Give struggling businesses a fighting chance, says R3
Business rescues are being held back unnecessarily by suppliers increasing tariffs, according to the Midlands chairman of insolvency body R3. Matthew Hammond, who is also a partner at PwC in the Midlands, believes that amendments to the current Insolvency Act could result in more than 2,000 businesses being rescued each year.
He said: "When a business has to make a ransom payment it reduces the chance of rescue. In these instances, some suppliers may be taking advantage of a negative situation to the detriment of other creditors.
"More often than not, it is unnecessary for suppliers to take this action as those who continue to supply during insolvency have the security of being paid as an administration expense – ahead of all other payments."
According to research by R3, more than one in five (22 per cent) of administrations are pre-packed because of fear that suppliers will take "unreasonable actions" during the longer formal insolvency process.
The research suggests R3 members also believe that 14 per cent of liquidations could have been avoided if suppliers had continued to supply at pre-insolvency contract prices.
Hammond said: "R3 is not asking for special treatment for companies in a formal insolvency. The insolvency profession merely wants suppliers to give business rescue a fighting chance. Provided that bills are paid on time and in full, suppliers should continue to supply on the same terms as before the formal insolvency."
