Spec Finish

Focus Lindsay Ellis and Michael Hiscock of solicitors, Wright Hassall, suggest that carefully choosing which customers to work with could protect you from the consequences of having to continue supplying customers trading insolvently. LEGISLATION CHANGE MEANS YOU MUST CONTINUE TO SUPPLY INSOLVENT CUSTOMERS 24 www.thefis.org M ORE than 50 construction companies fell into administration in the past three months and the finishes and interiors sector continues to lose big names, yet recently introduced legislation changes could make things worse for suppliers in what are already challenging economic conditions. One major change appears in Section 233B of the Insolvency Act 1986 (introduced by the recent Corporate Insolvency and Governance Act) and prevents businesses from terminating supply to a customer on the grounds the customer has become insolvent. It applies to all contracts for supply of goods and (non-financial) services, but only applies to suppliers — customers are free to terminate contracts if it is the supplier that becomes insolvent. (The interim exemption for ‘small suppliers’ ended in September). Suppliers are also now prevented from demanding that outstanding charges are paid as a condition of continuing to supply, which for many, will be at odds with good business practice. In the constructionmarket place, industry standard form contracts (JCT, NEC) allow termination by the contractor due to employer insolvency so the statutory position cuts across the contract and removes a right that the industry has accepted as normal practice. That contractual right allows immediate suspension of work and submission of a final account, both of which help to protect cash flow. If this contractual right is removed, the contractor can still use its statutory right to suspend work for non-payment on seven days’ notice and ultimately terminate for breach of payment obligations but the period between doing the work and getting paid may be weeks or months, extending the risk.