City Link owners “morally responsible” for contractors’ losses, say MPs
Lawmakers in the UK have called for changes to rules on companies that go bust, in the wake of the collapse of parcel carrier City Link. Parliament’s Scottish Affairs and Business, Innovation and Skills Committees made the joint call today as they said that the owners and managers at City Link were “morally responsible” for the financial difficulties of self-employed couriers who lost their jobs at Christmas, even if they could not be made legally responsible under current laws.
The MPs criticised City Link and its managers for a “deliberate” decision not to tell employees and contractors about the likely collapse of the company just before Christmas.
They said City Link employees were denied reasonable notice of losing their jobs, and instead have to pursue a court claim.
The Committees said that while there will always be those who lose out when a company goes bust, currently those who fund a company are protected from the full impact of an insolvency, with losses borne by self-employed contractors or suppliers.
The MPs also said that under the current system it is “clearly” in the financial interest of a company to break the law and ignore required notice periods for workers being made redundant, if a fine for doing so is less than the cost of continuing to trade — and if the fine is picked up by the taxpayer.
The two Parliamentary Committees today called on the UK government to review and clarify requirements for consultation on redundancy when a company goes into administration.
Ian Davidson, the chair of the Scottish Affairs Committee, said at the moment the rules on insolvency were “skewed” too far to the advantage of investors, directors and management.
Davidson, who is MP for Glasgow South West, said: “We are dismayed that, although it was clear for some time that there were serious questions over the ability of City Link to continue trading after December 2014, small businesses and self-employed drivers working for City Link were encouraged to take on additional costs, despite the company being aware that there was a strong possibility that they would not receive payment for a significant part of their work in December.
“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 their own 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 now find themselves in.”
Pulling the plug
City Link laid off around 2,500 workers around New Year’s Eve and early January, having gone into administration on Christmas Eve.
The company had been making losses ever since merging with rival carrier Target Express back in 2007.
The private equity owners of the company, Better Capital, had decided on 22nd December that efforts to turn around its loss-making operations were taking too long. Executives had been investigating possible new options to save the company as far back as October 2014. When the decision was made to pull the plug, the belief was it would take a further six months to return to profitability.
Ex-City Link chief executive David Smith told the Committee last month that when Better Capital decided to end its support for City Link on 22nd December 2014, it was decided that it would be better for creditors to continue trading until Christmas, or shortly after Christmas Day.
It meant that while bosses knew the company was about to shut down, self-employed contractors were taking on financial burdens to continue working for City Link without knowing they would not be paid as expected.
Legal action is currently in the process of being taken on behalf of former staff from City Link.
Adrian Bailey, chair of the Business, Innovation and Skills Committee in the House of Commons, said the joint committee inquiry into the City Link collapse found that the current insolvency system in the UK “fails to offer sufficient protection to workers, suppliers and contractors alike” while investors and directors “are cushioned from the impact of failure” while workers, suppliers, and contractors pay the highest price.
“The balance needs to be shifted so that our insolvency system is no longer skewed in favour of investors and directors,” said Bailey, who is MP for West Bromwich West.
“It is deeply regrettable that Better Capital felt its investors’ interests would be better served by abandoning City Link and its workers. Contractors, suppliers, and workers were left high and dry – taking a serious financial hit – and are now left to struggle on in the wake of the decisions of Better Capital.”
