Taxpayer to pick up redundancy tab
City Link owner ‘regrets’ timing of jobs announcement
Most of the 2,760 workers expect to hear on New Year’s Eve that they are out of work. A demonstration was planned at one of its Scottish depots on Monday morning.
Jon Moulton, the owner of private equity firm Better Capital, has been criticised for the timing of the announcement and for donating tens of thousands of pounds to the Conservative party, although his contribution was two years ago, before he acquired City Link.
Speaking for the first time about the company’s collapse, he said it was not viable and that because of a leak to the media before the planned announcement there was a legal obligation to get the news out as quickly as possible.
In a statement issued to the stock exchange today (Monday), Better Capital said: “Unfortunately the appointment of an administrator was leaked to the media ahead of the intended announcement. The directors very much regret the impact on the employees of City Link receiving such bad news on Christmas Day.”
The board of Better Capital reported in September that City Link was experiencing a “continued lack of profitability”and that various options to maximise the value of the investment were being considered. At this time, the investment was written down by 50% from £40m to £20m, based on an estimated liquidation valuation basis.
Better Capital said it conducted a detailed review of City Link’s strategy and prospects, including unsuccessful discussions with a number of potential buyers on a going concern basis. These are believed to have included the Royal Mail.
The board concluded that it was “inappropriate to commit further capital” and in light of continued substantial losses, City Link could not continue as a going concern.
Moulton said he had lost a substantial part of the £40 million his firm injected into the company since acquiring it last year for £1 from Rentokil Initial. It has been unable to stem mounting losses.
It has now emerged that taxpayer will be forced to pick up the redundancy bill.
Administrator EY said the matter will be handled by the UK government’s statutory redundancy payments scheme because the company is insolvent and unable to meet these payments.
The RMT union have written to the administrators asking that redundancy notices be withheld until talks have been held with Vince Cable, the business secretary.
EY declined to confirm the exact number of staff who would be losing their jobs other than to say in a statement last week that there will be “substantial redundancies”.
The company has more than 50 transport hubs and depots around Britain including Aberdeen, Glasgow, Glenrothes, Livingston and Motherwell.