Conclusions and recommendations
Could City Link have been saved?
1. We
recognise that there were differences of opinion as to whether
or not City Link could be made viable and the desired level of
return could be achieved. Thus we do not underestimate the difficulties
of the decisions Better Capital were faced with when the final
version of the turnaround plan and the investment request were
presented to them. As an investment fund they clearly have a responsibility
to their investors. However, it is a matter of regret that Better
Capital felt that those interests could only be protected at the
expense of the future of City Link and continued employment for
its workers. (Paragraph 24)
Communication with staff and contractors
2. We
urge the Government to support dialogue between unions, employers
and insolvency professionals to develop best practice guidance
for sharing information with employees and unions when an administration
order is likely. (Paragraph
33)
3. While in the immediate
aftermath of an administration order being granted, individual
staff and creditors are given information on their situation and
how to make a claim, there is a lack of information about the
situation as a whole that allows misunderstanding and rumour to
gain traction. (Paragraph 34)
4. We recommend
that the Government works with insolvency professionals to agree
a format for a short initial statement, to be made publically
available no later than a week after an administration order has
been made, which sets out a high-level summary of the events leading
up to the administration. This statement should also include the
details of i) who to contact with concerns over the conduct of
company directors and evidence to support those concerns, ii)
when the last payment to staff and suppliers was made and the
period it covered, and iii) an early assessment of whether there
would be any funds available to make a payment to unsecured creditors
(excepting the prescribed part). (Paragraph
35)
5. It is clearly in
the financial interest of a company to break the law and dispense
with the statutory redundancy consultation period if the fine
for doing so is less than the cost of continuing to trade for
the consultation period and this fine is paid by the taxpayer.
However, while the financial calculation is simple, ignoring the
consultation period has a high human cost that appears not to
have featured in the decision making process. Employees are denied
a reasonable notice period in which to seek alternative employment
and instead, at a time of financial uncertainty, must pursue a
court claim for lack of consultation if they wish to be compensated.
(Paragraph 41)
6. We are greatly
concerned that the existing system incentivises companies to break
the law on consultation with employees. (Paragraph 42)
7. Once a company
has gone into administration, it is likely to be the case that
they will be, or will be about to become, insolvent and the administrator
will not have the option to allow the company to continue to trade
for the consultation period. (Paragraph 43)
8. When considering
the consultation period in relation to a redundancy, company directors
may feel they have competing duties. We recommend that the Government
review and clarify the requirements for consultation on redundancies
during an administration so that employees understand what they
can expect and company directors and insolvency professionals
have a clear understanding of their responsibility to employees.
(Paragraph 44)
9. We commend Ernst
and Young for using a range of communication tools, including
social media, to try and assist former City Link workers with
job searches. However, we are concerned that the current practice
of sending leaflets on support available (PACE, ReActII or Jobcentre
Plus, depending on the location) through the post does not appear
to be particularly effective. Information on support for employees
and contractors should be provided through a range of methods
to ensure that all those affected are aware of the help available
to them. We are concerned that data protection legislation appeared
to block PACE from being able to contact workers impacted by the
City Link closure. We are certain that this was not the intention
of the legislation and recommend this situation should be re-examined.
(Paragraph 49)
10. We recommend
that the Government review the arrangements for information sharing
in the event of a company going into administration to ensure
that those affected receive timely advice and support. The Government
should consider whether Government agencies should have a role
in contacting affected workers directly to advise them of the
help available. (Paragraph 50)
Payment of creditors
11. While
we welcome the fact that the UK Government ensures that employees
can claim the money they are owed if their employer goes into
administration, it is a matter of great concern that, under current
legislation, taxpayers are left to pick up the bill, allowing
private investors to recover more of their investment. (Paragraph
56)
12. This lack of clarity
over payment of money owing to employees added an element of uncertainty
at an already stressful time. As with the examples above relating
to the provision of information about support for employees, this
added uncertainty created unnecessary worry and upset for staff.
(Paragraph 58)
13. We are dismayed
that, although it was clear for some time 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 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. Again,
there is no doubt that contractors 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. (Paragraph 62)
14. We welcome
the review initiated by the Secretary of State for Business, Innovation
and Skills into how to tackle the problem of bogus self-employment.
The incoming Government should bring forward proposals for tackling
companies who use or encourage this practice. We reiterate the
call in Zero hours contracts in Scotland: Interim Report for the
Government to set out what steps it is taking to prevent workers
from being pushed into bogus self-employment.
(Paragraph 69)
15. We accept that
there will always be those who lose out when a company goes into
administration and cannot cover all of its debts. We do not agree,
however, that the current system, where those who have given secure
credit to a company are cushioned from the full impact of an insolvency
because of the losses borne by those who work for a company on
a self-employed basis, or as contractors or suppliers, represents
the appropriate balance. (Paragraph 72)
16. Any change
to the priority order for creditor repayments should be carefully
considered to avoid unintended consequences and balance protection
for workers with the need for companies to attract credit and
investors. However, the current order of payments does not reflect
modern employment practices. We recommend that the Government
updates the order of payments in the Insolvency Act 1986 to give
preference to all of a company's workers, regardless of whether
or not they are directly employed and that consideration is given
as to how best to deal with employees and small sub-contractors
and suppliers. (Paragraph 74)
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