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The decision to prosecute former directors of City Link appeared to have backfired on Friday, 13 November. David Smith, Robert Peto and Thomas Wright were all acquitted of a criminal charge of failing to warn the Business Secretary of proposed mass redundancies.

Over 3,000 workers lost their jobs on Boxing Day 2014 after the courier firm went into administration. A political storm followed, and a Scottish Affairs Committee of MPs alleged that the company had taken the deliberate decision not to inform employees and contractors of the true financial position prior to insolvency. Amid calls for a change in the law to protect workers of struggling firms, the authorities had instead dusted off their existing (but rarely used) powers to prosecute.

It is a criminal offence not to notify the Secretary of State (on a form HR1) where an employer is ‘proposing’ mass redundancies. The obligation is triggered where there is a proposal to dismiss 20 or more employees (at one establishment) within a period of 90 days. Such liabilities can apply to senior officers and directors of a business as well as the organisation itself, although prosecutions have been rare prior to a string of recent high-profile business failures.

Last Friday, District Judge Goodman found that a ‘proposal’ to make mass redundancies at City Link was not sufficiently clear before administration. Following the sudden withdrawal of funding from private equity backers on 22 December, the judge found that there remained a genuine belief by the directors in other possibilities besides mass redundancies, including a sale out of administration.

In delivering his judgement, the judge reasoned “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”.

So does the acquittal mean directors can stop worrying about prosecution if their companies fail? Not necessarily.

The judge in the City Link case was very clear how fact-specific his findings were, emphasising “no employer should take that finding to be a precedent that an employer can avoid its responsibility [to inform over mass redundancies] simply by going into administration”. Future high-profile cases (perhaps where a business failure is long-anticipated, or where there is the near certainty of mass redundancies) are likely to have a very different outcome.

All eyes now turn to a similar trial of David Forsey (the boss of Sports Direct). The trial is scheduled for March 2016. West Coast Capital (USC) Limited, a division of Sports Direct, reportedly made a large number of warehouse workers redundant on 15 minutes’ notice in January 2015. Both Mr Forsey and Robert Palmer (of the Gallagher Partnership) have been charged with the same offence.

This post was edited by Clive Day. For more information, email blogs@gateleyplc.com.

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.