By Jonathan Davies

The collapse of City Link exposed serious flaws in the UK's insolvency system, two groups of MPs have said.

Around 2,000 employees and 1,000 contractors lost their jobs/contract over Christmas when the courier company collapsed.

A joint report by two Parliamentary committees found that the insolvency system heavily favours investors and not workers.

Under current insolvency laws, it is financially beneficial for companies to break the law and ignore statutory redundancy rules. The fines for doing so are often less than the cost of continuing to trade. MPs also pointed out that taxpayers often end up footing the bill for the fine.

The report also said that City Link took a "deliberate decision" not to inform employees of its imminent demise.

"The current insolvency system fails to offer sufficient protection to workers, suppliers and contractors alike," said Adrian Bailey, chairman of the Business Committee.

"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," he added.

"While the financial calculation is simple, ignoring the consultation period has a high human cost that appears not to have featured in the decision making process at City Link," the report said.

Mr Bailey said: "We are dismayed that, although it was clear for some time that there were serious questions over the ability to continue trading after December 2014, small businesses and self-employed drivers working for City Link were encouraged to take on additional costs, despite the company being aware that there was a strong possibility that they would not receive payment for a significant part of their work in December.

"City Link and [owner] Better Capital are morally, if not legally, responsible for the difficulties that many of these individuals and small business now find themselves in," he added.