Insolvency Service Consultation: Continuity of supply of essential services to insolvent businesses

Original news

Proposed measures to ensure insolvent businesses continue to receive essential supplies from the IT and utility sectors to aid business recovery have been announced in a consultation by the Insolvency Service. The measures aim to stop essential suppliers 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 have to continue providing their services during the business recovery. Responses to the consultation are requested by 8 October 2014. The full consultation can be found here at: Consultation

The law regarding insolvent businesses

The consultation seeks views on the exercise of powers taken in the Enterprise and Regulatory Reform Act 2013 (ERRA 2013) to ensure continuity of supply of utilities (including gas, water, electricity and communication services) and IT goods or services to insolvent businesses.

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.

The proposals would add IT suppliers 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 proposed changes

The changes will give the same protection to IT supplies in an insolvency as applies to gas, electricity, water and telecommunications supplies, and ensure such suppliers will be unable to withdraw their services purely on account of insolvency.

This will be done by introducing secondary legislation which renders void contractual terms which allow an essential IT or utility provider to withdraw supplies to a company that has entered administration or had a voluntary arrangement approved, or to make other changes to the terms of the supply, including increasing the charges, on account of the insolvency.

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.

To respond

The consultation will be of interest to:

• suppliers of utilities and IT goods or services
• creditors
• business owners and directors
• insolvency practitioners
• rescue professionals
• the legal profession

Response can be submitted by email to: Policy.Unit@insolvency.gsi.gov.uk

Or by post to: Policy Unit, The Insolvency Service, 4 Abbey Orchard Street, London SW1P 2HT

Telephone: 020 7637 1110