MPs Slam Company Insolvency System
23 March 2015, 07:11
The collapse of delivery firm City Link has exposed how company insolvencies do not offer enough protection to workers, according to a damning report.
MPs from two select committees said the system was too heavily skewed in favour of investors and the taxpayer, calling for the balance to be shifted.
The report into the controversial closure of the company over Christmas said that under current rules, it was in the financial interest of a company to break the law and ignore the statutory redundancy consultation period.
Any fine will be paid by the taxpayer, noted the Business and Scottish Affairs Select Committees.
Mick Cash, leader of the Rail, Maritime and Transport union, said the "shocking'' report vindicated its complaint about the "carefully engineered collapse'' of City Link.
He said: "Lives were wrecked, with the taxpayer footing a massive bill, while those responsible skipped away unscathed and with large chunks of their assets protected.''
The company was placed into administration at 7pm on Christmas Eve following several years of losses.
For many of the 2,727 staff and 1,000 contractors, the first confirmation that their jobs and livelihoods were at risk came from reports in the media on Christmas Day.
The report said under the current system, those who have given secure credit to a company are "cushioned'' from the impact of an insolvency because losses are borne by workers, contractors or suppliers.
Ignoring the consultation period with workers had a "high human cost'' that appeared not to have been taken into account in the City Link case, said the report.
The committees recommended the Government should support dialogue between unions, employers and insolvency experts to improve communication when administration is being considered, and to review arrangements for sharing information.
The report said it regretted that City Link's owners, Better Capital, felt its investors' interests could only be protected at the expense of the delivery firm's future, and its workers.
Ian Davidson, chairman of the Scottish Affairs Committee, said: "The rules on insolvency, on everything from how and when information is shared with employees, to the order in which creditors are paid out, are skewed too far to the advantage of investors, directors and management.
"Further, the system provides perverse incentives to withhold information or to skip proper consultation processes in contravention of the law and at a high cost to workers struggling to cope with the loss of their livelihoods.
"It also creates incentives to use cheap, insecure forms of employment, such as bogus self-employment, which gives a worker all the responsibilities of an employee but none of their rights or protections.''
Adrian Bailey, chairman of the Business Committee, said: "Our joint evidence sessions highlighted an issue which former employees of City Link will sadly know only too well - that the current insolvency system fails to offer sufficient protection to workers, suppliers and contractors alike. 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.''
Mr Cash said: "The City Link scandal shocked and outraged the nation and this independent cross-party report endorses our view that Better Capital and City Link deliberately deceived their employees and Better Capital put their interests before those of saving City Link or the workforce.
"Piling scandal on top of scandal the report says the law on consulting with employees was deliberately broken with a high human cost.
"This allowed the bandit capitalists to cut and run while workers lives were ruined and the taxpayers were left to pick up the pieces.''
Chuka Umunna, shadow business secretary, said: "The collapse of City Link has had a devastating impact for the firm's employees and suppliers.
"It is inexcusable that staff at the firm were not informed of it entering administration until Christmas Day given that the firm's management were aware of concerns ahead of this.
"This report is right to emphasise the need for better practice when firms go into administration to ensure that workers and suppliers are not kept in the dark, as well as tackling false self employment which leaves workers without proper protection and support.
"It is vital that lessons are learned from City Link's demise.''
A Business Department spokesman said: "We will be taking a detailed look at this report and responding in due course.
"Jo Swinson will today be issuing a call for evidence, seeking views from the public and industry on how to make consultation with employees facing collective redundancy in insolvency more effective.''