City Link’s former owner Rentokil Initial could receive a multi-million pound payout from the sale of the collapsed courier firm’s assets under a deal in which it retained guarantees on leasehold properties.
The pest-control firm said in 2013 that it had kept a £20m liability that guaranteed the payment of leases on six properties – a mix of offices and depots – after it sold City Link to Jon Moulton’s private equity firm Better Capital for £1. The services company also holds a charge on certain City Link assets which means the proceeds of any sale go to Rentokil to cover those leasehold liabilities, with other creditors, including unpaid staff, placed behind it in the queue for payment.
Rentokil declined to comment on the scale of the charge, but well-placed sources said the financial benefit from holding the charge could amount to “several million pounds”.
After City Link called in administrators on Christmas Eve, liability for leasing out the six properties returned to Rentokil. Those liabilities are expected to have reduced in scale and the company can reduce them further by subletting the properties, but it may still have to seek money from the City Link administration process to cover the liabilities.
More than 2,300 workers at City Link were made redundant earlier this week and up to 1,000 more self-employed drivers and agency workers have not been paid for a fortnight’s work after the collapse. Self-employed workers, some of whom are owed more than £20,000, are angry that they were allowed to continue delivering parcels in the run-up to the collapse, incurring fuel and van-leasing costs.
Administrators from Ernst & Young were formally appointed on Christmas Eve, with many workers learning about the situation on Christmas Day.
Only a month before, City Link’s managing director, Dave Smith, wrote to suppliers and staff saying that rumours of its likely collapse on Christmas Eve were untrue and those found responsible for the rumours would be “pursued through legal process”. Ernst & Young said it would examine any statements made by directors prior to the insolvency as part of a report on their conduct.
The government’s Redundancy Payments Service will have to pick up the tab for employees’ redundancy payments. Better Capital has said it expects to recover £20m from City Link, half the £40m loan which underpinned its efforts to revive the parcel carrier. Because it invested in City Link through a series of loans, Better Capital is classed as a secured creditor and is therefore at the front of the queue for recompense, ahead of staff and suppliers.
