THE GOVERNMENT has backed up the insolvency profession by creating proposals to prevent suppliers holding struggling business to ransom, when entering insolvency procedures.
Currently a supplier, such as utility companies, can enforce a termination of contact if a business enters insolvency proceedings, and demand higher fees for the same service. If a company is trading in administration, insolvency practitioners (IPs) have no choice but to pay the higher tariffs resulting in reduced funds for creditors.
Insolvency trade body R3 has been urging the government to step in and force companies to work with IPs to continue providing services at a normal rate.
“We are delighted that the Government has tabled an amendment to the Enterprise and Regulatory Reform Bill to prevent IT suppliers taking advantage of an insolvency situation by increasing their charges as a condition of supply,” said R3 president Lee Manning.
“R3 has been campaigning on this issue for over two years and our research reveals that many business closures could be avoided if suppliers continued to supply at the pre-insolvency terms.
“This victory for common sense recognises that legislation has not always kept pace with changes in public utilities ownership and highlights the importance of IT when running a business in the 21st Century. Struggling businesses need a flexible and up to date insolvency regime to allow them the best chance of survival.
The proposals, tabled by under-secretary of state for Business, Innovation and Skills Lord Younger (pictured), are an amendment to the Enterprise and Regulatory Reform Bill.
It sets out that essential suppliers such as IT and utilities sectors will continue to supply goods and services to the IP trying to rescue a business unless specifically released by the IP or the court. It will also stop those suppliers from seeking an unfair advantage over other creditors by increasing charges and payments as a condition of their continued work.
Consumer Affairs Minister Jo Swinson said: “This is good news for employees of insolvent businesses, creditors and insolvency practitioners who are trying to rescue ailing companies.
“Businesses are currently closing down because restructuring professionals 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 support growth in the economy.”
The government is planning to consult on the impacts before implementing the proposed powers, later this year.
Under the changes suppliers will have a right to request a personal guarantee from the IP for payments due post-administration appointment.
Deloitte partner and administrator in HMV, Comet and Blockbuster collapses welcomed the proposal.
“This is clearly good news and obviously has the prospect of saving more companies in administration, saving jobs and saving businesses.
“This is absolutely the right way to go. It also showsÂ BIS [Business Innovation & Skills] and the Insolvency Service has listened to the concerns raised by practitioners, stakeholders and companies alike.
“R3 should be applauded for their efforts.”
However, he warned the devil is in the detail.