0800 9700539
Show Menu

MPs call for change in insolvency process after City Link's collapse

Since the administration of City Link in December, a group of MPs have been looking closely at how the situation was handled leading up to the administrators' appointment.

The MPs overall view was that employees were not given priority when the company fell into financial difficulty, and were not given enough notice before City Link entered administration on Christmas Eve.  
Under current insolvency law, if a company does not follow the statutory redundancy consultation process, they will be fined for this. However MPs have highlighted that in the case of City Link, the risk of ceasing trading was far greater in cost than that of a fine, suggesting the company knowingly failed its employees and contractors.

As for the order of priority and who gets paid when a company becomes insolvent, employees are ranked below banks and secured lenders but above HMRC, trade suppliers, contractors and customers (known as unsecured creditors). MPs now feel employees and contractors should be moved further up the chain.  

There is often no good outcome when a large company goes into administration as this will usually mean some or all employees will lose their jobs, customers won’t get paid back and suppliers lose business. The company will still be in financial difficulty regardless of how quickly employees are told.

In the case of City Link, if employees and suppliers had been told a while before the company entered administration, many could have left the company and pulled out of contacts. Millions of packages and Christmas presents may have been undelivered, creating still a gloomy outcome for customers and the business.

If a change to the order of priority was considered, with employees moved to the top and banks pushed further down, where would the incentive be for banks to lend to businesses? If they thought they would get little back in the event of insolvency, would the risk to lend be too great?

Employees should get fair treatment and appropriate consultation rights if a company they work for goes into administration. And for that reason, it is definitely worth looking into. We must all remember though that in this type of situation, not everyone will benefit. 

In a report, the group of MPs stated “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.”

The group are calling on the government to change the insolvency process, in order to better protect contractors and agency workers who are considered as unsecured creditors and not employees. 

Please see our new infographic for more information on the order of priority - who gets paid when a company goes bust

0 Comments

Post a Comment

Many thanks for your comments. If you have a private business problem and you want advice give us a call on 0800 9700 539 or email me at keiths@companyrescue.co.uk. If you are a professional advisor with a troubled client, please suggest they visit www.companyrescue.co.uk or contact me as above.


No Very





Captcha Image



DISCLAIMER

The information contained in this Blog (the "Blog") is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. The application and impact of laws can vary widely based on the specific facts involved. Given the changing nature of laws, rules and regulations, and the inherent hazards of electronic communication, there may be delays, omissions or inaccuracies in information contained in this Blog. Accordingly, the information on this Blog is provided with the understanding that the authors and publishers are not herein engaged in rendering professional advice or services. As such, it should not be used as a substitute for consultation with professional and competent advisers. Before making any decision or taking any action, you should consult a professional adviser. 

While we have made every attempt to ensure that the information contained in this Blog has been obtained from reliable sources, KSA Group is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this Blog is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Nothing herein shall to any extent substitute for the independent investigations and the sound technical and business judgment of the reader. In no event will KSA Group, or its directors, employees or agents, be liable to you or anyone else for any decision made or action taken in reliance on the information in this Blog or for any consequential, special or similar damages, even if advised of the possibility of such damages. 

Links to Related Internet Sites 

Certain links in this Blog connect to third party web sites. KSA Group does not accept any responsibility for, nor makes any representations as to the accuracy of, any content in such third party web sites. 

Third Party Comments 

Third parties may submit comments for publication on the Blog. Any such comments are submitted on the basis that KSA Group will review and may edit such comments, and that not all submissions will be published. Any third party comments published on the Blog (whether edited or not) are third party information for which KSA Group takes no responsibility and disclaims all liability, and the above disclaimer applies to any such third party comments. 

Privacy Statement 

If and to the extent that you submit any personal data (such as your name and email address) to KSA Group through this Blog, including by email to the Blog manager, KSA Group (as data controller) confirms that it will only use any such personal data for the purposes for which you have provided such data. 

Copyright 

The copyright in the text, podcasts, PowerPoint slides, layout and any other materials on this Blog (other than any third party comments) is owned by KSA Group Ltd. All rights are reserved. 
If you wish to use or copy any of the text or other materials on this Blog (or any extracts from the same), you must first contact KSA Group for copyright permission in relation to the proposed use. In addition, any use of text or other materials on this Blog (or any extracts from the same) in published materials must identify the KSA Group materials involved and reference the KSA Group author's name. 

The browser you are using is Explorer 8 and this site is not compatible with this version. Please upgrade or switch, which is free, for a more secure and better browsing experience.Close