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The scandal over City Link shows private equity at its worst

CityLinkJon Moulton, long-time Tory party donor till 2012 when he absconded to UKIP, owner of the private equity company Better Capital (sic!) that controls City Link, perfectly portrays how capitalists like him, when the going gets rough, abandon all sense of responsibility towards the 2,760 workers losing their jobs because of his managerial incompetence, transfer even basic redundancy rights to be managed and funded by the taxpayers, and used a secured loan as investment to ensure that if the company collapsed he would rank ahead of staff when the proceeds from the liquidation came to be distributed. As a result he now expects to screw off £20m from the liquidation whilst leaving nearly 3,000 workers high and dry. This is a modern form of private equity asset-stripping.

First, Moulton was clearly giving priority to extracting whatever he could from the liquidation rather than making strenuous efforts, or indeed any efforts, to try to find an alternative buyer. Moulton made no approach to the Business Department to try to find some way to bring about a rescue.

Second, the administrator Ernst & Young announced that it was referring employees to the government’s statutory redundancy payments scheme because “the company is insolvent and unable to meet these payments”. But City Link is wholly owned by Moulton’s Better Capital, and the latter can and should accept the responsibility for redundancies, not the State. ?The government should therefore require that all the redundancy payments (if it comes to this) are met in full by Better Capital, and that private equity cannot, when it suits its own interests, short-circuit liability whilst on other occasions establishing long and complex lines of company ownership in order to minimize tax liabilities.

Third, the law needs to be urgently changed so that staff rights take absolute preference over attempts to clawback capital in the event of liquidation. There should therefore be a legal requirement that provision should be made annually in the company accounts for funding to cover all employee entitlements, which would include not only redundancy payments, but also pension rights, disability payments, etc.

These commitments should be part of the charter for proper employment rights which should form an important part of Labour’s manifesto.

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