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Businesses in administration treated unfairly by suppliers

26 October 2017

The insolvency trade body R3 has launched a consultation on how to curb the practice of demanding "ransom payments" by some suppliers who wish to supply businesses that are continuing to trade in administration. In effect by demanding higher payments, as a condition of their cooperation, is putting themselves ahead of other creditors. Insolvency practitioners believe this is hampering their efforts to save companies.

R3 consulted with some MPs and representatives from the insolvency profession and it was clear that the government would need to see a clear case of it saving the government money as it was not a priority. Legislation would be required and would take time.

Time is often something that businesses facing difficulty do not have. This is a drawback of going into administration process as it is a very public event and all suppliers and customers are likely to know about it even if they are not creditors.

However, if the company starts the company voluntary arrangement process this is not in the public domain and there is less of a likelihood of ransom creditors if they are all kept appraised of the process. The CVA is registered at Companies House only when approved.