Consultation: Continuity of Key Supplies to Insolvent Businesses

On 9 July 2014, BIS launched a consultation on the exercise of powers taken in the Enterprise and Regulatory Reform Act 2013 (ERRA).  This consultation aims to ensure continuity of supply of utilities (including gas, water, electricity and communication services) and IT goods or services to insolvent businesses.

Objective

The objective is to build on the Insolvency Act 1986 (IA) to ensure that insolvency practitioners are more able to rescue viable businesses and adequate safeguards are in place for suppliers.

The IA currently prevents certain utility suppliers from demanding payment of outstanding charges as a condition of continuing supply.  However, it allows them to make it a condition of giving the supply, that the office-holder personally guarantees payment of the charges.

The list of suppliers to whom the existing provisions apply is considered to be outdated.  This is as a result of: changes in the utilities sector; the increase of intermediate utilities providers (known as “on-sellers”); and the changes to business practice (which has seen IT goods and services become a crucial aspect of modern business landscape and essential for most businesses to operate).

Under the proposed changes:

• IT suppliers will be added to the list as a new category of essential supplier;
• all suppliers of utility and telecoms services would fall within the scope of s233(3) including “on-sellers” of utilities and “on-sellers of IT goods and services;
• Termination clauses in utility and IT supplier contracts which allow those suppliers to withdraw their supply or where the contract automatically terminates when a business enters administration or a voluntary arrangement takes effect will be rendered void;
• contract terms which increase the charges of supply because the business or individual has entered into an insolvency process (ransom payments) will also be rendered void; and
• the proposed measures for continuity of supply are subject to a number of safeguards including:

• the right to request a personal guarantee from the insolvency office-holder; and
• the right to terminate post insolvency supplies which remain unpaid for more than 28 days (or with the permission of the court or insolvency practitioner).

The consultation closes on 8 October 2014.

For more information, help or advice please contact Kelly Jordan on 0191 211 7899.