City Link was 'hopelessly' insolvent before bust

City Link Last year, City Link went bust, and has been described as 'hopelessly' insolvent and 'dead in the water' in the days leading up to its demise.

In court, former directors have been accused of failing to give 45 days’ notice of dismissals to staff, which happened on New Year’s Eve. They've also being accused of not informing the Business Secretary of the impending redundancies under the Trade Union and Labour Relations Act.

Answering the charges, former managing director David Smith, finance director Robert Peto and non-executive Thomas Wright appeared at Coventry Magistrates Court, where they deny the claims. The court was told that, on 22nd December, a £25m funding boost that City Link were counting on, had fallen through, which meant they couldn't continue to trade.

Paul Ozin, representing the Department for Business, Innovation & Skills, opened the case against the executives, and said that information was withheld in a bid to keep the business running, to “protect creditors”. This meant hundreds of staff continued to work through a busy period, not knowing that they weren't likely to be paid for their efforts, and that they were all about to lose their jobs.

Ozin said: "City Link was a nationwide parcel delivery service which went into administration on Christmas Eve of last year. It operated 53 depots and four hubs in locations across the United Kingdom, employing 2,727 employees."

"The triggering event was the collapse on 22 December of a proposal, known as the turnaround plan, which was designed to provide City Link with an essential injection of £25m. We say that the plan formulated by the managers on 22 December was to carry on trading over the Christmas period – with the purpose of delivering the bulk of the parcels within the City Link network – and then to put the company into administration by, at the latest, Boxing Day."

The HR1 form was sent to the Insolvency Service on Boxing Day, after the company had appointed administrators, giving notice of likely redundancies on dates ranging from 31 December to 31 March this year. Ozin continued, saying that, while interviewing the defendants, they stated that redundancies were not “inevitable” on 22 December, despite the failure to secure a new buyer or an injection of funds.

The case continues.

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