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A BAD END TO THE YEAR FOR CITY LINK

Published on:January 2, 2015Author:The Debt Advisor

2,356 of the staff employed by City Link have been made redundant. The news comes amid a failed takeover bid from an unnamed consortium. Ernst & Young had warned immediately following their appointment that thousands of staff would be made redundant if a suitable buyer for the business could not be found.

Ernst & Young Administrators

Hunter Kelly, of Ernst and Young, said: “City Link Limited has incurred substantial losses over several years. These losses reflect a combination of intense competition in the sector, changing customer and parcel recipient preferences, and difficulties for the company in reducing its cost base.

“The strain of these losses became too great and all but used up Better Capital’s £40m investment, which was made in 2013 and intended to help to turn around the company.”

City Link not viable

City Link, which has been in operation for 44 years, was sold to the Rentokill Initial Group in 2006. It appears that attempts to turn the business around and stem losses were unsuccessful – this included a loss of £26M in 2012. The business was sold in the latter part of 2013 to Better Capital for £1 who went on to invest £40M in the business. Clearly their attempts to turn the business around have not succeeded and the business ended up not being viable without a significant injection of capital according to Jon Moulton of Better Capital.

Timing of administration criticised

The timing of the administration has been criticised by politicians and the RMT union.  Christmas is clearly the busiest period for parcel delivery businesses.  Taking a decision to put such a large business into administration is likely to have been under consideration for a while.

It is understood that City Link had been working to cut down on directly employed staff and as such many drivers had opted to go self-employed.  According to online reports contractors have worked flat out in the run up to Christmas to deliver parcels for City Link only to find out on Christmas Day that they would not be paid.  These contractors in turn could owe monies to drivers they employ and City Link’s failure could spell disaster for them. They will be unsecured creditors and their chances of getting any return are likely to be remote. Any funds that the administrators manage to realise, will firstly settle the administration costs, which will be significant. The next in line will be secured creditors which is likely to include Better Capital, who as mentioned above have invested £40M into the business.

Takeover Bid

An effort to try and save City Link and their employees was made, however Ernst and Young were quick to reject the offer, stating the consortium “offered no money up front and significantly undervalued the assets to be acquired,”. Jon Moulton said the consortium was headed by an “unknown businessman from Stoke-on-Trent”. He said he had tried to sell City Link to Amazon, its biggest customer, in the months before the delivery company’s collapse.

The administrators said they had proposed alternative purchase terms to the consortium “that would be acceptable and common in these situations. The consortium, despite attempts to make them reconsider, declined to amend their original offer”. This spelled the end of any proposed rescue attempts and led to mass redundancies being announced on New Year’s Eve.

Following confirmation that the rescue had failed, Mick Cash, general secretary of the RMT union, said: “Pulling the plug on any efforts to save City Link is a disgraceful and cynical betrayal that will wreck the lives of our members, many of whom are owed thousands of pounds.”

The mass redundancies would leave a “trail of human misery”, he said, adding: “Those responsible will slink away with their own resources ring fenced and leaving the taxpayer to pick up the redundancy tab. He went on to state “The City Link Christmas destruction is an act of industrial vandalism that shames our nation while the government looked on and offered nothing but hollow words.”

“This despicable and callous treatment of an entire workforce by greedy bosses who are able to fold a company on Christmas Day, protect their own money and leave the taxpayer to pick up the redundancy bill exposes the cosy relationship between bandit capitalism and the political elite,”.

Employees

Vince Cable the Business Secretary said that the announcement of job losses was “very sad news for the City Link workers and their families at a particularly difficult time of year”.

He offered support for City Link’s employees and self-employed drivers to aid them attaining reemployment they will be able to access a government service run by job centres and the support of skills bodies.

He added: “A Facebook page has been set-up to link-up companies holding suitable vacancies with those who have been made redundant, so if drivers can be redeployed into new jobs in this competitive buoyant market, they will be.”

The employees of City Link will at least be able to claim for wages, unpaid holiday pay, payment in lieu of notice and, if they have at least 2 years continuous service, redundancy pay which will be settled by The Redundancy Payment Service “RPS” which is funded out of the National Insurance Fund, that is – taxpayer’s money.  The Administrators will assist the employees to make their claims to “RPS” but it is likely that any payout to these employees will take around 3 to 6 weeks to be processed and paid out.  The RPS will then stand in the employees shoes as a creditor.

