Sports Direct and administrators for collapsed fashion retailer USC are facing an investigation by the government’s Insolvency Service as former employees take legal action over a controversial restructuring of the chain.

The investigation comes after Mike Ashley, Sports Direct’s founder and majority shareholder, was called before a Scottish parliament committee to give evidence on the demise of USC, which called in the administrators last month.

Sports Direct, which has faced a barrage of criticism over its treatment of workers, is also facing legal action from nearly 300 part-time staff at its main sports chain who say they were unfairly excluded from a company bonus scheme.

MSPs and lawyers for former employees are examining the way about 80 staff at USC’s Scottish warehouse were made redundant when administrators were called in to West Coast Capital (USC), a Sports Direct-controlled entity which owned 28 USC stores. Two firms, Duff & Phelps and the Gallagher Partnership acted as joint administrators after a supplier, fashion brand Diesel, took action over an unpaid bill.



The West Coast Capital (USC) stores were immediately bought out of administration by Sports Direct’s Republic division which already owned 32 USC stores. But about 200 workers at USC’s warehouse in Dundonald, Ayrshire, lost their jobs. More than half of those were agency workers not entitled to redundancy pay.

The 80 or so permanent warehouse staff believe they were not properly consulted before being laid off. About 60, who are being advised by the law firm Thompsons in Glasgow, say they received letters advising them they were being made redundant just 15 minutes after being given notice of consultation.

If an employment tribunal finds the redundancies were handled incorrectly, the workers will be entitled to eight weeks pay in compensation, payable by the Insolvency Service. While the total bill for taxpayers will be around £120,000, after legal and tribunal fees, those workers will receive only about £800 each.



David Martyn, an associate at Thompsons, said: “This is another example of where entrepreneurs engage in a pre-pack process and it seems the taxpayer is going to be carrying the can for payments for employees.”

The Insolvency Service said it was investigating whether the use of a pre-pack administration was appropriate in the case of West Coast Capital (USC). It said the government is trying to implement a system under which a group of experienced professionals review pre-pack deals voluntarily brought to their attention. It has reserved powers to make the system legally binding under the small business enterprise and employment bill, which is working its way through parliament.

Duff & Phelps declined to comment and the Gallagher Partnership was unavailable for comment.

• This article was amended on 11 February 2015. Because of an editing error, an earlier version referred to West Coast Capital (USC) as West Coast Capital. West Coast Capital is a separate entitity.