Partner Article

New drive to save more North East firms from collapse

Insolvency trade body R3 has launched a new campaign for a change in the law which it says could result in dozens more North East businesses being rescued each year.

The organisation’s “Holding Rescue To Ransom” campaign is calling for new legislation which would prevent suppliers demanding extortionate ransom payments, increasing their prices or ceasing to supply as soon as a company goes into formal insolvency.

R3 members estimate that almost one in four administrations (22%) are pre-packed because of fear that suppliers will take unreasonable actions during insolvency, and that one in seven liquidations (14%) could be avoided if suppliers continued to supply at pre-insolvency contract price.

Linda Farish, chairman of the north east arm of R3 and director of recovery & insolvency at Newcastle-based accountants RMT, said: “When a business has to make a ransom payment, it can effectively prevent any chance of rescue, and usually leads to those who worked for the firm to unnecessarily lose their jobs.

“For example, our members have seen cases where utility companies and other suppliers have more than doubled their tariffs when a company was trying to trade through an administration.

“In these cases, suppliers are taking advantage to the detriment of other creditors, and it is a situation that needs to be formally addressed.”

R3 has now begun the process of working with MPs across all parties to develop and bring forward the legislation required to address this issue once and for all.

This was posted in Bdaily's Members' News section by Ruth Mitchell .