When Your Customer Goes Insolvent

07 November 2025

What UK Suppliers Need to Know About CIGA

If one of your customers enters administration or another insolvency procedure, you might assume you can stop supplying them. However, the Corporate Insolvency and Governance Act 2020 (CIGA) may require you to continue.

This legislation introduced significant changes to how suppliers must deal with insolvent customers, and many businesses remain unaware of their obligations.

The Corporate Insolvency and Governance Act 2020

CIGA came into force on 26 June 2020 and introduced permanent changes to UK insolvency law. The Act was designed to assist the rescue of struggling businesses by limiting suppliers’ rights to terminate supply contracts.

Subject to certain exceptions, when a customer enters into an insolvency procedure such as administration:

• A supplier’s right to terminate is suspended – Contractual termination rights triggered by insolvency events become inoperable
• Suppliers cannot make further supplies conditional on the payment of existing debts – You must continue supplying on the original contract terms, regardless of outstanding pre-insolvency arrears

These restrictions apply to both goods and services contracts.

Why This Matters

When companies enter insolvency procedures, suppliers have traditionally stopped or threatened to stop supply, often using this leverage to require payment of all arrears as the price for continued supply, or to change terms such as increasing prices.

CIGA prevents suppliers from taking these actions. The prohibition extends not only to termination of contracts, but also to stopping supply or “doing any other thing” (such as amending payment terms) triggered by the insolvency event.

What Insolvency Procedures Are Covered?

A “relevant insolvency procedure” under CIGA includes:

• Moratorium
• Administration
• Administrative receivership
• Company voluntary arrangement
• Liquidation
• Provisional liquidation
• Restructuring plan

When Suppliers Can Still Terminate

Whilst CIGA restricts termination rights, suppliers are not completely without options. You may still terminate if:

Non-insolvency grounds arise after the insolvency event – For example, non-payment for supplies made during the insolvency period, or breach of contract (provided these grounds didn’t arise pre-insolvency)

With consent – Either from the company (where it has entered a moratorium, voluntary arrangement or restructuring plan) or the office-holder/insolvency practitioner (in any other relevant procedure)

Hardship – A supplier who can prove that continuation of the contract would cause hardship to their business may petition the court for permission to terminate. Government guidance suggests “hardship” could mean situations where the supplier’s own solvency is threatened, although the term is not defined in the Act and the courts will ultimately interpret this

Excluded Contracts

CIGA includes certain exclusions set out in Schedule 4ZZA of the Insolvency Act 1986. Financial services contracts are carved out, meaning that insolvency events of default in finance documents are not impacted.

Protecting Your Business

Given the shift in risk to suppliers under CIGA, businesses should consider:

• Enhanced financial due diligence on customers prior to entering supply agreements
• Monitoring customers’ financial situations and, where appropriate, including information rights or obligations on customers to provide financial information
• Reviewing contract terms to understand your position and incorporate protective provisions where legally permissible
• Early termination provisions – Some suppliers now include termination rights that capture circumstances where insolvency might reasonably be expected to occur, enabling termination prior to the insolvency event and before CIGA provisions apply
• Team training on recognising early warning signs of customer financial distress

The Importance of Contract Terms

Following CIGA, many businesses continue to include insolvency termination clauses in their supply agreements. This is because, in certain cases (such as where the supplier suffers hardship or permission is granted), termination may still be available, and failing to include such provisions would remove that right entirely.

However, if you attempt to rely on an insolvency termination clause when it has been rendered ineffective by CIGA, and subsequently cease to perform your contractual obligations, you could face a claim for wrongful termination and potential exposure to damages.

Taking Action

CIGA represents a permanent change to UK insolvency law, making the regime more “debtor friendly” than the traditionally “creditor friendly” approach. These provisions are designed to maximise opportunities for business rescue by ensuring continuity of supply.

For suppliers, this means taking a proactive approach to contract management, customer monitoring, and understanding your rights and obligations under the new regime.

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How Radius Law Can Help

Radius Law offers a comprehensive fixed-fee package to help suppliers navigate CIGA requirements:

£4,950 + VAT including:

• Review and revision of sales contract terms with protective provisions*
• CIGA video team training
• Best practice contract management guide

*Contract review for one contract only. The review is for CIGA protection and not a general review of all provisions.

Contact Iain Larkins, Director
Phone: +44 (0) 203 951 7401
Email: iain.larkins@radiuslaw.co.uk

Download the brochure

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Iain Larkins