Wed, 27 Feb 2013 | BUSINESS NEWS
The government has written proposals to put a stop to suppliers taking advantage of struggling businesses that have entered insolvency.
At the moment suppliers – of utilities and IT services for example – can terminate contact if a business enters insolvency proceeding, or charge more for the same services. For companies trading in administration, the administrator has to pay the hiked fees, meaning less funds for creditors.
The insolvency trade association R3 has been working to encourage the government to force suppliers to provide consistent services to distressed businesses at the usual rates of fees.
R3 president Lee Manning told Accountancy Age: “We are delighted that the government has tabled an amendment to the Enterprise and Regulatory Reform Bill to prevent IT suppliers taking advantage of an insolvency situation by increasing their charges as a condition of supply."
“This victory for common sense recognises that legislation has not always kept pace with changes in public utilities ownership and highlights the importance of IT when running a business in the 21st Century. Struggling businesses need a flexible and up to date insolvency regime to allow them the best chance of survival”, he continued.
Research conducted by R3 had shown that the number of business failures could be reduced if suppliers maintain the same pre-insolvency terms.
The government’s proposed bill changes would force suppliers to maintain crucial services to administrators working to save businesses, unless they are released by the administrator or the court.
The government plans to discuss the potential impacts before making the proposed changes official, later on this year. As part of the change suppliers would gain the right to ask for a personal guarantee from the administrator for payments after the administration appointment.
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Related articles:
Businesses in administration
Returning a distressed business to profit
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