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Insolvency specialist Melissa George, of Thrings, has warned business owners to be aware of changes in the law which could affect the way they deal with customers who haven’t paid their bills.

She is calling on business owners to take legal advice if they are concerned that they could be impacted by new laws related to helping struggling businesses during Covid19. In short, it’s possible if a customer goes into an insolvency process, by law, a supplier will still have to work with them even if their bills are not up to date.

In March, the Government’s Business Secretary Alok Sharma announced measures designed to improve the insolvency system and give companies the breathing space to weather Covid19.

One of the measures relates to continuity of supplies, even after a company enters a formal insolvency process. The Corporate Insolvency and Governance Bill is being debated in Parliament and is expected to become law by early July.

Suppliers beware!

At the moment suppliers of goods or services often have terms and conditions in their contracts allowing them to terminate if a customer fails to make payment or is insolvent.

Customers facing cash flow difficulties can build up debt to suppliers, either by stretching credit terms or seeking a payment plan to pay off any arrears.

However at the moment, if that customer then becomes insolvent, a supplier can halt all services, insist on cash on delivery or ask for arrears to be cleared before any more goods or services are supplied. This is often known as a ‘ransom payment’.

Melissa said: “This type of payment can be particularly disruptive to a company seeking a rescue by trading in administration to repay arrears from profits or to better secure a sale of the business as a going concern. An administrator seeking to trade will be forced to accept a termination of supply or seek other suppliers or ‘do a deal’ that is objectively better for all creditors to secure continuity of supplies.

“Of course, for the supplier the ability to terminate supply and recover old debt could mean the difference between survival and its own insolvency,” she said.

What are the new laws?

When the bill becomes law, the rights of suppliers will be limited (subject to a hardship exemption).

A supplier will no longer be able to terminate a supply contract or ‘do any other thing’ (e.g. impose different payment terms) once the customer is in any insolvency process unless given permission by the customer, or the court.

This means, suppliers will not be able to ask for ransom payments, place the customer on stop or insist on cash on delivery.

Will suppliers be paid for new supplies?

Yes. The contract with the customer may have been important to your business as a supplier. Often that is why suppliers suffer payment delays – to continue to secure profit from the contract (provided they are paid eventually).

Suppliers who choose to make new supplies (or are obliged to continue supplies under this new law) cannot be forced to supply goods or services for free.

In any insolvency process the debt for new agreements for supplies and supplies delivered after the insolvency process begins are treated differently and will be paid in priority to all their suppliers’ arrears.

The timing for payment will depend on the agreed terms and conditions and the insolvency process.

“It will be even more important to be clear on delivery terms, payment terms and credit limits,” Melissa said.

“As an existing supplier, if you are not paid for new supplies made during the insolvency process, you will be able to terminate the contract and put the customer on stop or COD terms. However, you will only be paid for the debt that arose before the insolvency process began, if the insolvency process successfully pays a dividend to you and other creditors.”

What is the hardship exception?

If, as a supplier, you can satisfy the court that by in continuing to supply on existing you would suffer ‘hardship’, the court may grant you permission to terminate the contract.

Any business worried about this proposed change in the law can contact Thrings by visiting

Thrings Swindon


Thrings Solicitors in Swindon have been providing legal advice to businesses and individuals for almost 300 years.

6 Drakes Meadow, Swindon, SN3 3LL

Fiona Scott Media Consultancy Swindon

Scott Media

Scott Media is run by a UK-based journalist with more than 20 years' experience in the media - print, radio and television.

6 Gold View, Swindon, Wiltshire, SN5 8GZ

Fiona Scott Media Consultancy
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