SportsDirect (USC Dundonald)

Angus Brendan MacNeil Excerpts

Tuesday 27th January 2015 Westminster Hall

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

It is good to see you in the Chair, Mr Hollobone, and the Minister in her place. Of course, Mr Hollobone, you and I served in the same police force for 10 years, and I think that you still serve in the police, so it is good to see you here—after this debate, we might need your services.

I would like to make a few remarks by way of background to the reason why I asked for the debate. This year is the celebration of the 800th anniversary of the sealing of Magna Carta, one provision of which was that no free man should unreasonably be deprived of his livelihood. I am speaking on behalf of 245 workers in my constituency who question whether they are treated as free men and women.

USC is a clothing distribution company providing goods to retail distribution outlets. It opened in 1989 in Edinburgh. The company was worth £43 million by 2004, when it was purchased by Sir Tom Hunter, a constituent of mine, but it went into administration in 2008, after which 43 of the 58 stores were bought by Sir Tom. That happened through something called pre-packaged administration, whereby a deal is struck to sell parts of the business before it is put into administration, minimising losses and cherry-picking the most profitable part of the business. At the time, MPs, through the Commons Select Committee on Business and Enterprise, raised serious concerns about that practice. In particular, the hon. Member for Mid Worcestershire (Sir Peter Luff) said:

“The principle of administration is sound but you’ve got to make sure that the administration process is working in a way that doesn’t disadvantage people and impose other costs on the economy”.

In 2011, SportsDirect bought 80% of USC, and it completed the purchase of the remaining 20% in 2012. In 2013, SportsDirect bought the company Republic—more of that later—out of administration and merged it with USC. USC’s headquarters have long been in Dundonald in central Ayrshire. On 28 December last year, 245 people —79 permanent employees and 166 agency or zero- hours contract workers—were employed at the Dundonald site.

On Wednesday 7 January, senior managers arrived at the site early in the morning and informed staff that the business was not making money and was going into administration, and that all the stock would be removed to SportsDirect’s central depot in Shirebrook. There then followed a pantomime: staff were not told that they were being made redundant and were asked, would you believe, to assist with the removal of the goods. I am told that some 100 journeys were made by heavy goods vehicles between then and when the process was completed, on Sunday 11 January.

It is not clear whether USC/SportsDirect’s actions were initiated by the companies themselves or as a result of creditors, a clothing company called Diesel, seeking a winding-up order because of unpaid bills, to which USC/SportsDirect responded by moving the company towards administration, presumably resulting in Diesel joining the list of creditors that would have to wait for payment. I have heard it said that there was a one-week delay in the court process, which I am told means that the timetable followed by the company is even further out of kilter with what staff were told at the time. I seek clarification from the Minister on that point.

No information was given to staff about the future of Dundonald and their jobs until Wednesday 14 January, when Philip Norvell from Gallaghers dismissed all the staff, telling them that they would not receive any money at all from SportsDirect and that anything owed to them would have to be claimed from the Government via the administrator.

On Friday 16 January, Republic, a wholly-owned subsidiary company of SportsDirect, bought the USC business, apart from the Dundonald warehouse and operation, from the administrators. At the same time, billionaire Mike Ashley is well known for his love of football—he owns Newcastle United—and his company, the very same SportsDirect, has just bought a 26% stake in Rangers Retail Ltd, in return for £10 million of credit, adding to his previous 49% stake and making a total of 75%. Rangers football club gets a very small percentage of the profits from that retail activity. The worrying thing is that that is very much the pattern that he adopted in buying USC: he built up a majority stake in stages before finally assuming control of the company.

Of course, there are rules governing the ownership of football clubs, especially as there have been some notorious multiple owners such as the pensions robber Robert Maxwell. There must be a question whether Ashley’s activities are a precursor to a greater involvement in Rangers football club itself. Is it right for an individual to have a serious financial stake in more than one side? Is this man more than just a shareholder? Has he become the banker of the club?

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

Does the hon. Gentleman feel, as I do, that the behaviour of Mike Ashley is damaging to him, and that the contrast between his wealth and the way the workers were treated is appalling?

[Mr Donohoe]

I am coming to that, but he does not care a damn. That is clear, given what I am about to say.

The USC Dundonald situation is a murky affair. It leaves unanswered a lot of questions about the way some businesses are allowed to operate. For instance, did Diesel seek a winding-up notice on USC as a result of unpaid bills, as claimed in some reports? That is an answer that I need this afternoon. If so, what alternative courses of action were considered by SportsDirect—such as, for example, paying the bill to its loyal workers at Dundonald? Was USC/SportsDirect’s action in seeking administration a response to the claim made by Diesel or was it initiated by the company separately? Was there a delay in the timetable for granting administration and, if so, what was the impact on the work force and the potential timetables for redundancy and required consultation on both redundancy and business plans? Was that brought to the notice of the Department for Business, Innovation and Skills? What will the cost to the public purse be of supporting the 245 people who are out of work without back pay, holiday or redundancy payments and who have bonuses of as much as £12,000 outstanding?

--- Later in debate ---

[Jo Swinson]

This case raises many questions. We are making several changes to insolvency law, and particularly to the pre-pack regime, where there are particular concerns. The hon. Gentleman is right to say that I have some familiarity with Glasgow Rangers—indeed, Murray park, their training ground, is in my constituency. I confess that I am not a football fan, but my late grandfather was a very proud and longstanding season ticket holder and supporter of Rangers. He enjoyed many trips to matches on the supporters’ bus.

We all have to think about the context. USC was not just a small company on its own; it was just one part of a large retail group. The events are particularly concerning in that context.

[Mr MacNeil]

Given what the Minister is saying, does she feel that USC, and perhaps Mike Ashley, too, have been guilty of using loopholes to get round certain situations and to create part of these problems quite deliberately? Could employment law be tightened so that workers are not victims, as they have been in this case?

[Jo Swinson]

There are a couple of different issues within that question. We will need to wait to see the specific facts that come out of the investigation. Obviously, the administrators will provide information to the Insolvency Service, and they have to file a report within six months, although the general practice is to file such reports much more quickly. Indeed, we will be shortening that time to three months.

On whether there are loopholes, action has been taken on the pre-packs issue, which I will address in a moment. The hon. Gentleman is absolutely right that employment law is not negotiable. Employment law is not something that is optional or that a company can decide to take or leave; it is the law, and it needs to be followed. Enforcement is particularly important. A range of issues have been raised, including some of the issues surrounding zero-hours contracts, which I will also address.

One of the key questions is why USC, which was wholly owned by SportsDirect, was allowed to reach the point at which its key suppliers and landlords were not just threatening but taking enforcement action. SportsDirect purchased USC’s business through another company, Republic. We have been told that USC’s key suppliers have been left out of pocket, so it seems odd that they would continue to supply Republic. There are, therefore, a lot of unanswered questions.

The law is clear that employees should be consulted where 20 or more people are being made redundant at the same establishment, and it can be a criminal offence to fail to notify the Secretary of State of proposed redundancies. Tribunals can make protective awards where employees are not properly consulted.