Terminating 'Unreasonable' Termination?

In its ministerial statement this week in relation to its consultation on the proposals for a restructuring moratorium, the Government has indicated that it now proposes to consider implementing measures to tackle the unreasonable use of termination clauses in insolvencies.

What are termination clauses?

Termination clauses are, of course, found in most commercial agreements and are a means by which a party may terminate an agreement on the occurrence of certain events (invariably including insolvency of the other party).

Where a company is subject to insolvency proceedings, the triggering of a termination clause by key suppliers can have the effect of preventing a successful restructuring or recovery by disrupting that company's supply chain. This is a vicious circle for businesses that are financially challenged; suppliers withhold delivery when payment has been delayed, but companies need supplies to trade to allow them to then pay for more supplies.

Tackling unreasonable use of termination clauses

The Government's intention to tackle such use of termination clauses should be good news for those businesses faced with insolvency or considering a restructuring plan...