3 Communication with staff and contractors
25. City Link went into administration at 7pm on
24 December 2014. Jon Moulton suggested that the timing was because
the RMT "jumped the gun" and put out information earlier
that day to say that City Link was already in administration.[20]
The RMT acknowledge that they had contacted their members and
the media on 24 December, but suggested that this was a result
of a lack of information and communication from City Link. Steve
Hedley, Assistant General Secretary, RMT, told us that:
[City Link] were just stonewalling us. They said they had
no plans to do that [go into administration], but then we found
out when we put it in the media. […]At that time we did not
even know who the administrators were, so it was impossible to
ask them the question directly before it went into the media.[21]
26. When asked about the chaotic way in which staff
and suppliers discovered that City Link had gone into administration,
Jon Moulton told us that: "that there were very
extensive plans carefully laid out. All the contingencies were
covered. They did not survive contact with Christmas day."[22]
27. Hunter Kelly, lead administrator for City Link,
expanded on this in his evidence, telling us that the original
plan had been to put City Link into administration on 26 December.
He said that:
The plan I had in place was that, when the company
returned from the holiday on Christmas day, employees would
be notified of the insolvency on Boxing Day with a phased approach.
[…] We would have been able to disseminate information. The
normal basis on which the company disseminated information would
be via senior management and down into their respective teams.[23]
28. All our witnesses acknowledged that the way that
workers found about the administration on Christmas Day was unacceptable.
The RMT were also critical that City Link continued to trade after
the decision to go into administration was made on 22 December.
Steve Hedley told the Committee that:
on 22 December they [City Link] had taken the final
decision […]; they were going into administration. Two days
later, on the 24th, they were still denying they had done this
and saying they had no plans to go into administration and no
plans to lay people off. They did know it.[24]
Hunter Kelly told us that, on 22 December, when it
became clear that City Link was going to go into administration,
he took the view that formally putting City Link into administration
on 26 December "would represent the best recovery for the
creditors."[25]
29. David Smith clarified the reasoning behind continuing
to trade after 22 December and not informing staff that a decision
had been taken, telling us that:
for the creditors as a body the best answer—a
better answer than to tell them on the 22nd, "You're out
of a job and you're leaving today"—was to trade through
until close on the 24th. The reason for that was, first, we had
paid them that money; and, secondly, we also brought in income
of about £3.4 million in the same time period. We would not
have done either of those two things, so in the round those creditors
would have actually been in a worse position than they were afterwards.[26]
30. In the period leading up to 22nd December, it
is clear that the strong assurances given by Mr Smith to contractors
and suppliers failed to reflect the seriousness of the company's
financial position, of which Mr Smith would have been well aware.
31. From 22nd December, the company took a deliberate
decision not to inform employees and contractors as to the true
intentions and position of the company, and this was done for
the financial benefit of City Link and Better Capital. This amounts
to a deliberate deception by omission.
32. It is also clear to us that employees and contractors
feel they were deliberately deceived by the company in the weeks
and months leading up to the closure of City Link.
33. In the absence of any firm information, and with
rumours about the future of City Link swirling, it is clear that
the RMT felt it needed to act in the interest of its members.
The lack of clear and timely information for staff and contractors
made an already difficult situation worse. 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.
34. 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.
35. 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).
CONSULTATION PERIOD
36. When a company intends to make more than 20 staff
redundant there is a statutory period for consultation of not
less than 30 days for redundancies affecting between 20-99 staff
and not less than 45 days for redundancies affecting 100 staff
or more. This did not happen in the case of City Link.
37. The RMT told us that they believed that the consultation
process should have started in November, saying:
They [Ernst and Young] were preparing contingency
plans from November. Surely at that point they should either
have made the thing public, in which case it would have given
more prospective buyers time to come forward, or at least given
the Government bodies and the union time to consult
properly with their members and represent their interests. None
of this was done.[27]
38. Jon Moulton suggested that a consultation period
was not appropriate in situations where redundancies were a consequence
of a company going into administration. He suggested that: "The
purpose of the consultation period was consultation. These are
circumstances where no consultation is reasonably possible."[28]
39. David Smith raised another consideration, telling
us that, due to the loss City Link was making, it would have been
less costly to pay a fine for non-consultation than to keep the
business going during the potential consultation period. Mr Smith
also raised the difficulty faced by company directors in the event
of an administration in trying to balance their responsibility
to a company's staff and their responsibility to a company's creditors.
