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Protection of IT Supplies

Author: Chris Millar

IT supplies are hugely important for the continuation of many businesses and section 233A of the Insolvency Act 1986 extends the list of essential suppliers to include IT supplies “for the purpose of enabling or facilitating anything to be done by electronic means”. Such suppliers will be unable to terminate supplies or demand existing pre-insolvency debts are paid, as a condition of continuing supplies.

However; a supplier can request a personal guarantee from the office holder that they will pay post-insolvency charges as a condition of continuing supplies. If the office holder does not provide the guarantee within 14 days, the supplier may terminate. Secondly, if post-administration supply costs are not paid within 28 days of falling due, the supplier can also terminate. As before, a supplier can apply to the Court on the ground that continuing to supply is causing “hardship”.

This section also provides that where a contract is entered into on or after 1st October 2015, any provision that seeks to allow the supplier to increase the cost of supplies after the company goes into administration or a voluntary arrangement will be prohibited.

Accordingly, where a business may rely heavily on IT supplies that are received at a favourable rate, administration may be preferable to liquidation in order to take advantage of this. If the timing is right, and subject to any requests for a guarantee, practitioners may benefit from a 28-day guaranteed supply period, in which the supplier is obliged to continue supplying for 28 days after a post-insolvency payment becomes due. 

Please contact Chris Millar on 01306 502225 if you would like to discuss this matter further

Posted on 17/03/2016 by Pam Bowring

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