Getting paid when the client has gone into administration
Early in February IT service provider 2e2 announced that it had gone into administration. The joint administrators stated that there was literally no cash left in the company. As a result they asked the company’s Data Centre customers to contribute a total of almost £1 million to keep the Centre operational long enough to enable these customers to retrieve their own business data. For contractors who had been working for 2e2 the single burning question in all this was ‘Will I get paid?’ Unfortunately, the answer isn’t straightforward.
Factors which affect whether you get paid
If you find yourself in a similar situation with a client the outcome will depend on two main points: firstly, whether you have a direct or agency relationship with your client and secondly, the wording and clauses of the contract. The exact details of these will determine whether you get paid for work done and if so how much.
If you worked for the company via an agency and didn’t opt out of the Agency Conduct Regulations you have a right to payment even if the client does not pay the agency. If your agency contract contains a clause saying they will not pay in this case, the fact that you didn’t opt out overrides this and you should still be paid.
If you opted out of the Regulations with your agency then take a look at the agency contract wording. If there is no clause stating they will only pay you when the client pays them, you should still get paid. If there is a clause to this effect then payment is less likely, but check with the agency as some have insurance to cover this.
If your contract is directly with the company you will become a creditor and will have to accept whatever pay out the administrators decide. The decision could be to pay all of the debt, just a few pence in each pound, or possibly nothing at all.
If you have taken out bad debt protection insurance then inform your provider of the situation as soon as possible. Payment will depend on the exact agreement you have with your insurance provider.
Review all your contracts
It is impossible to predict every eventuality, particularly in a volatile economic climate. However, it is worth having all your direct client and agency contracts professionally reviewed by your contractor accountant to make sure you are clear on where you would stand if the worst case scenario happened.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.