Supply of essential goods and services to distressed businesses - new rules

The Insolvency (Protection of Essential Supplies) Order 2015 has implemented new rules for suppliers of “essential supplies” to businesses in financial difficulty. 

From 1 October 2015, when a business enters into a contract for the supply of essential goods or services and subsequently enters administration or a voluntary arrangement, a supplier will not be permitted to rely on its contractual terms to charge higher prices or terminate the contract. The changes also apply to businesses (including partnerships) carried on by individuals in England and Wales where the individual is made bankrupt or enters into a voluntary arrangement.

“Essential supplies” are defined to include the supply of gas, electricity, water, communication services and information technology supplies. The new provisions are  intended to ensure the continued supply of these services to businesses during the period of insolvency. The changes apply not only to utilities companies, but also to “on-sellers” of utilities who act as intermediaries, such as landlords who supply utilities to their tenants.

Suppliers will not, however, be left unprotected.  For example, suppliers can require the insolvency office holder to personally guarantee payment for the continued supply of services, failing which they can terminate the supply. In addition, if charges for the services incurred after entry into insolvency remain unpaid for a period of 28 days from when they are due, then the supplier will also be permitted to terminate the supply.

The Insolvency Service has published new guidance to provide clarity to suppliers, businesses and insolvency practitioners, which is available here. If you have any concerns, our team of insolvency specialists are available to answer any questions you may have.

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