Government to tackle suppliers’ demands in administration

THE GOVERNMENT has backed up the insolvency profession by agreeing to consider whether it should prevent suppliers holding a struggling business to ransom, when entering insolvency procedures.

Currently a supplier, such as utility companies, can enforce a termination contact if a business enters insolvency proceedings, and demand higher fees for the same service. If a company is trading in administration practitioners have no choice but to pay the higher tariffs resulting in reduced funds for creditors.

The issue was raised by the insolvency profession in the consultation Restructuring Moratarium. In a response the government said the issue needed “careful consideration”.

Insolvency trade body R3 president, Frances Coulson (pictured) said: “While examining proposals for a restructuring moratorium in CVAs, the news that government will now tackle the issue of termination clauses – whereby suppliers can cancel essential contracts on insolvency – is extremely welcome.

“R3, the insolvency trade body, has been campaigning vigorously on this issue as part of its ‘Holding Rescue to Ransom’ campaign to stop suppliers taking unreasonable actions during an insolvency, thus sabotaging any potential rescue.

“R3 looks forward to contributing to further discussions following today’s announcement, and building on support already shown from some MPs and business organisations.”

The consultation looked at how a “viable businesses” which is likely to emerge from a successful restructuring, can obtain breathing space from its creditors, without entering into formal insolvency proceedings

Related reading