By Mark Kleinman, City Editor
One of Britain's most prominent investors has warned that more struggling companies will go bust because of the political opprobrium triggered by the collapse of parcel delivery operator City Link.
Speaking to Sky News, Jon Moulton, the head of Better Capital, said the fallout since City Link went into administration on Christmas Eve meant the reputational risks of trying to salvage consumer-facing businesses would make him less likely to approve an investment when similar opportunities arose.
"We did everything we could to save the company," he said.
"The turnaround profession is already quite small, and the net result of this is likely to be that there will be fewer attempts to rescue companies and therefore that more companies will fail."
Mr Moulton was speaking as MPs on the Scottish Affairs and Business, Innovation and Skills (BIS) select committees published a report which accused City Link of breaking the law by failing to offer sufficient notice of redundancies in the period before it collapsed.
Thousands of jobs were shed as the perennially loss-making courier firm failed to overcome intense competition and pricing pressure, which were already in evidence when Rentokil offloaded City Link to Better Capital for a token sum in 2013.
One of the UK's most active investors in corporate turnarounds, Better Capital lost an estimated £20m on its investment in City Link.
A source close to the firm said that the likely alternative to its acquisition of City Link would have been for it to have fallen into administration much sooner, meaning that the Treasury would not have received millions of pounds in subsequent payroll and other taxes.
Mr Moulton backed MPs' call for an overhaul of insolvency laws, saying that the German system which enables companies' liabilities to be frozen for a three-month 'standstill' period could offer a better model for the UK.
The MPs' report said: "While there were differences of opinion as to whether or not City Link could be made viable, and the desired level of return could be achieved, the Committees regret that Better Capital felt its investors' interests could only be protected at the expense of the future of City Link and continued employment for its workers."
Ian Davidson, chairman of the Scottish Affairs Committee, said: "The rules on insolvency, on everything from how and when information is shared with employees, to the order in which creditors are paid out, are skewed too far to the advantage of investors, directors and management.
"Further, the system provides perverse incentives to withhold information or to skip proper consultation processes in contravention of the law and at a high cost to workers struggling to cope with the loss of their livelihoods.
"It also creates incentives to use cheap, insecure forms of employment, such as bogus self-employment, which gives a worker all the responsibilities of an employee but none of their rights or protections".
Adrian Bailey, chairman of the Business Committee, added: "It is deeply regrettable that Better Capital felt its investors' interests would be better served by abandoning City Link and its workers.
"Contractors, suppliers, and workers were left high and dry - taking a serious financial hit - and are now left to struggle on in the wake of the decisions of Better Capital".
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