Directors Acquitted Over City Link Collapse, Avoiding Possible Director Disqualification.
The three former directors of City Link, the Coventry based parcel delivery company that collapsed in late 2014 have been acquitted of the criminal charge of failing to notify the Secretary of State for Business that they were proposing mass redundancies (i.e. the dismissal of 20 or more employees within a 90 day period). Such a criminal offence applies not only to the business itself but the liability also stretches to senior officers and directors.
In being acquitted, the directors have also likely avoided the possibility of Director Disqualification for breaching their fiduciary duties to the company. This article looks at the reasons the judge gave for their acquittal and suggests that other directors charged with similar offences should not take this judgement as any kind of precedent that the likely outcome will be acquittal.
Why were the directors charged?
David Smith, Robert Peto and Thomas Wright were at the helm of the company when City Link went into Administration on Boxing Day 2014 resulting in the loss of c.3,000 jobs.
A political furore ensued with MPs alleging that the directors had taken a deliberate decision not to inform its employees and contractors about the true financial state of the company.
The Judge Dismissed the Charges meaning Director Disqualification was also avoided
On 13 November 2015, the matter came before District Judge Goodman. The Judge dismissed that charges, stating:
“A director cannot be expected to put a crystal ball on his or her desk at the time of huge shock and turmoil and predict the likely consequences of an action, unless that consequence is either the only foreseeable one or is the only one that can reasonably be envisaged in the circumstances”.
The Judge found that the directors of City Link had a genuine belief that there were possible outcomes other than redundancies, one of which was a sale of the business via administration.
However, whilst the directors were ultimately acquitted, and the decision to prosecute in the first place was highly criticised, it is unlikely that directors faced with similar charges will escape, especially if insolvency had long been anticipated. Each case will turn on its own facts.
In his findings, the Judge stated:
“…no employer should take that finding to be a precedent that an employer can avoid its responsibility simply by going into administration”.
Indeed, the court could have of its own volition imposed a director disqualification order as part of the sentencing powers available to it, if the directors had been found guilty.
What can we learn from this case?
This case demonstrates that there is a need for a fine balancing act between ensuring compliance with the notification obligations whilst not jumping the gun and announcing redundancies, when real and achievable solutions are available and being considered.
It also demonstrates the fine detail the Secretary of State will go into when investigating the conduct of directors. Indeed, any successful conviction for such offences will no doubt be the precursor to director disqualification proceedings, if the court does not impose a disqualification order as a matter of course in the criminal proceedings.
Contact us if you are facing Director Disqualification
If you are a director and find yourself in similar circumstances, with the threat of director disqualification looming, please contact us or call us on 0121 200 7040 immediately or send us an to email@example.com for an initial FREE and no obligation chat with one of our Director Disqualification Solicitors.
Director disqualification has serious business and personal consequences, so acting quickly is important when it comes to increasing the chances of eliminating the prospect of disqualification or of lowering the likely period of disqualification.