A report by MPs has demanded greater company insolvency protection for workers after finding City Link staff were deliberately deceived by the delivery firm's owner ahead of its Christmas collapse.
The joint study by the Scottish Affairs Committee and the Business, Innovation and Skills Committee concluded private equity firm Better Capital acted for its own financial benefit.
Sky News revealed on Christmas Day that thousands of jobs were at risk as professional services firm EY had been appointed administrator following Better Capital's failure to find a buyer for City Link.
The investment company, headed by the veteran venture capitalist Jon Moulton, was accused in the report of effectively hiding the company's looming demise from City Link employees, self-employed drivers and suppliers from 22 December.
Better Capital said stakeholders had been protected from potential losses of millions of pounds because City Link had delivered up to Christmas Eve.
The 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, said: "Our joint evidence sessions highlighted an issue which former employees of City Link will sadly know only too well - that the current insolvency system fails to offer sufficient protection to workers, suppliers and contractors alike.
Investors and directors are cushioned from the impact of failure while workers, suppliers, and contractors pay the highest price.
"The balance needs to be shifted so that our insolvency system is no longer skewed in favour of investors and directors."
Mick Cash, leader of the Rail, Maritime and Transport union, said the "shocking" report vindicated its complaint about the "carefully engineered collapse" of City Link.
He said: "Lives were wrecked, with the taxpayer footing a massive bill, while those responsible skipped away unscathed and with large chunks of their assets protected."
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