East Anglia: Insolvency group chief calls for change in law on administration ‘ransom’ demands

BUSINESS rescue deals are being hampered needlessly by suppliers increasing their charges or forcing “ransom” payments to compensate for the increased risk they face, according to a top insolvency specialist in the region.

Laurence Weeks, who is eastern region chairman of R3, the national body for insolvency professionals, believes that changes in the law could result in over 2,000 more businesses being rescued each year.

Mr Weeks, a partner at Cambridge law firm Taylor Vinters, said: “When a business has to make a ransom payment it reduces the chance of rescue.

“In these instances, some suppliers may be taking advantage of a negative situation to the detriment of other creditors.

“More often than not, it is unnecessary for suppliers to take this action as those who continue to supply during insolvency have the security of being paid as an administration expense – ahead of all other payments.

“Our members have seen cases where utility companies and other suppliers have more than doubled their tariffs for businesses trading through an administration. Such actions can make it impossible for insolvency practitioners to give the ailing business any chance of survival.”

According to research by R3 amongst its insolvency practitioner members, more than one in five (22%) of administrations are “pre-packed” – where a sale of the business is agreed in advance – because of fear that suppliers will take unreasonable actions during the longer formal insolvency process.

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R3 members also believe that around one in seven (14%) of liquidations could have been avoided if suppliers had continued to supply at pre-insolvency contract prices.

Mr Weeks added: “R3 is not asking for special treatment for companies in a formal insolvency. The insolvency profession merely wants suppliers to give business rescue a fighting chance.

“Provided that bills are paid on time and in full, suppliers should continue to supply on the same terms as before the formal insolvency.”