Over the Christmas period we were one of a number of publications to report on the collapse of the ill-fated delivery firm City Link. The news was made worse for company employees when more than 3,000 members of staff were informed of the closure on Christmas Day.
As if the situation wasn’t already toxic enough, City Link’s administrators have shed more light on how the demise of this established company played out. And it does not make easy reading.
Parcels held to ransom by insolvent van drivers who were sole traders or small one man limited company directors
Ransom demands are usually the preserve of kidnappers and organised criminals, but in this case it was IT suppliers and van drivers who were quick to identify an opportunity to make a few extra quid.
The City Link administrators have been forced to pay out a total of £60,000 from their already depleted coffers to meet the payment demands made by City Link’s IT suppliers and contractors for the return of ‘valuable parcels’.
The details of the ransom payments involved in the administration are just one part of a recent report released by the delivery company’s administrators. Other potentially explosive details include:
– Directors of City Link believed the business could be turned around until only days before the plug was pulled by the owners.
– The National Union of Rail, Maritime and Transport Workers (RMT) is blamed for forcing the announcement of the collapse on Christmas Day.
– More than 3,000 people lost their jobs at City Link while the administrators earned more than £1.7million from its demise.
– The insolvency practitioners were paid an average of £322 an hour for their work.
– Non-preferential debts (i.e. creditors who are a little way down the pecking order) can only expect to receive 2 pence for every pound they are owed.
– There are also considerable sums owing in unpaid employer pension contributions.
A legacy of loss-making contracts
City Link was founded in 1969, before being bought by Jon Moulton’s venture capitalist firm Better Capital in 2013. Moulton’s company injected a total of £40million into the floundering delivery firm in the hope of turning it around.
At the time of its collapse, the City Link directors were accused of a “horrific catalogue of mismanagement” which brought the ailing company’s quick demise. This accusation was denied by Moulton at the time, and the administrators have since found it was a legacy of loss making contracts, increased competition that drove down prices, high fixed costs and outdated IT systems that ultimately caused City Link to run aground.
In the autumn of 2014, an accountancy firm approached 17 potential buyers for City Link, none of which were interested in purchasing the ailing business. There was some interest from one buyer, but it soon became clear they were only interested in picking off the company’s assets once it was made insolvent.
Could the collapse have been avoided?
Despite a number of setbacks, the management of City Link had begun to work on a plan to turnaround the company and return it to full health. They presented the owner, Better Capital, with a letter requesting new investment just a week before this Christmas.
The directors were buoyed by advice from their law representatives that suggested there was a ‘reasonable prospect’ of avoiding insolvency and saving the business, and that it was in the ‘best interests’ of the company and its creditors to keep on trading.
However, despite the management’s request for additional investment, Better Capital decided to pull the plug.
We have seen a significant rise in the number of delivery company insolvency cases and winding up petitions as a means of debt collection. If you are concerned about your insolvent company’s future or threatened by a winding up petition for a company debt call 08000 746 757.
Written by: Mike Smith