Covid Regulations for businesses mean that you may be required to continue supplying such goods or services – even if your customer cannot pay you.  The detrimental impact is clear. We explore what you can and should do now to help protect yourself.

In our recent blog on trading terms https://rb.gy/vktdic we set out aspects you should consider to determine if your terms and conditions are fit for purpose. We will now consider, specifically, your rights as a supplier if your customer cannot pay or enters insolvency, which many of our clients are currently having to deal with as a result of Covid-19.

The Corporate Insolvency and Governance Act 2020 (CIGA) was introduced in June 2020, as a direct result of Covid-19 and the impact it is having on all types of businesses sectors. One of the effects of CIGA is that it amends the existing termination provisions in the Insolvency Act 1986.

These ‘customer friendly’ amends provide that where a company has entered certain insolvency procedures, such as administration, liquidation, and restructuring procedures, their supplier of goods or services will no longer be able to rely on contractual terms to terminate the contract. Before CIGA, such restrictions only applied to so called ‘essential’ supplies such as utilities, telecoms, and IT. Now however, these restrictions apply to all suppliers of goods and services.

You may therefore be required to continue supplying such goods or services – notwithstanding your customer’s inability to pay you. This is clearly detrimental to you as a business, who no doubt, will too be facing the harsh impacts of Covid-19.

Small company exception

Note that CIGA will not apply to you if your company is considered to be a ‘small’ company. To qualify as a ‘small’ company under CIGA, two of the following conditions in your most recent financial year must be met:

  1. your turnover must not be greater than £10.2 million;
  2. your balance sheet total must not be greater than £5.1 million; and
  3. you must not employ more than 50 employees.


If you are a supplier with customers who are at risk of becoming insolvent due to Covid-19, your options for terminating the supply of goods in the event that one of your customers becomes insolvent are now more restricted as a result of CIGA.

We recommend that you review your terms and consider how protected you actually are in the event that one or more of your customers faces difficulty; in these trying times, this is a possibility – so you should be prepared. You may want to consider amending your terms of business in one or more of the following ways:

  1. Adding a clause which allows you to recover goods if your customer is unable to pay for them (known as a retention of title clause). This would of course need to be incorporated in a separate clause from anything insolvency related, which as stated, might be ineffective under CIGA. There is a chance that the courts may find a clause of this kind to be ineffective amidst Covid-19 – therefore we will not actually know the position until the courts have had to consider it.   
  • If you don’t have it already incorporated into your terms, consider making a late payment by a customer an event which allows you to terminate. You may want to interpret this strictly, i.e. following any late payments you may be able to terminate the agreement, or, you may wish to offer your customers a ‘grace’ period of say, 30 days.
  • You may want to state that any future contracts will be for a limited period, after which they will automatically terminate, or must be renewed. You may also wish to consider using framework agreements – this way, each order of goods will be considered to be a separate contract with no on-going obligation to continue providing goods.
  • Furthermore, a provison which allows you to terminate the agreement if there is a change of control of the other party will be permissible. If for example, a customer undergoes a major restructure following Covid-19, and as a result, you lack confidence in their ability to pay going forward, this clause will entitle you to terminate the agreement as a result of this change.
  • If appropriate, you may also want to consider requesting personal guarantees from your customers’ directors before accepting of an order.

In light of the above therefore, are your current terms currently fit for purpose amidst the Covid-19 landscape? Are you sufficiently protected in the event that your customers are no longer able to pay you, or if they can no longer trade due to Covid-19?   

If you think this is the case and if you would like us to review your current terms to ensure they are on your side, contact our Commercial and IP team on 0161 926 9969 or commercial@mlplaw.co.uk to receive expert legal advice for your business.