Channel facing deadline to respond to insolvency changes

Proposed changes to the Insolvency Act could see IT suppliers having to continue to supply firms that fall into administration to prevent more business failures

The channel just has days left to respond to potential changes in insolvency procedures that could see resellers forced to continue delivering services to firms that have entered administration.

The government is reviewing a proposed amendment to the Insolvency Act that would see the commitment from the channel extend to new levels with customers that have run into financial trouble if it gets approved.

Section 233

The area of change that has most impact on the channel would be around Section 233 of the Insolvency Act, which applies to those that have a statutory undertaking to continue supplying companies that provide services to the public. That includes the utilities and public telecom companies. If a firm that operates in those verticals goes into administration the IT supplier cannot make it a condition of future supply that outstanding charges are paid. They can seek a personal guarantee from the insolvency office holder but the days when IT suppliers were at the head of the queue for bills to be settled might change under the proposed amendment.

The channel has the chance to share its views over the potential changes by next Wednesday (8 October) with the government before the deadline passes.

At the moment slightly more than half of the IT supplier community continues to provide services for those firms that enter administration, but according to a survey from R3 last summer there were 46% that pulled the plug the minute the customer ran into difficulties.

The changes are designed to be introduced to help prevent more firms going out of business. With more companies dependent on IT to function and compete the government is looking into ways more business failures could be prevented.

As things stand the law makes it clear that utility companies have to supported by IT suppliers even if they enter administration, but under the proposed changes that privilege would extend to other customers.

The Association of Business Recovery Professionals (R3) is giving its backing for a move that would end what it terms as ransoms from some suppliers to add to the woes of struggling customers.

"Our members estimate that banning so-called ‘termination clauses’ in supply contracts could help save over 2,000 businesses a year. R3 campaigned long and hard for action to be taken on termination clauses, winning support from the business and creditor communities. We are very pleased that an end to the use of termination clauses by crucial suppliers is one step closer," said R3 president Giles Frampton.

"In the past, the suppliers of IT goods and services have enjoyed an ability to extract payment from an insolvent business in preference to other creditors merely by virtue of the importance of such service provision.  These suppliers will clearly need to consider the terms upon which they supply and not simply rely on their economic power," stated Venon Dennis, a lawyer at HowardKennedyFSI,

"By rendering void termination clauses on the event of insolvency one may find that suppliers seek to terminate at an early time and will be tougher on customers.  The big question is whether suppliers will increase the cost of supply to compensate for their loss of rights?" he asked.

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