Turning the heat up on utility supplies

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Steve Vickerman.jpg By Steve Vickerman, Business Development manager, National Gas and Power Ltd

17 July 2017

IPs often face challenges to secure utility supplies during a period of trading. Steve Vickerman, looks at the issues and examines what may be done to overcome these.

In the first quarter of 2017 the statistics tell us that there were 4,122 company failures of one kind or another. To the man and woman in the street that can sound like an awful lot, especially when jobs are lost.

Lost jobs equals hard and depressing times for those out of work and I believe that some of that can be avoided by the judicious application of lower energy prices. I think the majority of us are familiar with the phrase, “It’s an ill wind that blows nobody any good”, simply meaning: no matter the adversity, someone benefits from upheaval. Insolvency services are a prime example.

So, why are energy costs important to consider when dealing with trade-on administrations?

The importance of energy costs

When a company enters insolvency it enters into a distressed situation where the administrator has limited funding available to keep the business trading and therefore needs to ensure that energy costs are as cheap as possible; often, this means shopping around to find a lower price which is both time consuming and frustrating, and with the number of suppliers and brokers out there, no guarantee of the cheapest possible price. 

Unfortunately, to carry on trading, energy supply is essential. If this is available at a lower cost then benefit accrues to the administrator and, by consequence, the creditors involved. Having spoken to many IPs at a conference, I have been assured that energy costs can make the difference between trading on or closing down.

Another downside to energy supply in insolvency is that companies seek a personal guarantee from the practitioner who, in most cases, is unwilling to grant one as it puts them at personal risk, especially where prices are prohibitive. If they don’t trade on they may have to liquidate the company rather than potentially finding a buyer by continuing to trade. 

This would result in the breakup of the business with a lower price achieved and misery descending on those who have lost their jobs, with the ensuing consequences; certainly not in the creditors’ favour. This I found, was the other major barrier to trading on as opposed to liquidating and the majority would rather it didn’t exist.

The effect of energy price increases

I am sure many of you reading this article will recall companies hiking rates by up to 35% and asking for ridiculous sums up front when an insolvency was declared, with the threat of termination of contract if demands were not complied with. A licence to blackmail companies, it would seem to this layman.

With the October 2015 amendment to Section 233 of the Insolvency Act prohibiting price increases through out-of-contract rates and other measures, or threatening disconnection, it would seem that this particular problem would have been resolved.

However, many companies are paying too high a price under normal terms and, if they use a broker which brings additional costs, then the price becomes higher still. Further to this, even though strictly prohibited, anecdotal evidence shows that some companies are still charging out-of-contract rates to the detriment of the administrator, employees and creditors.

So, having looked at the negative aspects accrued to trading on, what should an IP be looking for when considering utilities in a trade-on situation?

One important aspect is to look for a supplier who understands an insolvency situation. This would include looking for a supplier who is able and willing to offer short-term contracts without exit penalties and other benefits so that the process is free of complications. Although the legislation permits personal guarantees or warranties from IPs, these are often unnecessary and counterproductive.

Finally there is the pricing aspect. If arrangements can be made direct with the supplier then there is no broker fee involved which helps keep costs down.

All of this aids the IP in helping the company to keep trading, preventing the loss of jobs and the distress caused by a company closing down.

Topics

  • Insolvency

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