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News Release

IT suppliers should review contracts to minimise impact of new insolvency-related obligations
Released: 29th October 2013
Publisher: Shakespeares

Under current legislation, the Insolvency Act 1986 states that where an insolvency specialist has given a personal guarantee, traditional utilities (gas, electricity, water and telecommunications) providers are obliged to continue to service a business premises. These services are required to be provided at the same rate as they were prior to the company’s insolvency.

Although not strictly a ‘utility’, where IT services are concerned, the Enterprise and Regulatory Reform Act 2013 includes the power to extend the scope of this regime to ‘the supply of goods or services which enable or facilitate anything to be done by electronic means’.  The Government intends to bring the extension into force by April 2014.Andrew Hartshorn, partner and IT law specialist at Shakespeares, said: “While it is understandable why some IT services may be regarded as essential to the running of a business and therefore need to be subject to the same obligations as utilities, the lack of any definition is causing uncertainty.

“What should be made clear as part of the consultation process is the exact scope of services that could be required to continue to be provided to an insolvent company, backed by the insolvency practitioner’s guarantee.”

Commenting on the risks posed by the legislation, Andrew added: “This legal change should not expose IT providers to undue risk. Insolvency practitioners don’t as a rule expose themselves to personal liability lightly and are unlikely to provide a personal guarantee where there’s any risk of them not being able to recover the cost of services from the insolvent business.

“However, it would be wise for IT suppliers to review their contracts to decide which are likely to be classified as 'essential services.' If non-essential services can be separated from essential services it may be possible to minimise the impact of the regime."

Further information (external website)


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