The government has rejected calls from two select committees for an urgent change in insolvency law, after the collapse of City Link last Christmas left sub-contractors and non-secured creditors £30m out of pocket.
A joint-report from Department for Business, Innovation and Skills and Scottish Affairs Committees in March called for the government to change the order in which staff, subcontractors and suppliers are paid during insolvency, to prioritise payments to the employers’ workers, even if they were self employed, before its creditors.
The committees pointed out that City Link subcontractors had taken on more staff and vehicles following assurances from City Link's management in early December 2014 that it was not about to enter administration.
However, the government rejected the call on the grounds that the report failed to define “workers”, and in plausible scenarios the term would have included those who “had a very different working relationship with the company than employees”.
It also said the change, which would in effect see the same amount of money have to go further, could dissuade other creditors - such as suppliers - from extending credit to a struggling company if they thought there was less chance of getting their money back.
The response said: "If those who were self employed were given preferential status of the same kind employed workers, this would mean that less money would be available for other creditors such as consumers and suppliers (which may be small businesses)."
The report from March declared that City Link and its former parent company Better Capital were "morally, if not legally, responsible" for the financial difficulties its creditors were left facing after the company's collapse.
