Proposals to ensure that insolvent businesses continue to receive utility and other key supplies have been put forward in a new government consultation.
The proposals would stop essential suppliers from activating termination clauses in supply contracts in the event of a customer’s insolvency. As well as being required to continue providing their services during the business recovery process, suppliers would not be able to make increased charges or the payment of debts a condition of supplying their services to the business.
Announcing the consultation on 8 July, 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.”
Giles Frampton, president of insolvency trade body R3, 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. Scrapping termination clauses will give many struggling businesses a better chance of survival.”
The changes would ensure that suppliers of gas, electricity, water, IT and telecommunications would be unable to withdraw their services in an insolvency situation. Safeguards would also be put in place to protect suppliers obliged to continue supplying the insolvent business.
The consultation runs until 8 October and more details can be found here.
At Palmers, we offer expertise in all aspects of insolvency litigation for clients including directors of insolvent companies, creditors and other stakeholders and insolvency practitioners. For more information, please visit our website or contact Andrew Skinner.