City Link ‘hopelessly’ insolvent before Christmas, court told

Three former directors of the collapsed business are accused of failing to give 45 days’ notice of dismissals which took place on New Year’s Eve, and of not informing the Business Secretary of impending redundancies

Parcel delivery company City Link employs 2,727 workers (PA)

The parcel delivery company City Link was “dead in the water” and “hopelessly” insolvent in the few days leading up to last Christmas Day when it went bust, a court has heard.

Three former directors of the collapsed business are accused of failing to give 45 days’ notice of dismissals which took place on New Year’s Eve, and of not informing the Business Secretary of impending redundancies under the Trade Union and Labour Relations Act.

Its former managing director David Smith, finance director Robert Peto and non-executive Thomas Wright deny the charges at Coventry Magistrates Court.

The court heard that they were told on 22 December that a £25m funding boost had fallen through, leaving the company unable to continue.

Opening the case against the men, Paul Ozin, representing the Department for Business, Innovation & Skills, claimed the information was withheld to keep the business functioning in the run up to Christmas and so “protect creditors”.

It meant hundreds of delivery drivers worked through the busy last-minute Christmas period not knowing that the company was insolvent and that they would be unlikely to be paid.

He said: “City Link was a nationwide parcel delivery service which went into administration on Christmas Eve of last year.

“It operated 53 depots and four hubs in locations across the United Kingdom, employing 2,727 employees.

“The triggering event was the collapse on 22 December of a proposal, known as the turnaround plan, which was designed to provide City Link with an essential injection of £25m. We say that the plan formulated by the managers on 22 December was to carry on trading over the Christmas period – with the purpose of delivering the bulk of the parcels within the City Link network – and then to put the company into administration by, at the latest, Boxing Day.”

The court also heard that managers planned to “minimise” the collection of new parcels on Christmas Eve and cease trading in a controlled fashion.

A two-page HR1 form was sent to the Insolvency Service on Boxing Day, after the appointment of administrators, giving notice of potential redundancies – involving City Link’s entire workforce – on dates ranging from 31 December to 31 March this year.

Mr Ozin told the court that during interviews with the defendants, they claimed redundancies were not “inevitable” on 22 December, despite the failure to secure funds or a buyer.

If found guilty the trio face fines of £5,000 each. The case is expected to conclude on Friday.