, despite the strong possibility that they would lose out.
Ian Davidson, chairman of the Scottish Affairs Committee, said: “The additional work undertaken by these people has left some of them in serious financial difficulties, with some small firms forced into administration themselves or relying on goodwill from creditors to struggle on. Contractors feel they were deliberately deceived as to the true state of the business. City Link and Better Capital are morally, if not legally, responsible for the difficulties that many of these individuals and small business find themselves in.”
A spokesman for Better Capital said: “It is incorrect to suggest that there was any financial benefit to City Link in continuing to trade between 22 and 24 December, the date when it ceased trading. The company had effectively failed on either date. It is our firm belief that the company took the right decision to trade until 24 December.”
MPs on both committees called for an overhaul of the insolvency laws, saying that the system failed to offer enough protection to workers, while cushioning investors and directors from the impact of failure.
Adrian Bailey, chairman of the Business, Innovation and Skills committee, said: “The balance needs to be shifted so that our insolvency system is no longer skewed in favour of investors and directors. It is deeply regrettable that Better Capital felt its investors’ interests would be better served by abandoning City Link and its workers.”
The report detailed union complaints that it was less costly for City Link to pay a fine for non-consultation with its workforce at threat of redundancy than to keep the business going during the potential consultation period, while directors’ focus switched to the priorities of potential creditors rather than staff.
The committees recommended that the Government support dialogue between unions, employers and insolvency practitioners to develop best practice guidance on sharing of information with employees and unions when administration is looming, as well as clarifying the requirements for consultation on redundancies.
It also recommended that all company workers, whether directly employed or not, are given preference in an administration.
The Government has called for evidence on how insolvency practices can be improved and employees facing redundancy can be properly informed. It follows the City Link failure and the collapse of the fashion retailer USC this year, where employees were given 15 minutes’ notice that the company could fall into administration, before administrators were officially appointed.Reuse content