What Happens If Your Supplier Goes Bust?

The invoices started arriving earlier than usual. Support got slower. Two of the people you dealt with left within a month. Then an email arrives saying the company has entered an insolvency process.

Most businesses think about supplier failure for the first time on the morning it happens — which is the worst possible moment, because every question that now matters is urgent and several of them had answers you could have arranged months ago.

Will the service continue. What happens to the money already paid. Can you get your data out. Can you terminate. Who owns the work they built for you. How fast could you move.

"Gone bust" covers two very different situations

The first thing to establish is what has actually happened, because the phrase people use covers outcomes that point in opposite directions.

Administration puts an insolvency practitioner in control of the business. It does not mean trading stops. The administrator may keep the company running, restructure it, or sell it or part of it — often because that returns more to creditors than shutting it down. Your service may well continue.

What it does not mean is that your arrangement continues unchanged. An administrator looking at a loss-making contract is under no obligation to feel sentimental about it.

Liquidation generally means the company is being wound up, its assets sold and the proceeds distributed. Unless the business or the contracts transfer to someone else, plan for the service to stop, possibly with very little notice.

So the first question is not "what are our rights" but which process is this, and who is now in charge? Administration appointments are notified to creditors and filed at Companies House. Establish the formal position rather than working from what someone heard.

Find the contract — all of it

This sounds too obvious to list, and it is the step that most often goes wrong.

In a supplier failure, businesses routinely find that nobody can lay hands on the signed agreement. It is in a former employee's inbox, or on a shared drive nobody has opened since the migration, or in a folder with four drafts and no indication which one was executed. Contracts have a habit of leaving with the person who signed them.

You need the executed version and everything attached to it: order forms, amendments, statements of work, schedules, the Data Processing Agreement, the SLA. An original that has been amended twice tells you almost nothing on its own.

What you can do comes from the contract, not from the insolvency

People expect that a supplier going under automatically releases them. Sometimes the contract does say that — insolvency, administration, prolonged service failure and material breach are all common triggers. But the right has to be in there, drafted to cover the process that has actually occurred, and exercised properly.

So read the termination provisions before doing anything, and take advice before serving notice on anything significant. Administration brings a statutory moratorium affecting what can be enforced against the company, and how that interacts with your contractual rights is not something to settle from a blog post.

Worth knowing, because it runs the other way: since 2020, a supplier generally cannot terminate simply because its customer has entered an insolvency process — section 233B of the Insolvency Act 1986. There are exclusions, but the default is that you keep supplying. Most businesses discover this when one of their own customers fails.

What you have at risk

Three things are exposed, in roughly this order of recoverability: your money, your data, your intellectual property. Only one is likely to come back.

Money

A supplier charging £36,000 a year billed monthly is a £3,000 problem if they fail. The same supplier, same price, paid annually in advance and failing in month two, is a £30,000 problem — and you will be joining a queue of unsecured creditors to pursue it.

That is the argument for treating payment terms as commercial rather than administrative. Paying in advance moves risk from the supplier's balance sheet onto yours, which is exactly why a struggling supplier starts offering discounts for annual prepayment. The discount is real. So is the reason it is on the table.

Data

For anything hosted, this is the most urgent item on the list, because the deadline is not yours to set.

Ask the blunt version: if this stopped working tomorrow, could we get our data out? If the answer is anything short of a confident yes, export now — customer records, transactions, invoices, documents, reports, audit history, configuration. The platform is replaceable. What is inside it frequently is not.

Then find out who actually holds it. Your supplier may run on Azure, AWS or Google Cloud, which means the infrastructure can be perfectly healthy while the company controlling the account, the licences and the credentials is not. Whether you have any access that does not depend on the insolvent party is the difference between an inconvenience and a loss.

Intellectual property

Paying for work does not automatically mean owning it. Check what the contract says about IP, source code, deliverables and licences — and for custom software, ask whether you actually hold the code or merely benefit from it. If only the supplier has it and the supplier no longer exists, maintaining what you paid to have built becomes a much harder problem.

