The Retailer Summer Edition 2021

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Distress effects If a supplier enters a Moratorium, CVA or Restructuring Plan (“rescue processes”), you should notice no real change in service. The purpose of these processes is that compa - nies continue their business in the usual way while they improve their financial position. If a company enters Administration, the business may well survive, and any new owner of that business is likely to want to continue the rela- tionship with you. Liquidation is the only real process in which you may find your supplier disappearing overnight. If a customer enters any insolvency processes (other than a Restructuring Plan), then you may feel concerned about continuing to supply them, particularly if they owe you money. Unfortunately, the government introduced new provisions last year which prevent you from terminating a contract to supply goods or services simply because a business has entered an insolvency process. It is possible to tweak terms and conditions to reduce the effect of this, and you are still able to terminate for late payment or other breaches. If your customer is in real financial difficulty, the likelihood is theywill also have breached a few contractual requirements. Remember, however, that the rescue processes are intended to rescue the company as a going concern, so it is important to engage with the company to understand fully what is happening and what the plan is before taking any steps to terminate.

Administrators’ mindset If the company has entered administration, the focus of the administrators is realising the business and assets of the company for as much as possible to maximise returns to creditors. Their primary duty is to act in the interests of creditors as a whole, so everything they do is motivated by that duty. Usually, the best realisations come in the form of a sale of the business as a whole as a going concern. If the administrators choose to trade the business while advertising it for sale, they will want to continue to supply the customers of the business and the business will need materials to do that, so it is not necessarily a bad idea to continue to work with them. Theymay expect a renegotiation of terms and your stance in those negotiations will depend on a number of factors including how important that business is to your supply chain and what the likely future of the business is. So once again, early communication with the administrators will be a determining factor in how you approach the negotiations. Preparation is all Essentially, as with most things in life, having a plan of actionwill go a long way to helping you navigate any period of change ahead.

Lemi McAuley 03700 86 7423 lemi.mcauley@shoosmiths.co.uk

Bethan Moore 03700 86 5573 bethan.moore@shoosmiths.co.uk