Insolvency and IT Suppliers

March 1, 2013

Government proposals that will stop suppliers of IT services to insolvent businesses from seeking an unfair advantage over other creditors by making increased charges or payments of debts a condition to supply their services have been announced.

The proposals were tabled by Parliamentary Under-Secretary of State for Business, Innovation and Skills Lord Younger in an amendment to the Enterprise and Regulatory Reform Bill.

The proposals require essential suppliers in the IT and utilities sectors to continue to supply goods and services to an insolvency practitioner trying to rescue a business unless specifically released by the insolvency practitioner or the court> the change will, it said, benefit creditors and employees.

According to the Insolvency Service press release, safeguards will be provided to ensure that suppliers who are obliged to continue supplying the insolvent business are adequately protected.

The Government will consult on the impacts before implementing the proposed powers.

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.’

These changes will give the same protection to IT supplies in an insolvency as applies to gas, electricity, water and telecommunications supplies, deemed essential to the continuation of a business in the 21st century.

The power will allow secondary legislation to be introduced that renders void contractual terms that allow an essential IT or utility provider to withdraw supplies to a company that has entered administration or had a voluntary arrangement under the Insolvency Act approved, or to make other changes to the terms of that supply including increasing the charges, on account of the insolvency.

Insolvency law currently includes a limited list of utilities suppliers who may seek a personal guarantee from an insolvency practitioner before continuing to supply an insolvent company but who may not demand payment of pre-insolvency debt as a condition of further supply. This power would allow IT suppliers to be added to that list as a new category of essential supplier and also utility providers who are not presently covered (so-called ‘on-sellers’ of utilities).

The safeguards for suppliers will include a right to request a personal guarantee from the insolvency office-holder for post-insolvency supply and the right to terminate the supply if post-insolvency supplies remain unpaid for more than 28 days or with permission of the court or insolvency practitioner.

The Enterprise and Regulatory Reform Bill has already completed its passage through the House of Commons and has been considered by Grand Committee in the House of Lords. It started its House of Lords’ Report.

The proposal does nothing to address the difficulty experienced by solvent businesses where an IT services supplier becomes insolvent. The recent difficulties faced by customers of 2e2 earlier this month highlight the need for sensible planning in a period when the ever-present threat of insolvency looms ever larger.