Termination clauses in supply contracts

15Temporary exclusion for small suppliers: Great Britain

1

Section 233B of the Insolvency Act 1986 does not apply in relation to a contract for the supply of goods or services to a company where—

a

the company becomes subject to a relevant insolvency procedure during the relevant period, and

b

the supplier is a small entity at the time the company becomes subject to the procedure.

2

In subsection (1)(a) “relevant period” means the period which—

a

begins with the day on which this section comes into force, and

b

ends with F130 June 2021.

3

For the purposes of subsection (1)(b), whether the supplier is a “small entity” at the time the company becomes subject to a relevant insolvency procedure (the “ relevant time ”) is to be determined under subsections (4) to (10).

4

Where the supplier is not in its first financial year at the relevant time, the supplier is a small entity at the relevant time if at least two of the following conditions were met in relation to its most recent financial year—

  • Condition 1: the supplier's turnover was not more than £10.2 million;

  • Condition 2: the supplier's balance sheet total was not more than £5.1 million;

  • Condition 3: the number of the supplier's employees was not more than 50.

5

For the purposes of Condition 1 in subsection (4), if the supplier's most recent financial year was not 12 months, the maximum figure for turnover must be proportionately adjusted.

6

For the purposes of Condition 2 in subsection (4), the supplier's balance sheet total means the aggregate of the amounts shown as assets in the supplier's balance sheet.

7

For the purposes of Condition 3 in subsection (4), the number of the supplier's employees means the average number of persons employed by the supplier in its most recent financial year, determined as follows—

a

find for each month in that financial year the number of persons employed under contracts of service by the supplier in that month (whether throughout the month or not),

b

add together the monthly totals, and

c

divide by the number of months in the financial year.

8

In subsections (4) to (7) the supplier's “most recent financial year” is the financial year of the supplier which, at the relevant time, has ended most recently.

9

Where the supplier is in its first financial year at the relevant time, the supplier is a small entity at the relevant time if at least two of the following conditions are met—

  • Condition 1: the supplier's average turnover for each complete month in the supplier's first financial year is not more than £850,000;

  • Condition 2: the aggregate of amounts which would be shown in a balance sheet of the supplier drawn up at the relevant time is not more than £5.1 million;

  • Condition 3: the average number of persons employed by the supplier in the supplier's first financial year (determined as specified in subsection (7)) is not more than 50.

10

In this section—

  • “entity” means—

    1. a

      a company,

    2. b

      a limited liability partnership,

    3. c

      any other association or body of persons, whether or not incorporated, and

    4. d

      an individual carrying on a trade or business;

  • “relevant insolvency procedure” has the same meaning as in section 233B of the Insolvency Act 1986.

11

This section has effect as if it were included in Part 6 of the Insolvency Act 1986.