Covid – 19: What to do if your contractor or supplier becomes insolvent because of coronavirus

Covid – 19: What to do if your contractor or supplier becomes insolvent because of coronavirus

It’s an uncertain time for most at the moment thanks to the COVID-19 pandemic, especially those running a business. For some businesses, particularly SMEs, times are even tougher. Struggling businesses are facing financial dire straits, and some are unfortunately finding themselves pushed into insolvency.

The world must keep turning, and businesses need to keep running. With that, some difficult conversations may arise – especially if the financial position of your contractor or supplier is starting to concern you.

Here are some pointers to help you have those delicate discussions – and remember, we are available to help if required.

First of all, check the contract

Before you have the dreaded conversation with your contractor or supplier, check your contract with them. Your contract should contain both you and your contractor or supplier’s obligations regarding the effect of insolvency on either party. Make absolutely sure that you are familiar with your obligations, and understand them in full. It is particularly important to ensure you understand the effect of insolvency on your obligations – if any – to make payments.

Next, open the conversation

You should request that your contractor or supplier gives you clear, straightforward information regarding their exact situation. If they tell you that they are facing insolvency, ask them what they propose.

If they are unwilling to give you information, or they’re unavailable to speak with you, you can search The Gazette which lists all insolvency appointments. You can also use The Gazette to make your own checks if you want to ensure that what you’re being told is correct and true. Furthermore, a High Court search will bring up results of any issued proceedings at an earlier stage.

Check what plans have been made, if any

Find out if a liquidator has been appointed, and speak with them directly. You may find that there are plans for a winding up order, or it could be that an alternative contractor or supplier has been sourced to fulfil the contractual obligations. If a replacement has been found, then ensure that you have considered all logistics of this under the contract.

If administrators have been appointed rather than liquidators, speak to them as soon as possible. It may be that administrators plan to sell the business as a ‘going concern’ – i.e. selling to a purchaser with all of the things that are necessary for the purchaser to continue operating the business – and this would normally include any ongoing contracts.

As an alternative option, a particular contract may be sold completely separately. This is more likely to occur if the sale of a business as a whole is not sustainable, but the contract in question has real worth to the wider company.

Finally, consider all your choices

It is incredibly important that you look at all the options available before making any decisions. We suggest speaking with potential replacement suppliers or contractors as a precautionary measure, but do not enter into new contracts until have fully understood and carried out your obligations to your existing ones.

We cannot stress heavily enough the importance of ensuring you do not make any decisions or take any actions that would put you in breach of any contract you have. Please do get in touch with us and we can help you with this. We will be able to take your individual circumstances into consideration, and will help you come to a fully informed decision that results in the best outcome for all parties concerned.

If you have any questions, please feel free to contact us on 020 3476 6751 or by email info@carterbond.co.uk

This note is not a substitute for legal advice. Information may be incorrect or out of date and may not constitute a definitive or complete statement of the law or the legal market in any area. This note is not intended to constitute advice in any specific situation. You should take legal advice in specific situations. All implied warranties and conditions are excluded, to the maximum extent permitted by law.