The government is to consult on proposals designed to prevent utility companies and other key suppliers from enforcing ‘termination clauses’ against insolvent companies in a bid to support efforts to rescue troubled businesses.
Under the plans, energy companies and IT suppliers will not be able to increase their charges or payments of debts or impose ‘ransom’ payments as a condition of continuing supply. They will also have to continue providing their services during the business recovery.
Business minister Jo Swinson said: ‘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 proposals were welcomed by insolvency trade body R3 which says that banning termination clauses in supply contracts could help save over 2,000 businesses a year.
Giles Frampton, R3 president, said: ‘Termination clauses which take effect on insolvency are one of the biggest obstacles to business rescue that insolvency practitioners come across. Scrapping them will give many struggling businesses a better chance of survival and should boost the UK’s business rescue culture.’
The 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.
IT suppliers and ‘on-sellers’ of utilities will be added to the 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.
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 closes on 8 October 2014 and feedback should be sent to [email protected].
More details are here: https://www.gov.uk/government/publications?departments%5B%5D=insolvency-service&publication_filter_option=consultations