He told us that:
there is a clear challenge for us as directors when
you get to the position of potential insolvency and consultation
with staff. […] In the period post-22 December our responsibilities
as directors switched quite markedly towards the body of creditors
in the round, rather than in normal times when our normal duty
would be consultation with the staff. […]
I think something for the Committee to look at and consider is
the interplay between normal consultation and how that changes
when you go into an insolvency or administration world. As a director,
it is very clear that the two are pulling you in different directions,
potentially.[29]
40. The RMT suggested that the cost of not consulting
on redundancies in the case of administration is not a consideration
for companies, because those costs are met by the taxpayer and
not the company itself. Mick Cash, General Secretary, RMT, told
us that "they deliberately flouted that [the consultation
period]. They can do that, because you and I as taxpayers
pick up the tab for the Insolvency Service. It is absolutely
disgraceful."[30]
41. 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.
42. We are greatly
concerned that the existing system incentivises companies to break
the law on consultation with employees.
43. 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.
44. 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.
SUPPORT FOR EMPLOYEES AND CONTRACTORS
45. In the case of an administration, information
for employees is provided by the Insolvency Service, with payments
made by the Government through the Redundancy Payments Service.
Employees can access support for finding new employment through
the Jobcentre Plus in England, the Redundancy Action Scheme II
(ReAct II) in Wales and Partnership for Continuing Employment
(PACE) in Scotland. Insolvency practitioners also have a role
to play as information is distributed by the administrator.
46. In order for these parties to be able to coordinate
their response and provide timely support where numerous redundancies
are expected a protocol exists between insolvency practitioners,
the Insolvency Service and the Redundancy Payments Service. Hunter
Kelly told us that this protocol:
is to give advance notice that there could be an
insolvency involving substantial numbers of people, so that people
can get geared up and get their minds around the number of leaflets
and forms that are needed. In the event that insolvency does happen, things
can then be dealt with swiftly and promptly so that there is no
unnecessary delay, particularly for the employees. [31]
47. The RMT argued that the protocol had not worked
in this case. They described the provision of support for employees
as "very patchy", saying "a lot of members
did not receive the PACE documents."[32]
Some former employees suggested that not only had they not received
information on PACE (the Scottish Government's redundancy support
service) but that some staff had not received their RP1 form to
claim their redundancy payments.[33]
48. Hunter Kelly disputed this and told us that all
staff had received an RP1 form and that original copies of the
leaflets (PACE leaflets for Scotland, ReAct II for Wales and Jobcentre
Plus for England) were included in the envelope with it when the
forms were sent to employees.[34]
He also told us that Ernst and Young set up a Facebook page to
inform City Link employees of job vacancies in their local areas.[35]
49. 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
50. 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.
20 Q 248 Back
21
Oral evidence taken before the Scottish Affairs Committee on 13
January 2015, HC (2014-15) 928, Q 34 Back
22
Q 257 Back
23
Q 496 Back
24
Q 39 Back
25
Q 496 Back
26
Q 780 Back
27
Oral evidence taken before the Scottish Affairs Committee on 13
January 2015, HC (2014-15) 928, Q 5 [Mr Hedley] Back
28
Q 221 Back
29
Q 835 Back
30
Oral evidence taken before the Scottish Affairs Committee on 13
January 2015, HC (2014-15) 928, Q 13 Back
31
Q 472 Back
32
Oral evidence taken before the Scottish Affairs Committee on 13
January 2015, HC (2014-15) 928, Q 49 Back
33
Members of the Scottish Affairs Committee, Ann McKechin MP and
Margaret Curran MP met informally with workers, contractors and
union representatives in Glasgow on 13 January 2015. Back
34
Q 514 Back
35
Q 515 Back
| 
