Failed Suppliers - aren't they liable in contract for the price fixed and owe compensation?

GingerTim

See for instance EDF’s Ts and Cs at https://www.edfenergy.com/sites/default/files/full_terms_and_conditions.pdf

Section 7 ‘Ending your contract’, point 7.6 ‘We are entitled to end this contract immediately in any of the following circumstances’, including:

(g) We are no longer licensed as an energy supplier or are asked to stop supplying you by Ofgem or another industry regulator.

(i) Ofgem issues a direction to another supplier telling them to take over the supply to your premises, including in circumstances where Ofgem has decided that there has been an event, or a situation has arisen, which means it is allowed to take away our supply licence; and has decided to do so.”

In other words, the contract ends when supplier X fails and Ofgem directs supplier Y to take over, which is what happened during the various SOLR processes. Standard sort of terms in case of company failure.

Phantom151

Oxy1 said:

So thanks to those who replied on topic - that is advised that it is likely that the supply contract contains a clause to the effect that the obligation to honor the contracted price ceases when energy supply license is lost.

Will have to look at the contract in detail as even when such clause exists it might be open to challenge either under common law or unfair terms / consumer protection legislation and the like. After all a term which allows the seller to walk away from contract when price moves in consumer's favour is not a trivial term to be hidden in small print in consumer contracts and is extremely detrimental to consumer. Essentially it is like an insurance that becomes void if insured event occurs!

The seller is not walking away from the contract, they no longer exist as a seller.

doodling

Hi,

The OP has a point.

If I was in the position where I had a debt to a failed supplier then I might consider defending any attempt at recovery using the following arguments:

1. The supplier agreed to provide gas/electricity at a fixed price of x months and has failed to do so, I have therefore suffered a loss of £y which is greater than the amount, £z, I owe. 
2. Whilst the contract might entitle a supplier to terminate the contract on loss of their supply license the supplier has not done so as no notice was provided to the customer (either by the supplier or the administrator).  The contract did not say that termination was automatic.  (This certainly applies to the clause quoted earlier).
3. As this is a consumer contract, a clause permitting termination for events other than force majeure or unreasonable actions by the customer is likely to unenforceable as unfair.  Variation in supply prices is not force majeure because the essence of the contract was to protect against variation in supply prices and consequently the contract was formed in contemplation of such variations occurring.
4. As this is a consumer contract, any clause seeking to protect the supplier from claims in the event of bankruptcy is likely to unenforceable as unfair.  Separately, such a clause may be illegal under laws relating to bankruptcy.
5. The right of set off by a customer is automatic under contract law and does not require explicit acknowledgement in the contract.

Note that those are off the top of my head and I have no idea if any of them is correct - others might wish to comment on whether any of them stand a chance of success.

Of course there are a whole host of practical considerations:

1. If I don't owe them money then suing them myself is pointless as the company is insolvent and even if my claim was successful I wouldn't see anything.
2. If I am in debt to the supplier then will my failure to pay result in the administrator informing credit reference agencies of my failure to pay?  That would be inconvenient.  I would be surprised if an administrator was willing to take on the risk of such an action (as it would be the administrator being sued not the failed company if they got it wrong) but I'm guessing.
3. Edited to add: The (unrecoverable in court for this kind of sum) cost of legal advice is likely to exceed the debt owed so taking legal advice is not economically sensible, unless you can get it for free(!).
4. Edited to add: There is a risk that the case my be considered complex and allocated by the court to a track where you can claim costs of legal advice (yay!) but would also be responsible for the legal costs of the administrator if you lost (not so yay!).
5. Those who owe money to failed suppliers are likely to be those with little money in the first place as suppliers are quite aggressive in encouraging people to maintain a positive balance.  Those with little money are often those who lack the skills knowledge and time to successfully make arguments like those above.  Paying the suppliers court fees if the supplier won in court, and the debt within a month to avoid a permanent record of the CCJ, is also likely to be an expense that they cannot afford.

In summary, if you're rich, bored, don't mind the odd black mark on your credit record (which you might eventually get corrected, possibly after another court case), your brother is a solicitor specialising in contract law and bankruptcy and you don't mind losing at the end of it all then feel free to give it a go.

GunJack

The point that's being missed is that it's not the now-non-existent company that persues for debit balances, it's the Administrator of that failed/wound-up company....there's no way you could sue the Administrator, it wasn't their contract, and you can't sue a non-existent company.

[Deleted User]

doodling said:

Hi,

The OP has a point.

If I was in the position where I had a debt to a failed supplier then I might consider defending any attempt at recovery using the following arguments:

1. The supplier agreed to provide gas/electricity at a fixed price of x months and has failed to do so, I have therefore suffered a loss of £y which is greater than the amount, £z, I owe. 
2. Whilst the contract might entitle a supplier to terminate the contract on loss of their supply license the supplier has not done so as no notice was provided to the customer (either by the supplier or the administrator).  The contract did not say that termination was automatic.  (This certainly applies to the clause quoted earlier).
3. As this is a consumer contract, a clause permitting termination for events other than force majeure or unreasonable actions by the customer is likely to unenforceable as unfair.  Variation in supply prices is not force majeure because the essence of the contract was to protect against variation in supply prices and consequently the contract was formed in contemplation of such variations occurring.
4. As this is a consumer contract, any clause seeking to protect the supplier from claims in the event of bankruptcy is likely to unenforceable as unfair.  Separately, such a clause may be illegal under laws relating to bankruptcy.
5. The right of set off by a customer is automatic under contract law and does not require explicit acknowledgement in the contract.

