Dealing with the bankruptcy of a supplier 

No matter how prudent you are with your own financial dealings, you cannot fully protect yourself against the financial misfortunes of others.

In times of economic uncertainty, the insolvency or bankruptcy of a supplier is a very real issue for businesses. Consequently, businesses are preparing themselves against this by having contingency plans in place, and conducting risk assessments.

Should you be in the unfortunate position of one of your suppliers becoming insolvent, how can you guard against disruption to your business? How can you recover your loss?

Be prepared

Businesses that stay alert to the financial health of their suppliers are likely to be able to respond quickly should insolvency or bankruptcy occur. This can be achieved by monitoring the market, talking with other businesses, and reading the trade press.

It is a good idea to carry out a risk assessment so that you know in advance what impact the collapse of a supplier will have on your business. You may be able to insure against all or part of the damage this would cause.

You should also ask yourself what business continuity plans you have in place. Should a supplier collapse, what impact will this have on your customers? How quickly can you switch suppliers? What liabilities do you have with regard to these products? Are you unnecessarily bound in to agreements with customers under which you would incur liability if a supplier collapses? Can you add in a clause to avoid liability should this occur?

Recovering any loss

You will be able to check online for details of the supplier’s insolvency or bankruptcy at the insolvency Service. Its website can be viewed at www.insolvency.gov.uk/bankruptcy.

As a creditor, you should be notified by the Official Receiver within 12 weeks of whether a meeting of creditors will be held. This meeting will be held to appoint an Insolvency Practitioner in place of the Official Receiver, and to give creditors an idea of what to expect and when. You should be sent a report giving estimates of the insolvent’s assets and liabilities. If you are not contacted, then you should write to the Official Receiver or Insolvency Practitioner concerned.

Debts will be paid from the remaining assets of the insolvent supplier in a strict order of priority.

Fees and charges relating to the insolvency or bankruptcy are paid first. Preferential creditors (including wages due and pension payments due) are next, then unsecured creditors, any interest payable on debts, and finally shareholders.