CCR2 Utilities and Telecoms
Essential supply in insolvency: an energy supplier’s obligation
Are you aware of an energy supplier’s obligation to continue to provide supply services to some insolvent customers?
Qamer Ghafoor Chief executive, Flint Bishop
qamer.ghafoor @
flintbishop.co.uk
The most useful tool in an energy supplier’s armoury, when they are not being paid, is to disconnect the supply. Even if it does not prompt the payment of any debt, then it certainly stops any debt increasing. Energy suppliers will sometimes have a
provision within their standard contractual terms enabling them to terminate a contract, cut off supply or charge a higher rate in the event of a business customer entering into insolvency. Insolvency practitioners, who are reliant
on the continuation of ‘essential supplies’ (including electricity, gas, water and telephones) to rescue struggling businesses, were, historically, extremely critical of these ‘insolvency-related contractual terms’ and argued that it prevented them from being able to carry out their duties properly. Consequently, the government implemented the ‘Essential Supplies Order’ and made any insolvency related contractual term void in the event of a customer entering into administration or a CVA. As a result, energy suppliers are now obliged (with limited exceptions) to continue to supply at the pre-insolvency rates when a business enters into administration or a CVA. The useful tool in the energy supplier’s
armoury is now somewhat damaged. The ability to force payment from businesses who are insolvent by threatening disconnection has all but gone in an administration or CVA situation.
Protection for suppliers There is, however, some residual protection for energy suppliers, albeit limited. It is still possible for energy suppliers to terminate a
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l Terminate the contract where the court grants permission. The court must be satisfied that the continuation of the contract would cause the supplier hardship. l Terminate the contract where any charges in respect of the supply that are incurred after the company enters administration or the CVA takes effect, are not paid for within 28 days of becoming due.
Debt prior to administration or CVA Any debt relating to the supply provided before insolvency will be dealt with as part of the administration and the CVA. Energy suppliers will generally be treated as unsecured creditors. The debt incurred and personally
Any debt relating to the supply provided before insolvency will be dealt with as part of the administration and the CVA. Energy suppliers will generally be treated as unsecured creditors
contract or cut off supply in certain prescribed circumstances. Suppliers may: l Terminate the supply where written notice has been provided to the insolvency practitioner, unless an insolvency practitioner personally guarantees the payment of any charges in respect of the continuation of the supply within 14 days of the notice being received by them. l Terminate a contract where an insolvency practitioner consents to the termination.
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guaranteed by an insolvency practitioner after the administration or CVA should be treated as a post administration charge and should constitute an administration expense that gives priority.
Practical steps a supplier can take When entering into new contracts, suppliers should ensure that early termination rights activate before the onset of insolvency. The legislation is only effective once a customer enters into administration or a CVA. Suppliers should act quickly and keep
abreast of unpaid invoices, engaging with defaulting customers at an early stage. If a customer has already entered into
administration or a CVA, then suppliers should contact the insolvency practitioner immediately, requesting that they provide a personal guarantee if they want supply to continue, or alternatively, they provide their consent to disconnect the supply. CCR2
May 2019
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