Note that those are off the top of my head and I have no idea if any of them is correct - others might wish to comment on whether any of them stand a chance of success.

Of course there are a whole host of practical considerations:

1. If I don't owe them money then suing them myself is pointless as the company is insolvent and even if my claim was successful I wouldn't see anything.
2. If I am in debt to the supplier then will my failure to pay result in the administrator informing credit reference agencies of my failure to pay?  That would be inconvenient.  I would be surprised if an administrator was willing to take on the risk of such an action (as it would be the administrator being sued not the failed company if they got it wrong) but I'm guessing.
3. Edited to add: The (unrecoverable in court for this kind of sum) cost of legal advice is likely to exceed the debt owed so taking legal advice is not economically sensible, unless you can get it for free(!).
4. Edited to add: There is a risk that the case my be considered complex and allocated by the court to a track where you can claim costs of legal advice (yay!) but would also be responsible for the legal costs of the administrator if you lost (not so yay!).
5. Those who owe money to failed suppliers are likely to be those with little money in the first place as suppliers are quite aggressive in encouraging people to maintain a positive balance.  Those with little money are often those who lack the skills knowledge and time to successfully make arguments like those above.  Paying the suppliers court fees if the supplier won in court, and the debt within a month to avoid a permanent record of the CCJ, is also likely to be an expense that they cannot afford.

In summary, if you're rich, bored, don't mind the odd black mark on your credit record (which you might eventually get corrected, possibly after another court case), your brother is a solicitor specialising in contract law and bankruptcy and you don't mind losing at the end of it all then feel free to give it a go.

The Administrator of a failed company is legally obliged to recover all monies owed. It also has a legal obligation to repay all creditors based on the total value of the assets in a particular order of priority: that is, secured creditors before unsecured creditors. Once a Supply Licence is revoked, then a supplier is just a failed company and it is treated as such.

MWT

GunJack said:

The point that's being missed is that it's not the now-non-existent company that persues for debit balances, it's the Administrator of that failed/wound-up company....there's no way you could sue the Administrator, it wasn't their contract, and you can't sue a non-existent company.

Not sure you have fully understood the administration process, the company still exists until the end of the administration process at which point it may be liquidated, sold in whole or in part to other entities or in rare cases return to trading.

If it was really 'non-existent' then the debts owed to it could not be pursued...

People do seem to greatly over-estimate the impact of the statement that a company is 'no longer trading' and the subsequent appointment of administrators.

This whole thread is one giant red herring though and amusing for sure, but not to be taken seriously as the disposition of the supply contracts is fully covered under the T&Cs of the supplier, the supply licence and the various parts of statute that cover deemed energy contracts.

   

theoretica

If customers who owed money could get compensation, by withholding the money they owed for energy already used, but customers who were up to date with their bills could not, because there was no money to pay out, then it would seem to be to be treating different customers very unequally.  I hope that this loophole doesn't exist.

MWT

theoretica said:

 I hope that this loophole doesn't exist.

It doesn't.

GunJack

MWT said:

GunJack said:

The point that's being missed is that it's not the now-non-existent company that persues for debit balances, it's the Administrator of that failed/wound-up company....there's no way you could sue the Administrator, it wasn't their contract, and you can't sue a non-existent company.

Not sure you have fully understood the administration process, the company still exists until the end of the administration process at which point it may be liquidated, sold in whole or in part to other entities or in rare cases return to trading.

If it was really 'non-existent' then the debts owed to it could not be pursued...

People do seem to greatly over-estimate the impact of the statement that a company is 'no longer trading' and the subsequent appointment of administrators.

This whole thread is one giant red herring though and amusing for sure, but not to be taken seriously as the disposition of the supply contracts is fully covered under the T&Cs of the supplier, the supply licence and the various parts of statute that cover deemed energy contracts.

   

I was just trying to put it in terms the OP might understand

Oxy1

theoretica said:

If customers who owed money could get compensation, by withholding the money they owed for energy already used, but customers who were up to date with their bills could not, because there was no money to pay out, then it would seem to be to be treating different customers very unequally.  I hope that this loophole doesn't exist.

It is not a loophole and it does exist!

There are two separate issues:
1. Entitlement to compensation (damages)  in principle. 
2. Ability too get money from a failed supplier provided 1 is satisfied. 

Point 1. was very competently addressed by https://forums.moneysavingexpert.com/discussion/comment/78980544/#Comment_78980544 .

As far as point 2 is concerned than yes, IF you are entitled for some compensation for whatever reason from a failed company then:
1. If you also owe them money, for example for goods they supplied, than you have an excellent chance of getting those money that are owed to you by means of offsetting the amount owed to you against the amount you owe them.
2. If you are in credit with them then your chances of getting compensation (other than transfer of standard credit balances under SoLR process) are much worse, in many cases non-existent as you would be just an unsecured creditor in their liquidation proceedings. You still might get some fraction of what is due to you in some cases but in most you will not get anything.