Lifeline For Failing Business

Failing businesses with a chance of survival could qualify for an extra lifeline through a new Government guarantee, which would protect the supply of essential services to them during rescue talks. Essential information technology services together with water, gas and electricity supplies will be covered by measures announced recently. This would prevent suppliers from cutting off essential services during rescue talks or indeed increasing charges.

How the new legislation can help

“Suppliers will be guaranteed payment ahead of other creditors providing services during that time and can ask for guarantees of payments from insolvency practitioners” said Gerald Irwin of Sutton Coldfield-based Licensed Insolvency Practitioners and Business Advisers, Irwin Insolvency.

The government has already introduced legislation through the Enterprise and Regulatory Reform Act to prevent suppliers withdrawing essential services after a business enters Administration but it was found the measures did not go far enough in providing a balanced coverage.

Suppliers of information technology was not in the original safeguard list but have now been added as a new category of essential supplier along with on sellers of utilities. Suppliers can also apply for extra safeguards. They will have the right to terminate business if post-insolvency supplies remain unpaid for more than 28 days.

“Provision has also been made for them to seek a personal guarantee from insolvency practitioners to give them more certainty that their bills will be paid” added Mr. Irwin.
Suppliers running into difficulties themselves will be able to apply to the court to cancel contracts on the grounds of hardship.

The changes, due to come into force in October have largely been welcomed by the insolvency profession. Certainly these proposals will make it easier for the profession to save jobs and get creditors as much of their money back as possible.