New insolvency law risks creating ‘non-pay culture’ in supply chains

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New insolvency law risks creating 'non-pay culture' in supply chains

May 22, 2020 · posted by Will Green in Law, Procurement, Supplier relations

The UK government has introduced legislation that means suppliers will not be able to stop supplying a company that has entered insolvency.

Under the Corporate Insolvency and Governance Bill, introduced to Parliament on 20 May, termination clauses that engage on insolvency will be prohibited, “preventing suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process”.

Lawyers have expressed alarm at the measure, telling SM there is a risk of supply chains becoming “characterised by a non-pay culture”.

The Department for Business, Energy and Industrial Strategy (BEIS) said the bill introduced a “permanent change to the use of termination clauses in supply contracts”.

“As a result of the measure, where a company has entered an insolvency or restructuring procedure or obtains a moratorium during this period of crisis, the company’s suppliers will not be able to rely on contractual terms to stop supplying, or vary the contract terms with the company, for example increasing the price of supplies.

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