Proposed Changes Expected
As part of the Government’s reform of insolvency law and in response to the Covid19 pandemic it is proposing changes which will protect businesses in debt to keep them trading. Amongst other changes, it is proposing to prevent suppliers relying on termination clauses if a business enters into an insolvency or restructuring procedure. This means a supplier will have to continue to supply even though there is a real risk that payment will not be made.
The proposed restrictions won’t impact on termination events after an insolvency procedure commences (if there is a provision in the contract allowing this, or if the court allows it as it would cause hardship to the supplier’s own business) and there will also be a temporary exemption for small suppliers. A supplier is a small supplier if in its most recent financial year, at least two of the following conditions were met:
- the supplier’s turnover was not more than £10.2 million;
- the supplier’s balance sheet total was not more than £5.1 million;
- the average number of the supplier’s employees was not more than 50.
Fortunately this will mean many suppliers are outside of this new regime but these changes do highlight the importance of knowing your clients and ensuring you do your homework before offering credit or ongoing supply contracts.
If you think you may be caught by the proposed changes, or if you want to tighten up your terms and conditions to include additional protection against non-payment please get in touch via firstname.lastname@example.org or 01980 676875.
For more information on T&Cs generally, see my top tips to ensure your T&Cs are fit for purpose.