Under proposals laid in Parliament today, essential suppliers of IT, water, gas, electricity and communications services will be prevented from cutting off supply or charging premium rates while insolvency practitioners seek a viable solution to rescue a business.
Suppliers will be guaranteed payment ahead of others owed money for services supplied during the rescue period and can ask for guarantees of payment from the insolvency practitioner.
Business Minister Jo Swinson said:
Rescuing struggling but viable businesses out of insolvency helps save jobs and improves the likelihood of payment to those owed money. Continued IT and energy supplies are needed for businesses to continue trading while options are sought about their future.
These changes will help struggling businesses during rescue while providing confidence for the suppliers that they will be paid for the essential services they provide.
I would like to thank those sectors who have worked with us to get the balance of these reforms right. By providing greater protections for insolvent companies during rescue, more businesses should be saved.
Under the plans essential suppliers will be prevented from terminating a supply or increasing charges as a result of the insolvency. To safeguard suppliers:
- the supplier will be able to seek a personal guarantee from the insolvency practitioner at any time to give them more certainty that the supplies will be paid for
- the supplier can apply to the court to terminate their contract on the grounds of hardship
- guidance will be issued to insolvency practitioners that they should make contact with essential energy suppliers at the earliest possible time following their appointment to discuss what supply they expect to use
Giles Frampton, R3 president says:
These proposals will make it easier for the insolvency profession to save businesses, save jobs, and get creditors as much of their money back as possible. This is great news for UK plc. The UK insolvency profession is already world leading; these changes will cement that position.
Changes to the terms of supply for insolvent businesses place unnecessary hurdles in the way of business rescue. Without reliable and affordable IT and energy supply, attempts to save a business can be stymied quickly.
The changes are a good example of the adaptability of the UK insolvency regime. Some have called for the wholesale introduction of a US Chapter 11-style regime, but the truth is we can incorporate the best parts of Chapter 11, like these proposals, into existing legislation.
Over time, we would like to see more types of suppliers added to the list of those prevented from trying to steal a march on other creditors and take advantage of their importance to struggling businesses. It will also be important to review the impact of the requirement for Office Holders to give a personal guarantee to suppliers.
The changes will be subject to Parliamentary scrutiny before coming into force in October 2015.
Notes to Editors
The Government today published its response to the consultation on continuity of supply of essential services to insolvent businesses.
There were 31 responses to the consultation.
The proposals follow powers introduced by The Enterprise and Regulatory Reform Act 2013 (ERR Act).
The powers in the ERR Act render void contractual terms that allow an essential IT or utility provider to withdraw supplies to a company that has entered administration or had a voluntary arrangement under the Insolvency Act 1986 approved, or to make other changes to the terms of that supply including increasing the charges, on account of the insolvency.
Insolvency law currently includes a limited list of utility suppliers who may seek a personal guarantee from an insolvency practitioner before continuing to supply an insolvent company, but who may not demand payment of pre-insolvency debt as a condition of further supply. These proposals would add IT suppliers to that list as a new category of essential supplier and also utility providers who are not presently covered (including some ‘on-sellers’ of utilities).
In addition to a right to request a personal guarantee from the insolvency office-holder for post-insolvency supply, the safeguards for suppliers will include the right to terminate the supply if post-insolvency supplies remain unpaid for more than 28 days or with permission of the court or insolvency practitioner.
The Insolvency Service administers the insolvency regime, investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. It may also use powers under the Companies Act 1985 to conduct confidential fact-finding investigations into the activities of live limited companies in the UK. In addition, the agency authorises and regulates the insolvency profession, deals with disqualification of directors in corporate failures, assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees, provides banking and investment services for bankruptcy and liquidation estate funds and advises ministers and other government departments on insolvency law and practice.