The month of October attracts one of the regular questions, “Do the clocks go forward or back?” This year, 1 October also brought in a raft of legislation where a similar question must be asked whereas do the amendments or new items of legislation take us forward or return us to previous ways of working.
The changes are so great in number that solicitors could fill the Business Times with commentary and summaries and make it feel like some form of legal journal. However, one of the key areas businesses ought to be aware of is The Insolvency (Protection of Essential Supplies) Order 2015 (“IPESO”).
Before IPESO came into force on 1 October 2015 if an insolvency office holder wanted to trade an insolvent estate utility suppliers could demand a guarantee from the office holder to pay all post appointment charges incurred as a trading expense. They could not include the pre-appointment outstanding charges, but at least they were paid for the continued use while the office holder tried to sell the business. IPESO has also been broadened to include, “…such supplies, where the supply is for the purpose of enabling or facilitating anything to be done by electronic means”. This includes supplies such as chip & pin services, computer software, mobile phones, WIFI, broadband services and website hosting as these are all considered “Essential supplies” in the modern business environment.
Arguably the most controversial provision of IPESO surrounds contractual termination upon an insolvency event. Often suppliers include in their terms and conditions a provision that if a customer enters into any form of insolvency the supplier may terminate the contract. For contracts entered into on 1 October 2015 and beyond such a termination clause will be void where the customer enters into administration or a voluntary arrangement. In fact, IPESO goes further to prohibit a supplier doing anything else such as suspending supply or disproportionately increasing rates as a condition for continued supply. The argument for this provision is that it enhances the chance of recovery of an insolvent party and accordingly, promotes a better outcome for all concerned.
Suppliers may feel hard done by with these new provisions, but it is not all so one-sided. IPESO has no effect on a company entering into a form of insolvent liquidation, receivership or a sole proprietor going bankrupt. Furthermore, a contract may be terminated with the consent of the office holder or the court. An additional point of protection is the supplier may terminate the contract if the office holder declines to guarantee the costs (as an expense of the estate) or payment is more than 28 days beyond the agreed credit terms.
Suppliers who fall under the IPESO may need to take their own independent advice, particularly with regards to the ability (or otherwise) to enforce their termination clauses. They also need to be wary of the consequences of taking action first and thinking later because the potential harm such action may cause may expose those suppliers to other forms of financial recourse.