New measures could help Administrators to save insolvent businesses
4th August 2014
When a business becomes insolvent one of the big obstacles that insolvency practitioners face is trying to trade the business whilst a turnaround plan in put in place. Administrators need tools to enable them to trade and over the years this has got progressively harder.
When the Insolvency Act 1986 came in IP’s could use both Administration and Administrative Receivership to keep companies trading whilst either a restructuring or a sale of the business were organized.
But 1986 was a long time ago. It was before deregulation of the utilities sector and before the growth in what are called ‘on sellers’ who act as intermediary suppliers. In those days companies dealt with state owned utilities who were often reasonable when the IP asked for a bit of help. Also, companies still mostly owned their own servers and telephone calls were delivered through telephone lines.
Parliament tried to help in 1986. They gave IPs the power to ask Utilities such as gas, water, electricity and telephone companies for continued supply. In theory all was well in the world and the IP could at least count on utility companies to play the game whilst plans were made to save the business.
But then came deregulation of the utility providers and with it often foreign ownership. A new trend emerged as the utilities started asking for ransom payments and threatening to withdraw services.
In recent years, in addition to being held to ransom, we have also seen the fragmentation of the utilities and telecoms sectors. Servers have disappeared as everything has gone into the Cloud and intermediaries claim that the old rules on continuity of supply don’t apply to them.
For the IP, all of this makes trading even harder. Trying to forecast the funding requirement for a few months of trade can go spectacularly wrong when a utility provider decides to play hard ball and then the IP finds that the tills and phones are at risk of being cut off.
But now, at long last, there appears to be some good news. The Insolvency Service has opened consultation into amending the law regarding the supply of both utilities and IT services. The aim is to enable IPs to demand that IT providers and other essential services must continue supply and not be able to vary their terms of supply or increase charges. So hopefully, if agreed, the machines will all keep working and the tills whizzing away whilst the IP tries to save the business.
The IP of course will still have a few things to worry about. Such as any personal guarantee he or she may have given to ensure supply, or actually paying the suppliers within 28 days of their bills fall due.
Which brings us to another worrying trend we have been seeing and something the Insolvency Service hasn’t thought about. It now seems that some banks are looking to withdraw even basic banking facilities from distressed companies due to what they call ‘reputational’ risk.
If anyone would like to correspond with the Insolvency Service on these issues, consultation closes on 8 October 2014. Letters to 4 Abbey Orchard Street, London SW1P 2HT or email to Policy.Unit@insolvency.gsi.gov.uk