Three former directors of City Link have been charged with criminal offences in relation to the collapse of the delivery company, which led to the loss of 3,000 jobs last Christmas.
David Smith, the former managing director, the former finance director Robert Peto, and a non-executive director Thomas Wright, have been charged with failing to notify the business secretary of plans to make staff redundant at the firm and will go on trial in November.
Wright acted as a representative of Better Capital on the board of City Link. The private equity firm, run by veteran venture capitalist Jon Moulton, owned City Link at the time of its collapse.
The three men were the first former directors of any company to be charged with the offence, more than 20 years after the Trade Union and Labour Relations (Consolidation) Act came into force.
Charges were brought in June, a few weeks before Dave Forsey, the Sports Direct chief executive, was sent a summons to be charged in relation to the collapse of its USC business, as first revealed by the Guardian last week.
Forsey, 49, is accused of failing to notify authorities of plans to lay off warehouse staff in Scotland, about 200 of whom were given 15 minutes notice by USC’s administrator in January that they were losing their jobs.
The legal actions against Forsey, whose case was heard in Chesterfield on Wednesday, and the City Link men appears to mark a new approach by the Department for Business to criminal proceedings against former directors of companies that have gone bust.
The Insolvency Service (IS) declined to comment on why the department was suddenly using its powers under the act. But the action comes after the government has been forced to pay out millions in compensatory payments to staff made redundant without proper consultation.
The cases have emerged amid a government investigation into the issue of redundancy consultations in insolvencies and the potentially clashing demands of employment and insolvency law.
Phillip Sykes, president of R3, the insolvency trade body, said: “The insolvency profession has long called for clarity from government on what should and should not happen when business failure puts jobs at risk. We are very pleased the government has taken a closer look at this topic over the last year.
“We are looking forward to the government’s imminent response to a call for evidence on redundancy consultations in insolvencies. We need the government to set out what exactly should happen, and exactly who is responsible for what, whilst taking into account the unique circumstances of insolvencies.
“Uncertainty over how the rules are applied – and what sanctions there might be for not adhering to the rules – helps no one, least of all the employees whose jobs are at risk.”
Under employment laws, workers should be given at least 30 days consultation before losing their jobs. The act also states that directors planning to dismiss more than 20 workers in any one establishment, such as a single shop or warehouse, are obliged to give the business secretary 30 days notice before going ahead. Failure to do so is an offence that is liable for a fine of up to £5,000.
The government’s legal action against the City Link directors and Forsey comes as the compensation bill for workers who have not been properly consulted rises.
In recent years, staff who have been let go without a company following due process have become increasingly successful in winning compensation via employment tribunals. The “protective awards” are worth up to 90 days’ pay. Under European legislation, IS often ends up having to pick up the bill for the award.
In the case of City Link, the redundancy payments service, which is part of IS, paid out £5m in statutory redundancy pay to former employees of the delivery company. The handling of the collapse of City Link and USC attracted widespread condemnation and inquiries by MPs.
About 260 former City Link workers – including drivers, head office and warehouse staff – have lodged an employment tribunal claim over the company’s failure to properly consult on redundancies.
Lawyers at Leeds-based Morrish Solicitors, which is representing the claimants, believe each person could recover several thousand pounds. The case is not expected to be heard until next spring.