August 29, 2014

New lifeline for struggling businesses on the way

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.

At Royds, we understand the value of businesses in financial difficulties seeking early, expert advice, which maximises their options for resolving problems and getting back on track.

We can advise and assist with issues including business restructuring and reorganisations and all types of insolvency process, including administrations, liquidations, receiverships and company voluntary arrangements. For more information on our insolvency and restructuring services, please visit or contact Stewart Wilkinson or Ashok Patel  for further information.

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