I am not suggesting that all insolvency practitioners start their day thanking the great almighty for new matters. However, there is no doubt that in a liquidation situation the goal of the liquidator is to hold on to as much of the unfortunate company’s assets as possible to sell off and after paying off the costs to various parties first in the pecking order. If you’re further down that pecking order, you risk losing any money owed to you by that company.

BHS’s financial problems were all over the news this year, and we can’t not mention the financial uncertainty surrounding Brexit, which makes this a good time to remind you about the need to protect yourself against a customer’s money problems.

The rules surrounding the many different ways in which a customer could end up ‘insolvent’ are complicated and there is no one simple short legal definition. So this is why contracts may contain a very long definition of insolvency or long provisions covering the various insolvency situations – it isn’t just because lawyers like to use a lot of words!

The risk of terminating where your customer suffers an insolvency situation which isn’t covered by the definition within the contract (or where the contract doesn’t give the right to terminate for the customer’s insolvency) is that you would be in breach of the contract and liable to pay damages to the your customer!

Even if a contract allows you to terminate if the customer becomes insolvent it’s better to put in place practical protections to reduce the risk should this happen.

• Generally the main concern will be that you are unlikely to receive any further payments from the customer. It may be best to get the total payment upfront, or at least instalments at regular intervals, rather than leaving all amounts outstanding until the end of the contract. This would mean that if the customer becomes insolvent, the amount outstanding is lower, reducing the impact. However this only works if you keep on top of unpaid invoices and suspend delivery of further goods/services (and ensure you have the contractual right to do so) if invoices go unpaid

• Where products are provided to the customer before payment is received, the contract should contain a retention of title clause. Equally the customer should be required to store products separately to their other goods until payment is made, in an effort to make them easier to retrieve, as don’t forget you may not be the only one trying to claim a right over the products!*

• If you have supplied equipment to the customer, think back to your school days and make sure your name is clearly marked on everything you own! This reduces the possibility for disputes about ownership, again attempting to make them easier to retrieve and lower the impact on your company

• Make sure you have the right to enter the customer’s premises to retrieve the goods, otherwise you could be guilty of trespass!

As the saying goes you can’t get blood out of a stone, or money from a man of straw, so it is better to have practical protection rather than try to argue the fact after the event.

* (Amusing story we thought we’d share… A number of years ago a friend paid for a sofa from a store but, between payment and delivery, the store went bust, meaning she would end up out of pocket and with nowhere to sit comfortably whilst dwelling on this fact. Cue her turning up at the store with her family and a van, sitting on the sofa and refusing to move until they allowed her to take it! Whilst we wouldn’t advise sending in the heavies, it does demonstrate the point that there may be multiple claims in one item – what if two people had ordered and paid for the same sofa, what if the supplier of the fabric or stuffing hadn’t been paid yet and claimed that they retained title until payment?)


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