City Link's private equity owner accused of breaking funding offer

Exclusive: Jon Moulton's Better Capital fund wrote to the courier in September promising to provide finances to keep it going for another year

Jim Armitage
Wednesday 31 December 2014 01:51
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The private-equity fund that owned the City Link parcels business wrote to the company as recently as late September pledging to provide finances to keep it going for another year.

City Link’s accounts show that it received a letter from Jon Moulton’s Better Capital fund on 30 September, stating the latter’s “current firm intention to provide finance sufficient to enable the business to continue as a going concern for the next 12 months from the date of approval of the financial statements”.

Those financial statements were lodged in accounts filed at Companies House on 9 October, with City Link’s management saying: “No matters have been drawn to the attention of the directors to suggest that further funding will not be forthcoming as required.”

Just 11 weeks later, on Christmas Eve, the firm collapsed – threatening the jobs of nearly 3,000 staff – after Better Capital’s fund stopped financing its losses.

The letter will raise further concerns among creditors of City Link, who claim they were misled about the financial state of the business, particularly the 1,000 subcontractors working as drivers who are likely to be left owed thousands of pounds after the administration process.

A spokesman for the National Union of Rail, Maritime and Transport Workers (RMT) said: “This is just another broken promise from a company that was encouraging subcontractors to invest in new City Link kit and van leases just two weeks ago, even though it must have known it was in trouble.”

Mr Moulton insisted that the letter was not a pledge, and said it was made clear that the 12-month financing plan was only “current” at the time it was written. He said the accounts made it clear that the business was struggling.

The accounts also reveal that Better Capital received management and administration fees, totalling £337,000 last year, in return for its fund’s £40m investment in City Link. Had the company survived until Better Capital’s loan was due to be repaid in 2018, it would have received interest charges of £3.3m. In the event, no interest was paid to Mr Moulton’s company.

The accounts show that Spicers, an office equipment supplier also owned by Better Capital, was paid £190,000 by City Link during the year, while the double-glazing company Everest – another Better Capital firm – spent £8,797 as a loyal City Link customer.

The accounts reveal that City Link’s chief executive, Dave Smith, received £646,000 in pay and pension contributions last year, up from the £368,000 that the former Post Office managing director earned the year before, when CityLink was owned by Rentokil.

Filings at Companies House show that Mr Smith and other directors set up a business called City Link B2B Limited, with the Better Capital fund as its shareholder, on 8 December. This was established with the idea that the company could rescue part of the business with a so-called company voluntary arrangement – a scheme that freezes a struggling business’s debts to give it breathing space to restructure. While this did not happen, the existence of the plan will also cause concern for those, such as its contractors, who extended credit to City Link in the weeks before its collapse.

Most of City Link’s nearly 3,000-strong workforce will be formally made redundant today, The RMT is planning a demonstration at the firm’s main hub in Coventry.

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