Proposals due to come into force in October ban ‘essential’ suppliers from cutting off business customers while they are in administration, in an attempt to give them more chance of being successfully rescued.
The plans apply primarily to the essential utilities and IT services needed to continue trading, although there are suggestions from insolvency trade body R3 that the scope should be expanded to include even more suppliers.
In short, it means that affected suppliers, if a business customer goes into administration, will be unable to cut off their supply, or to charge them any kind of penalty fees or higher ’emergency’ tariff.
Suppliers do have some legal recourse to escape contracts with failing business customers, but will now need a court’s permission to cut them off.
Compare this with the sensible credit control practice of checking a customer’s credit rating before allowing them to run up a bill, and it seems to fly in the face of good business procedures for the suppliers.
What’s more, in an attempt to compensate them for being unable to exercise the type of caution that might simply seem sensible, the proposals move these ‘essential’ suppliers to the top of the list when any remaining funds from a failed business are being paid out to creditors.
That means even if you are not a utility or IT provider, you could be affected, as you will now be even further down the pecking order if a customer goes into administration or insolvency while owing you money.
Business minister Jo Swinson said: “Rescuing struggling but viable businesses out of insolvency helps save jobs and improves the likelihood of payment to those owed money.
“Continued IT and energy supplies are needed for businesses to continue trading while options are sought about their future.
“These changes will help struggling businesses during rescue while providing confidence for the suppliers that they will be paid for the essential services they provide.”