Where source-code escrow was agreed, locate the agreement, check the release conditions and confirm deposits are current. Escrow that has not been topped up since 2023 releases a version of the system nobody wants.

Not every supplier deserves the same panic

The largest contract is rarely the largest risk. A £5,000 service can be the one that stops the business. The useful question is not what you spend but what breaks.

	What it means	What to do first
Critical	Operations stop, or stop soon	Export data today, contact alternatives today
Important	Disruption, but workarounds exist	Confirm continuity, scope replacements
Lower impact	Replaceable without much pain	Monitor; revisit when the position is clearer

For anything in the top row, start looking at alternatives — not to switch immediately, but to know what switching involves. Implementation time, migration effort, data formats, integrations, cost. Having that picture before the service stops is most of what determines how bad the stoppage is. Central government keeps standing guidance for departments on supplier financial distress, and contingency planning has a section of its own in it.

If somebody buys them

A business or its assets may be sold out of insolvency, and for customers that produces a wide range of outcomes. A buyer might continue the service as-is, offer entirely new contracts, or take the technology but not the liabilities — keeping the brand while changing the pricing and the service levels.

The product surviving does not mean your terms survived with it. Check which legal entity you are now contracting with, and on what basis. It is the same problem as a supplier being acquired while perfectly solvent, with less time and less leverage.

Signs worth noticing beforehand

Insolvency is rarely a surprise in hindsight. The things people remember afterwards:

• repeated pressure to pay earlier, or unusually generous discounts for paying upfront
• pressure to extend the term, or to move from monthly to annual billing
• service and support quietly deteriorating
• frequent departures, particularly senior ones
• overdue accounts at Companies House, or a worsening credit rating
• subcontractors mentioning unpaid invoices
• unexpected changes to bank details

None proves anything alone, and all have innocent explanations. Several at once, from a supplier you could not easily replace, is worth a credit report and an honest conversation.

The version that works is done at signature

Once a supplier is insolvent, your options are whatever you negotiated while they still wanted your business.

For anything business-critical, ask before signing: can we pay monthly or quarterly rather than a year upfront? What are our rights if they become insolvent or simply stop performing? Can we export our data in a format something else can read? Are they obliged to help us move away — because whether you can actually leave is settled at signature, not when you want to go. Do we have the IP rights to keep operating, and for custom software, the code or a current escrow arrangement?

That is what due diligence before signing is for, scaled to what the supplier's failure would cost you. The output is not a filed questionnaire. It is a payment schedule and a set of termination rights that reflect what you found.

Everything else that determines the outcome is information you either have to hand or spend three days reconstructing: which contracts exist, where the signed versions are, who owns the relationship, what you have paid in advance, which services are critical, what your termination rights say. That is the argument for a contract register that records decisions rather than documents — the supplier name and the expiry date are the least useful things in it.

What to do this week

You do not need to assume anyone is about to fail. Pick the handful of suppliers whose failure would genuinely hurt, and answer five questions for each:

1. What stops working if they cease trading tomorrow?
2. How much have we paid for things not yet received?
3. Could we retrieve our data and anything else we would need?
4. How long would replacing them realistically take?
5. Can we find and understand the contract in under an hour?

Any answer that makes you uncomfortable is the work.

Timemy keeps contracts, key dates, payment terms and supplier records in one place, so the information you need in a supplier crisis is assembled before there is one. See how contract tracking works.

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The short version: establish which insolvency process it is and who is in charge, find the executed contract and everything attached to it, then move on money, data and IP in that order. Your rights come from the contract rather than the insolvency, so read it before acting and take advice on anything significant. And the version that works is agreed at signature — monthly billing, real termination rights, data portability and exit assistance, while the supplier still wants you to sign.

This article is general business information, not legal advice. Insolvency and contractual rights are complex and fact-specific; take professional advice where a supplier enters a formal insolvency process.