Government to protect essential supplies for failing businesses
Key suppliers will be banned from cutting off essential services to businesses during rescue talks under a new government guarantee
KEY suppliers will be banned from cutting off essential services to businesses during rescue talks under a new government guarantee that will safeguard companies in administration.
Under proposals laid in parliament on Monday, 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.
The supplier will also be able to apply to the court to terminate their contract on the grounds of ‘hardship’ and guidance will be issued to 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.
“Continued IT and energy supplies are needed for businesses to continue trading while options are sought about their future,” said business minister Jo Swinson [pictured]. “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.
Commenting on the changes, which are due to come into force in October, Giles Frampton, president of insolvency trade body R3, said the proposals will make it easier for the insolvency profession to “get creditors as much of their money back as possible”.
“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,” he said.
“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.”