Insolvency and supplies of essential utility goods & services

JSC MOTIF plum  Traders becoming insolvent are now entitled to continue to receive ‘essential’ IT-related goods and services, at the same prices as before the insolvency – the same as for supplies of essential utilities (water, gas, electricity, & communications)

JSC MOTIF plum  Previous freedoms (of those who supply ‘essential’ utility goods and services to insolvent traders) to extract payment for pre-insolvency invoices, or to terminate supplies on insolvency, are now materially restricted

JSC MOTIF plum  Categories of suppliers of essential utility services are expanded

 

For many years, traders entering insolvency have enjoyed specific statutory protections entitling them, in spite of their insolvency, to continue to be provided with essential utility services such as water, gas and electricity.

As of October 1, 2015, the scope of this legal protection has been expanded.

During the insolvency period, insolvent traders are also now protected against termination or withdrawal of the supply of IT goods and services, in addition to the utility services previously protected.

With respect to previously protected utility services, the range of affected providers was previously limited to statutory undertakers and similar bodies; that range is now extended to include a broader list of commercial suppliers of gas, electricity, water and communication services, including the supply of such utility services to a tenant by a landlord.

The recent expansion of the range of protected ‘essential’ utility supplies so as to include certain IT services reflects the UK Government’s recognition of the core importance of such goods and services in today’s economy.

 

JSC MOTIF plum  The 2015 Order

The amending legal measure was issued on March 26, 2015 – i.e., this change was initiated by the former Conservative / Liberal Democrat coalition Government.

The implementing measure, which made under powers granted by the Enterprise and Regulatory Reform Act 2013, is a statutory instrument (delegated legislation) known as the “Insolvency (Protection of Essential Supplies) Order 2015” [S.I. 2015 No. 989]’; it is published online, here:  http://www.legislation.gov.uk/uksi/2015/989/pdfs/uksi_20150989_en.pdf .

The 2015 Order amends the Insolvency Act 1986, and its scope extends to the whole of Great Britain, except that (mirroring the scope of the 1986 Act) certain provisions only extend to England and Wales.

The protections extend both to insolvent companies, and to businesses conducted by insolvent individuals.

 

JSC MOTIF plum  New rights for insolvent businesses

For suppliers of IT goods and services covered by the 2015 Order, the world has changed in that:

– they are no longer able to make payment of debts resulting from pre-insolvency invoices a condition of their continuing to supply IT goods or services;

– in respect of contracts entered into on or after October 1, 2015, they will no longer be able to reply on the occurrence of an event of insolvency to justify charging higher prices for the same goods or services; in other words, the insolvent customer will pay the same price during the insolvency as applied prior to the insolvency.

 

JSC MOTIF plum  New protections for suppliers

However, to balance the above new limitations, suppliers of essential utility goods and services to insolvent business are (to some extent) now to be protected under this new regime by their right:

– to request a personal guarantee from the relevant insolvency practitioner in relation to the payment for goods and services rendered or furnished during the insolvency; and

– to terminate their obligation to supply in the event of failure within 28 days to pay invoices relating to supply of IT goods and services during the insolvency; and

– in the event of failure to agree with the insolvency practitioner, to apply to the Court for relief.

 

JSC MOTIF plum  What IT supplies fall within the new regime?

The scope of the 2015 Order provides protection for insolvent businesses in respect of the supply of IT-related goods and services that is made (by a person carrying on a business which includes the making of such supplies [1]) for the purpose of enabling or facilitating anything to be done by electronic means.

The following goods and services (which together encompass virtually any IT goods and services that a business may consume) are specifically included:-

– Point of sale terminals

– Computer hardware or software

– Data storage

– Data processing

– Website hosting

– IT-related information, assistance or advice

 

JSC MOTIF plum  Practical implications

In the light of the 2015 Order, providers of IT-related goods and services to companies and individual traders are encouraged to re-examine:-

– the terms and conditions of their supply contracts, especially for new agreements signed after September 30, 2015; and

– how they would respond in the event that one of their existing customers should become insolvent.

 

 Disclaimer: The information set out in this Jurit LLP Update is provided solely for guidance purposes; it does not constitute legal advice, and should not be regarded as a substitute for seeking such advice. Please see the Jurit LLP terms and conditions displayed under ‘Legal Notices’, at the foot of the home screen at URL: http://www.jurit.com/ .

[1] those providing facilities for acceptance of electronic payments by card (so-called ‘merchant acquirers’) are excluded.

 

Photo credit: LendingMemo.com

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