The business minister, Jo Swinson, has revealed a series of measures to ensure that insolvent businesses continue to receive essential supplies from the IT and utilities sectors.
The measures will stop these sectors from seeking an unfair advantage over other creditors by increasing charges or payments of debts as a condition of continuing supply. In addition, suppliers of essential utilities will now have to continue providing their services during the business recovery.
Business Minister, Jo Swinson, said: “These proposals are good news for employees of insolvent businesses, creditors, and insolvency practitioners who are trying to rescue ailing companies.
“Businesses are currently closing down because insolvency practitioners are unable to secure the essential supplies they need to continue trading while 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 professionals’ trading body R3, believes the measures would help potentially viable businesses recover in the long term.
He said: “Contract cancellations and ‘ransom’ charges 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.”
R3 estimates that banning termination clauses in supply contracts could help to save 2,000 businesses a year.
Frampton said: “Business rescue is in the interests of both creditors and insolvent businesses and their employees. Turning a business around can be a much better outcome than it being liquidated. Scrapping termination clauses will give many struggling businesses a better chance of survival, and should boost the UK’s business rescue culture.”