Q&As

Is it possible for a supplier and a customer to agree that if the customer gets into financial difficulties, the supplier would be classed as a ‘secured’ or ‘preferential’ creditor in the context of a straightforward supply of goods and/or services? If so, what would be the simplest way to achieve this?

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Published on LexisPSL on 18/05/2021

The following Restructuring & Insolvency Q&A provides comprehensive and up to date legal information covering:

  • Is it possible for a supplier and a customer to agree that if the customer gets into financial difficulties, the supplier would be classed as a ‘secured’ or ‘preferential’ creditor in the context of a straightforward supply of goods and/or services? If so, what would be the simplest way to achieve this?

Is it possible for a supplier and a customer to agree that if the customer gets into financial difficulties, the supplier would be classed as a ‘secured’ or ‘preferential’ creditor in the context of a straightforward supply of goods and/or services? If so, what would be the simplest way to achieve this?

Where a company is insolvent and so unable to pay its debts as and when they fall due (as defined by section 123 of the Insolvency Act 1986 (IA 1986)), there will be a limited pot of money available for creditors. The order in which creditors of an insolvent company are paid is set out in statute and unsecured creditors rank at the bottom of this hierarchy. The office-holder will determine the priority of creditors’ claims in accordance with these strict rules. If a creditor suspects the insolvency practitioner is acting incorrectly, they can challenge their conduct by making a court application. For more information, see: Challenges to an insolvency office-holder—overview. For details on the order of priority, see Practice Note: Waterfall of payments—a comparative guide. As unsecured creditors usually fare poorly on an insolvency, a specific (albeit limited) pot of money is usually set aside for them. This is known as the ‘prescribed part’ and is carved out of the realisations otherwise available for floating charge holders under IA 1986, s 176A.

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