Banning ‘ransom demands’ could save 2,000 businesses, says R3

By July 8, 2014Finance, News

Over 2,000 businesses could be saved each year by measures to prevent utility companies and other key suppliers from demanding ‘ransom payments’ from insolvent companies, according to the insolvency trade body R3.

The organisation has welcomed today’s news that the government has launched a consultation on new measures to prevent IT and utility suppliers from cancelling contracts with insolvent companies and increasing charges. The new rules would require them to continue supplying goods and services to an insolvency practitioner trying to rescue a business.

Richard Wolff, North West regional chair of R3 and Head of Corporate Recovery and Insolvency at Manchester law firm JMW Solicitors LLP, said the news meant that R3 was one step closer to success in its long-running ‘Rescue to Ransom’ campaign. He indicated that typical examples included retail insolvencies, where insolvency practitioners often have to make ‘ransom payments’ to software suppliers to allow stores to continue operating tills and accepting card payments.

In one case, a small manufacturing business which was recovering from insolvency was forced back into the red when the utility suppliers more than doubled their tariff from £58,000 to £135,000.

“Contract cancellations and ‘ransom charges’ are one of the biggest obstacles to business rescue that insolvency practitioners are likely to encounter. They force the closure of potentially viable businesses, posing an unnecessary risk to jobs,” he said.

“We see many cases where suppliers demand extortionate ‘ransom payments’, impose huge price increases or stop supplying businesses altogether even where payment is guaranteed.

“Our members estimate that banning so-called ‘termination clauses’ in supply contracts could help save over 2,000 businesses a year. R3 has campaigned long and hard for action to be taken on termination clauses, winning support from the business and creditor communities. Scrapping termination clauses will give many struggling businesses a better chance of survival and should boost the UK’s business rescue culture.”

 

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