Insolvency system favours investors

dtsazza

Graham_Devon wrote: »

Theres a lot to this story. But, Better Capital appeared to know that they were trading while insolvent. They even state so in their statement to the committee.

So they were basically allowing suppliers to supply them with goods knowing full well the suppliers would not get paid. Same for staff working over that period. The actual employees of city link got paid, but most delivery drivers were self employed contractors, and therefore not employees.

That doesn't sound like it's anything to do with insolvency regulation. That sounds like out-and-out fraud. As far as I am aware, it's specifically a criminal offence to do this. (Which begs the question as to why there's no prosecution, if it's common knowledge amongst the public that it happened...)

dtsazza

jjlandlord wrote: »

How is it skewed in favour of investors?
They only get whatever is left after everyone else has been paid.

I thought this was the case too.

However, reading the report itself, it seems this is not so:

54. When a company is liquidated, debts to employees for wage arrears, overtime and holiday pay are treated as a preferential debt. However, while holiday pay is uncapped, the limit for wage arrears to be treated as a preferential debt is £800. Anything owed over this amount is treated as an unsecured debt.

I have no idea why there's this bizarre limit - but basically, if an employee is owed more than £800 in back pay, that extra is treated as if it were an investment of sorts, and so is basically lost during insolvancy.

(The report goes on to say that the National Insurance Fund will cover the shortfall - up to a much higher limit - so in practice it's the taxpayer that loses out here.)

In that context I'd have no objections whatsoever in saying that a legal obligation to pay a creditor (employee) should be treated as a legal obligation to pay a creditor, and that no money goes to investors until all of these debts have been settled.

stator

antrobus wrote: »

Err, did you actually read that BBC report that you linked to in your OP? Had you done so, you might have noticed this paragraph;

Irfan Khan was a subcontractor for City Link and lost at least £80,000 from the firm's collapse. He told Radio 5 live's Wake Up to Money that he had no idea that City Link was in difficulty and that he had invested in five new vehicles before Christmas.

Isn't that an example of investing to service a contract?:)

http://www.bbc.co.uk/news/business-32014025

As usual the media seek out the most extreme case, the person who's lost the most. Most of the contractors were just individuals doing nothing more than a usual employee driver would do.

antrobus

stator wrote: »

As usual the media seek out the most extreme case, the person who's lost the most. Most of the contractors were just individuals doing nothing more than a usual employee driver would do.

Well, that might be the case, or that might not be the case. Do you have any statistics on City Link subcontractors?

Besides, I was really pointing out that not much effort other than reading the OP's link was necessary. No sweating needed to polish anything much at all.

Thrugelmir

antrobus wrote: »

Isn't that an example of investing to service a contract?:)

Also exposes the risk of only having one customer when running a business. With nothing else to fall back on.

Graham_Devon

antrobus wrote: »

Besides, I was really pointing out that not much effort other than reading the OP's link was necessary. No sweating needed to polish anything much at all.

Maybe. But wotsthat also mentioned something about sample sizes. It appears you are trying to suggest all city link sub contractors ran business's sub contracting other drivers.

Either way, they all lost out, whether sub contracting to city link directly, or via a third party.

Loughton_Monkey

Graham_Devon wrote: »

.....Either way, they all lost out, whether sub contracting to city link directly, or via a third party.

Anybody who contracts with a company already 'rescued' from the hands of liquidators is taking on an obvious risk. For all I know, some vehicle dealer may have contracted to supply 500 new vans and is now 'singing in the wind' for payment.

This is tough. We can all feel sorry for those involved in this way. But this is life. There are literally thousands of corporate liquidations every year. In many of them, someone will 'lose out' as you put it.

What I cannot understand, however, is your apparent fixation with this particular liquidation, rather than all the others. Together, it seems, with a specific emphasis on contractors and sub contractors who are, themselves, businesses.

Maybe you were more directly involved in some way?

antrobus

Thrugelmir wrote: »

Also exposes the risk of only having one customer when running a business. With nothing else to fall back on.

Agreed. It is not a business model I would recommend.

Graham_Devon wrote: »

.... It appears you are trying to suggest all city link sub contractors ran business's sub contracting other drivers.....

I think what we have here, is another failure to read.