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Insolvency (Protection of Essential Supplies) Order 2015

Volume 760: debated on Monday 23 March 2015

Motion to Consider

Moved by

That the Grand Committee do consider the Insolvency (Protection of Essential Supplies) Order 2015.

Relevant document: 23rd Report from the Joint Committee on Statutory Instruments

My Lords, this order puts into effect a power taken in the Enterprise and Regulatory Reform Act two years ago during its passage through Parliament. I should remind noble Lords that that power was added to the Act following an amendment tabled by the noble Lord, Lord Stevenson of Balmacara. I am sorry that he has been unable to stay to see his baby come through into the statutory instrument.

The order supports the rescue of viable insolvent businesses by amending the Insolvency Act 1986 to safeguard the supply of IT and utility supply during administration and voluntary arrangements where business rescue is viable. It does this in two ways. The first is by extending the list of suppliers of goods and services that under current insolvency law are prevented from demanding payment of pre-insolvency debt as a condition of continuing to supply the business. As well as utility providers, that list will now also include the suppliers of IT goods and services, as well as intermediary providers or the on-sellers of utilities such as landlords.

As we have seen from discussions on the Consumer Rights Bill and the Small Business, Enterprise and Employment Bill, IT is now a universal tool for doing business. By ensuring the continuation of essential supplies such as IT to businesses in administration and voluntary arrangements, we estimate that creditors will benefit by around £50 million each year, and because a distressed business can continue, this also benefits the employees. Secondly, the order amends the law to prevent such suppliers from exercising contractual terms that entitle them to terminate the contract or increase charges for the supply on account of the insolvency. This amendment will ensure the continued supply of the essential service on the same terms as before the insolvency.

I recognise that prohibiting suppliers from exercising contractual rights interferes with contractual freedoms, which is why we have used the time since the power was taken two years ago to ensure that there are adequate safeguards for those suppliers which are affected. During the consultation process a number of energy providers, large and smaller, independent providers, raised concerns about the adequacy of the safeguards. We have listened to these concerns, and the safeguards included in this order strike a balance between the need to secure the supply of essential services and the need to protect the interests of suppliers. These safeguards include a right for the supplier to request a personal guarantee from the insolvency practitioner at any point in the insolvency as a condition of continuing supply. The supplier can also terminate the contract where payment for ongoing supply remains outstanding 28 days after payment is due. In the case of hardship, the supplier will be able to apply to the court for permission to terminate the contract. Suppliers have also said that early engagement with the insolvency practitioner would go a long way in helping them better to manage their supply costs. Consequently, the Government will provide guidance to insolvency practitioners urging them to make early contact with suppliers as to their future energy use.

To sum up, I believe that the benefit this measure brings in rescuing businesses makes intervention in contractual rights justifiable in those sectors where the supplies are truly essential and without which the continuation of a business would be impossible. I therefore commend this order to the Committee and I beg to move.

My Lords, I welcome the Minister’s introduction of the order and I can assure her that it was not a lack of interest; I had agreed to deal with this. My timing was a little belated, but I have managed to fulfil my obligation. We welcome the order. I have listened carefully to what the Minister said and it is clear that a balance has been struck between trying to ensure the continuation of businesses and the benefits that that can bring both to the employer and employees, while also ensuring that reasonable safeguards are in place. I also welcome the fact that guidance is to be issued to insolvency practitioners because obviously, in order to make this work, they need to engage as quickly as possible.

I do not have anything further to add because, as the Minister has described it, it is my noble friend Lord Stevenson of Balmacara’s baby, although I am not sure who could be classified as the midwife being called here. In any event, we welcome the successful delivery.

Motion agreed.