Agency Goes Bust
When a major agency goes bust, it usually badly affects contractors.
They tend to hang on when agencies come up with excuse after excuse for why they haven’t paid the contractor.
As soon as the agency, as regards the payment schedule, breaks teh contract, contractors should act right away. Otherwise they risk losing even more money.
Agencies in Receivership
When an agency goes into receivership theyare no longer required to pay the invoices that it has received from contractors.
If it has received money from clients for the contractors’ work, but not yet paid out the contractors, then they are not obliged to do so.
The contractors become just creditors when an agency goes bust, like the banks, the Inland Revenue and others. They may receive a small payment of a few pence in the pound, probably a few years down the line. However, the receivers fees generally take most of what is left in the company. That’s even after thye have sold any useful items.
The banks may have put a deal in place to be primary creditors anyway.
Contractors’ Contracts Valuable
One of the most financially useful items when an agency goes bust is the contracts that they own with contractors and with clients.
The administrator or liquidator is likely to sell these on elsewhere for a knockdown price.
The contractor may have an advantage here.
If the agency breaks the contract with a contractor, i.e. by not paying him or her for work done, then the contractor can then break his, or her, contract with the agency. They can either go direct to the client or negotiate a good deal with another agency to take over the contract.
They may have to forego any monies that are owed to them. This may be a temporary major disadvantage, but in the long run it may prove beneficial.
I remember reading somewhere, that according to Agency regulation rules, agencies must pay up within 30 days of receiving an invoice, otherwise they are breaking the contract.
If they haven’t paid within this time, the contractor has a choice of terminating the contract or of waiting to see what the deal is with the new buyers of the contract.
Most contractors usually just sit back and wait to see what happens to them.
The other option is for the contractor to phone up the receivers, They can ask to buy out his or her contract.
It shouldn’t cost a fortune. That’s especially if the terms of the contract have been broken anyway.
This way, the contractor will own the full contract and be able to get the agency’s commission as well.
What the liquidators will try and do is sell on the contracts to another agency when an agency goes bust.
The agency would have no need to pay the previous debts owed by the contracts. For example if the previous agency had received money for the contractor’s work but not paid out on the invoice.
It would be purely up to the buying agency whether they paid out or not.
Agency Breaks Contract
There is another danger for contractors in that although the agency has broken the contract with the contractor by not paying his or her invoice, they haven’t broken the contract with the client. That’s becasue the contractor keeps turning up to work every day.
Therefore, the client is compelled to pay the liquidator for any further work that the contractor has done since the last invoice.
The contractor needs to talk to the client about this.
One way for the contractor to break this, is to arrange with the client that he or she doesn’t turn up for work for a day, when there is nothing wrong with them. This terminates the terms of the contract.
By far the best, and least messy way to proceed, though, when an agency goes bust, is for the contractor to get in touch with the liquidator and offer to buy out the contract at a knockdown price.
What the liquidators and the banks want is to offload as much as they can, as quickly as they can. They’ll take whatever price can be got for it.
If you play your cards right, it might be the best thing that ever happened to you.
See Confessions of an Agent for more insights into how agencies operate.
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