Suppliers to lobby BEIS over fears of ‘debt contagion’

Energy suppliers will write to the government to seek support in dealing with business customers struggling to pay their bills during the coronavirus pandemic, Utility Week understands.

An industry source said the letters, which are expected to be sent within the next few days, will ask for either direct financial support or indirect support in that the government assists businesses to pay their debt.

There has been speculation that a scheme worth up to £100 million a month may be needed to allow suppliers to provide payment breaks.

It comes as industry voices expressed their concerns about proposals from the Department for Business, Energy and Industrial Strategy (BEIS) for a moratorium giving struggling companies breathing space from creditors – such as energy suppliers – enforcing their debts for a period while they seek a rescue or restructure.

Ryan Thompson, partner at Baringa Partners, said the business energy sector is expected to come under a lot of pressure in the next few months with a combination of drop off in demand and a build-up of debt.

“I can only see this adding to the late payment/debt issue which will most likely in turn result in the industry looking to BEIS for support in managing the knock on impact, otherwise there is a real risk of debt contagion across the industry which may result in market failures”, he added.

Meanwhile one senior industry source told Utility Week the latest action from government “doesn’t solve the problem, all it does is move the problem”.

They added: “The problem will be shifted from company A to company B. Ultimately the buck stops somewhere and it needs to stop with government.”

A spokesperson for Energy UK added that while businesses struggling to pay bills as a result of the outbreak are an obvious concern, there will also be consequences for business energy suppliers if they face significant loss of income through non-payment of bills.

“The government will need to look at what financial support can be provided for these customers”, the spokesperson added.

Current insolvency rules stipulate that directors of limited liability companies can become personally liable for business debts if they continue to trade when uncertain about whether their businesses can continue to meet their debts.

Proposals by the government to amend the law include enabling companies to continue buying vital supplies, such as energy, raw materials or broadband, while attempting a rescue, and temporarily suspending wrongful trading rules retrospectively from 1 March 2020 for three months for company directors so they can keep their businesses going without the threat of personal liability.

In addition to the moratorium giving breathing space, BEIS is including two other restructuring tools to the UK’s Insolvency Framework including protecting companies’ supplies to enable them to continue trading during the moratorium and a new restructuring plan, binding creditors to that plan.

BEIS added that the proposals will include key safeguards for creditors and suppliers to ensure they are paid while a solution is sought.

Existing laws for fraudulent trading and the threat of director disqualification will remain in place.

The government did previously announce plans to introduce new insolvency restructuring procedures in August 2018. The new legislation will implement these plans.

Business secretary Alok Sharma said: “The government is doing everything in its power to save lives and protect livelihoods during these unprecedented times.

“Applying a common-sense approach to regulation will ensure products are safe and reach the market without any unnecessary delay, getting vital protective equipment such as face masks to frontline staff as quickly as possible.

“(The) measures will also reduce the burden on business, giving bosses much-needed breathing space to keep their workers employed and their companies going.”