What to do if your contractor or supplier becomes insolvent

Updated as of 6 May 2020

The effects of the Coronavirus on businesses will likely see those already struggling pushed into greater financial difficulties, and potentially insolvency. 

We set out below some actions you may want to consider if a contractor or supplier’s position is giving you cause for concern.

Open the Dialogue:

  • ask your contractor/supplier to give you clear information on exactly what their situation is. If they are facing insolvency, what is being proposed?  The effect of administration (for example) is different to liquidation:
  • if you can’t get clear information, or if you want to make your own checks, you can search The Gazette which lists all insolvency appointments here or a search at the High Court will flag any issued proceedings at an earlier stage. We are happy to run a search at the High Court if you let us know.  Please contact Jo Ford to help.
  • if a liquidator has been appointed, speak with them. It may be there are plans as part of an orderly winding up for a replacement to put in place arrangements to fulfil a contract. If there are, then consider the logistics of this under the contract (e.g. what would the effect be of such arrangements on past contractual obligations):
  • likewise speak to administrators if they have been appointed rather than liquidators. If possible, the administrators will be looking to sell the business as a going concern, which would usually include any ongoing contracts.  Alternatively, a particular contract may be hived off and sold separately, if a sale of the business as a whole is not viable and the contract has value to the company in administration.

Check the contract:

  • contracts will usually contain provisions regarding the effect of insolvency on a party. Ensure that you are familiar with them and understand their effect. In particular understand the effect of insolvency on your obligation to make payments.

Consider your options:

  • speak with potential replacement suppliers but don’t enter into new contracts until you are certain of your rights under your existing arrangements:
  • do not reach agreement with the directors or other representatives directly. The movement of a company to insolvency shifts the decision making powers away from the officers of a company:
  • if necessary, take steps to terminate the contract. For example, issuing a termination notice, but only after taking legal advice on your rights to terminate as wrongful termination may see you in breach of contract.

For further advice, please contact Joanna Ford.