Smaller companies that are facing financial difficulties but are deemed viable in the long term could have essential services safeguarded until they get back on their feet.
A newly announced government scheme will aim to protect SMEs from having their electricity, gas, water and essential IT services cut off while rescue talks are underway.
These suppliers will then have their payments guaranteed before other creditors and can seek a guarantee from insolvency practitioners. If bills remain unpaid 28 days after negotiations are concluded, they will be able to cease supply.
Smaller suppliers whose own businesses are put in jeopardy by late payments will also be able to apply to terminate contracts on hardship grounds.
The new rules will come into effect in October. Jo Swinson, the Liberal Democrat business minister, said of the plans: “Rescuing struggling but viable businesses out of insolvency helps saves jobs and improves the likelihood of payment to those owed money.
“These changes will help struggling businesses during rescue while providing confidence for the suppliers that they will be paid for the essential services they provide.”
The plans have also been welcomed by the insolvency sector.
“Changes to the terms of supply for insolvent businesses place unnecessary hurdles in the way of business rescue. Without reliable and affordable IT and energy supply, attempts to save a business can be stymied quickly,” said Giles Frampton, President of R3.
“These proposals will make it easier for the insolvency profession to save businesses, save jobs, and get creditors as much of their money back as possible.”