Post-Covid-19 termination clauses

One of the most controversial proposals in the Corporate Insolvency and Governance Act is the suspension of termination clauses.

Medium and large creditors are prevented from using the terms of their contract to stop the supply of ‘essential’ goods and services to a company in a formal insolvency procedure.

However, the suspension of termination clauses only applies to companies with:

• Over 50 employees
• A turnover of more than £10.2 million
• A balance sheet total of more than £5.1 million   

Although the new legislation puts pressure on suppliers, they will have a valid defence if they respond by saying:

“Because of Covid-19, I don’t have the resources to purchase the materials I need to supply you as normal.”

Be wary of devious company directors who may try to abuse the new provision. You can circumvent them by:

• Ensuring that all new customers sign your contracts
• Updating your terms and conditions to include the following declaration:

“I declare that by placing this order and taking your supplies at [insert time] on [insert date], neither I [insert name and job title] nor the company I represent [insert company name] are in any way affected by Covid-19, and have no reason to suspect the Coronavirus will in any way influence our previously agreed payment terms.”

A creditor who has included this provision in their contracts should by-pass the issue of termination clause suspension.

This is because their debtor has already acknowledged to not being affected by Covid-19 when they took your goods.

Be polite, but don’t worry about offending. After all, why would you want to trade with a customer who’s not prepared to sign the declaration?