A report from two groups of MPs has said that the collapse of the delivery firm City Link over Christmas, which saw around 2,700 staff and 1,000 contractors’ lose their jobs, exposes major flaws in the current insolvency system.

The report also found that the company took a “deliberate decision” not to tell employees about the probability of its failure.

Adrian Bailey, chairman of the Business Committee said "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."

The report added that, under the current system, companies are encouraged to break the law and bypass the statutory redundancy process if the fine for doing so is less than the cost of continuing to trade.

A subcontractor who worked for City Link, Irfan Khan, who lost about £80,000 from the company’s collapse told Radio 5 live that he had no idea about the company’s difficulties and he had invested in five new vehicles before Christmas. He said "We've lost everything. It's killed our business”.