City Link and Sports Direct cases highlight legal tension

Three directors of defunct delivery firm City Link, which collapsed on Christmas Day last year, have become the latest to face legal action over breaches of insolvency law.

The news that David Smith, Robert Peto and Thomas Wright will face prosecution follows the revelation at the weekend that Sports Direct's chief executive David Foley is also facing charges, over the demise of his firm's fashion brand USC.

It also highlights a major tension between insolvency and employment law that is currently under review.

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All are accused of breaching the Trade Union and Labour Relations (Consolidation) Act 1992, which, says The Times, requires employers to give notice of potential company failure to employees and the Business Secretary prior to making staff redundant. For firms with fewer than 100 staff, 30 days' notice is required, and 45 days for those with more.

Failure to do so can result in criminal prosecutions for individuals, which can hamper their ability to hold senior positions, and fines of up to £5,000.

In the case of City Link, more than 2,500 employees discovered that they were likely to lose their jobs on Christmas Day after the company called in administrators, the BBC reports. On New Year's Eve the company announced 2,356 job losses after a bid to buy the company failed, with a further 230 redundancies following a week later.

With USC about 200 warehouse staff in Scotland are said have been given only 15 minutes' notice of their redundancies. The case against both Foley and Robert Palmer, a compliance and technical partner at USC administrator The Gallagher Partnership, follows an award of compensation to 50 staff for lack of consultation, The Guardian reports.

Simon Kerr-Davis, an employment lawyer at Linklaters, told The Times the Insolvency Service is currently reviewing whether changes should be made to legislation.

"The risk of early notification of a potential business failure is that it may accelerate the failure, and therefore reduces the likelihood of saving jobs or rescuing the business," he explained. "But, of course, the risk of a late notification is that employees' rights to participate actively in a consultation process are undermined."

Mick Cash, general secretary of the RMT Union, said: "This was bandit capitalism in the raw and should have no place in British industry."