Risks and potential protections

Many companies are surprised to find that those rights and protections are not quite what they thought they were

  • If looking to be paid for goods delivered or services already supplied, you are likely to be at the back of the queue on insolvency when distributions are made.
  • Asking for “your” goods to be returned may not be straightforward, even though the customer may not have paid for them yet. Retention of title (ROT) claims are notoriously difficult to prove.
  • While terminating the supply agreement may be an option, English insolvency law might require you to keep supplying the customer where the supplies are classed as essential. If the customer still doesn’t pay, then you can terminate, but you’ll need to wait 28 days first and, in any event, amounts due before the insolvency will not receive any additional protection.
  • When a UK company goes into administration, that causes a stay on a broad range of actions that you might otherwise have considered – such as taking legal proceedings against the customer, enforcing security or even ROT rights. To do those, you will need the permission of the administrator or of the court, which can add to costs and delays.
  • Sometimes a business may be sold on appointment of the administrator, the deal having been arranged in advance. There is no need for court or creditor approval. These pre-pack sales are a feature more or less unique to English insolvency law. The result could be that goods are no longer located where you thought they might be and, in any event, if they weren’t subject to a valid ROT claim, your claim would be that of a creditor, not an owner.

When dealing with troubled sectors you may want to think about what steps you can take to better ensure payment of amounts owed and to ensure that legal and commercial departments are on the case.

If you have concerns about a customer’s credit
  • do your due diligence including checking to see if a customer has published its Payment Practices and Performance Report;
  • think about group guarantees, advance payments, deposit retention and Project Bank Accounts and try not to allow large sums to build up;
  • consider whether you are contracting with, or invoicing, the right entity; and
  • a properly incorporated retention of title clause will make a significant difference to your rights.

Whilst recent changes restrict certain essential suppliers of utilities and IT-related goods and services from withdrawing such supplies when a customer goes into administration (or puts forward a company voluntary arrangement), there is still scope for savvy suppliers to link price increases or changes in payment terms to non-insolvency events. Suppliers may also ask the administrator/CVA supervisor for a personal guarantee for payment of any continued supplies.

While it is not something you can contract for beforehand, awareness of this right can ensure your payment for post-insolvency supplies is protected and you can also terminate the supply if they do not provide that guarantee within 14 days of receipt of the request.

Whar else to bear in mind

Finally, remember insolvency law differs across countries (even within the UK to a degree) and there is no single European or global insolvency law. What works or does not work here will very often be different elsewhere. Non-English law contracts, goods located abroad, foreign customers – there are a range of factors which could be relevant, so whenever there is a significant cross-border element for your business, think about whether you need additional or different protection.

Some of these steps are simple but, taken together, should help contain the fallout when there is trouble in the supply chain.

In summary, issues for GCs to consider


  • How much due diligence is being done to identify troubled counterparties?
  • Have contracts with them got decent payment protection measures?
  • Would you be able to identify your goods if required for a retention of title claim?


  • Do you know if you are an “essential” supplier whose termination rights may be restricted on counterparty insolvency?
  • Do you know what to ask an administrator for if you are required to continue to supply an insolvent customer?


  • Do you understand variances in insolvency risk across your customer portfolio based on where they are incorporated and/or operate, where goods are supplied or the governing law of any supply agreement?
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