Tyneside MP calls for ransom payment change

June 3, 2011

NORTH East MP Mary Glindon has given her backing to a campaign by insolvency trade body R3 campaign for a change in the law which she says could save 2000 businesses a year.

The Holding Rescue to Ransom campaign is calling for a change in legislation which would prevent suppliers demanding high payments, increasing their prices or ceasing to supply as a company goes into formal insolvency.

Glindon, MP for North Tyneside, said: “One of my election pledges to my constituents was to ensure people in employment have sustainable jobs.

“I’m supporting R3’s campaign because a change in the law could help save over 2,000 viable businesses and tens of thousands of jobs.

“During these difficult economic times I want to help struggling business and the local economy. For this reason I will be pressuring the Government to make this vital change in law.

“It is important that the business community is aware that it isn’t the end of the road for their business if they face insolvency; insolvency practitioners can turnaround their financial difficulties if given the chance.

“The unreasonable actions of suppliers should not be detrimental to this cause.”

Linda Farish, chairman of the North East arm of R3 and director of Recovery & Insolvency at Newcastle-based accountants RMT, said: “When a business has to make a ransom payment, it effectively prevents any chance of rescue, and in these cases suppliers are not recouping money lost, but taking advantage to the detriment of other creditors.

“It is unnecessary for suppliers to take this action as those who continue to supply during insolvency have the security of being paid as an administration expense – ahead of all other payments.

“I have seen cases where utility companies and other suppliers have more than doubled their tariffs when a company was trying to trade through an administration.

“Insolvency need not be the death knell for a business, but the actions of some suppliers make it impossible for insolvency practitioners to save a business.”

Insolvency practitioners estimate that more than 22% of administrations are pre-packed because of fear that suppliers will take unreasonable actions during insolvency.

Farish added: “We are not asking for special treatment for companies in a formal insolvency.

“We merely want suppliers to give business rescue a fighting chance.

“Provided that bills are paid on time and in full, suppliers should continue to supply on the same terms as before the formal insolvency, rather than take advantage.”

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