The amounts the RPS will pay out is based on an individual’s average gross weekly wage up to a maximum of £464 per week.  Other caps used by the RPS apply to the number of weeks that can be claimed as follows:-

Arrears of Wages

  • 8 weeks unpaid wages which relates to the current holiday year. The RPS will not pay for holiday carried over from previous years unless the emploees contract terms permit this.

Notice Pay

  • 1 week’s notice after one month’s service, two weeks after two years, then one week for every complete year you worked. The statutory maximum is 12 weeks.

Holiday Pay

  • Outstanding holiday pay for up to 6 weeks

Statutory Redundancy Payment Calculation

Statutory redundancy pay is calculated based on an employees’ age, how long they have been employed in that job and how much they are paid each week using the following formula:

(Age factor) x (number of complete years of service) x (gross weekly salary (capped at £464)) = the employees Statutory Redundancy Entitlement.

The age factor is calculated as follows:

  • 0.5 for each full year of service for employees under the age of 22;
  • 1 for each full year of service for employees whose age is 22 or above, but under 41; and
  • 1.5 for each full year of service where the employees age is 41 or above.

Therefore, an employee aged 45 with 5 years’ service and a gross weekly wage of £600 would be entitled to:

7 x £464 = £3,248

7 (age factor (4 years at 1.5 and 1 years at 1 = 7) x £464 (gross salary capped at £464) = £3,248

Redundancy payments under £30,000 are not taxed but other payments may be subject to tax at the basic rate.

Advice if you are facing financial difficulties

If are you an employee who has been made redundant, the first step is to find out what your entitlements are and the administrators will have a team available to help. The RPS have a Fact Sheet https://www.gov.uk/government/publications/redundancy-payments-factsheet-issued-with-rp1 which explains what employees can claim. Below is helpful contact information which is provided on the fact sheet.

Bev Budsworth MD of The Debt Advisor recommends the following:-

Do’s

  • Get your claims completed and submitted to the Administrators are quickly as possible
  • You need to do everything possible to reduce your losses including claiming state benefits. If you fail to do this you can have “notional unemployment benefit” deducted from any notice pay you are due
  • Get your CV up to date and registered with appropriate agencies. You may want to send your CV to competitor parcel delivery companies who may be able to offer some employees a role
  • Review your finances over the next 2 months and if you are likely to have insufficient money to meet your household expenses, cancel unnecessary payments and let them know you are struggling temporarily due to redundancy.
  • Prioritise your funds to cover essential expenses such as mortgage, rent, council tax and utilities.
  • If you have debts again let your creditors know of your short term difficulties and see if they will let you make token payments for a couple of months
  • If you are really struggling seek advice. See details below for helpful contacts.

Don’t’s

  • Don’t hibernate and do nothing it will be very costly and you could lose the chance to get a new job
  • Ignore your finances and fail to plan – you could end up with payments bouncing around your bank account, your credit status being effected and suffering with higher levels of stress

Contacts

1. RPS Telephone: Enquiry Line 0330 331 0020 if you need general advice on anything mentioned in this factsheet. However, once you have sent us your claim form you will need to contact the Redundancy Payments Office (RPO) dealing with your claim. You will find the details on the claim acknowledgement letter the RPS sends to you.

email: redundancyclaims@insolvency.gsi.gov.uk

2. Jobcentre Plus Telephone: Helpline 0800 0 55 66 88 or via Gov.UK for claiming benefits

3. ACAS Telephone: Helpline 0300 123 1150For advice on all other employment rights matter you should contact the Advisory, Conciliation and Arbitration or visit their website www.acas.gov.uk

4. HMRC Telephone Helpline 0191 225 5221

5. Gov.UK website is the main source of information for all employment rights and other government assistance available www.gov.uk

If you are struggling with debt issues, whether these are business or personal debts, The Debt Advisor Ltd which incorporates The Business Debt Advisor can help.  There are a range of solutions available which include both formal and informal solutions such as Debt Management Plans (DMP)Individual Voluntary Arrangements (IVA),  Bankruptcy as well as solutions for Businesses.

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