Proposals to ensure that insolvent businesses continue to receive essential supplies from the IT and utility sectors to aid business recovery were announced in a consultation launched today by Business Minister Jo Swinson.
The measures will stop these essential suppliers from seeking an unfair advantage over other creditors by increasing charges or payments of debts as a condition of continuing supply, thus benefiting both consumers and employees. In addition, suppliers of essential utilities will now have to continue providing their services during the business recovery.
Business Minister Jo Swinson said:
“These proposals are good news for employees of insolvent businesses, creditors and insolvency practitioners who are trying to rescue ailing companies.
“Businesses are currently closing down because insolvency practitioners are unable to secure the essential supplies they need to continue trading whilst they restructure or seek a buyer. This measure will ensure they can secure the supplies they need to deliver the best outcome for creditors and employees.
“The measure also demonstrates the Government’s commitment to doing all we can to save jobs and build a stronger economy. I look forward to hearing the views of all interested parties to ensure that the right balance is struck when implementing these changes.”
Responding to the Government’s plans to consult proposals to prevent utility companies and other key suppliers from enforcing ‘termination clauses’ against insolvent companies, R3 President Giles Frampton said:
“Termination clauses which take effect on insolvency are one of the biggest obstacles to business rescue that insolvency practitioners come across. They force the closure of potentially viable businesses, posing unnecessary risk to jobs.
“Our members estimate that banning termination clauses in supply contracts could help save over 2,000 businesses a year. R3 campaigned long and hard for action to be taken on termination clauses, winning support from the business and creditor communities. We are very pleased that an end to the use of termination clauses by crucial suppliers is one step closer.
“Business rescue is in the interests of both creditors and insolvent businesses and their employees. Turning a business around can be a much better outcome than that business being liquidated. Scrapping termination clauses will give many struggling businesses a better chance of survival and should boost the UK’s business rescue culture.”
Safeguards will be provided to ensure that suppliers who are obliged to continue supplying the insolvent business are adequately protected.
These changes will give the same protection to IT supplies in an insolvency as applies to gas, electricity, water and telecommunications supplies, which are essential to the continuation of a business in the 21st century, and ensure that such suppliers will be unable to withdraw their services purely on account of insolvency.
Notes to Editors
These proposals will introduce secondary legislation that renders 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 utilities 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 (so-called ‘on-sellers’ of utilities).
The safeguards for suppliers will include a right to request a personal guarantee from the insolvency office-holder for post-insolvency supply and 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 consultation will run for a period of three months and is available on the Insolvency Service website at the link below: https://www.gov.uk/government/publications?departments%5B%5D=insolvency-service&publication_filter_option=consultations
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.
Further information about the work of the Insolvency Service, and how to complain about financial misconduct, is available from: https://www.gov.uk/government/organisations/insolvency-servicehttps://www.gov.uk/government/organisations/insolvency-service
Media enquiries should be directed to: Kathryn Montague, The Insolvency Service Press Office, Tel: 020 7674 6910.
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