Supplier failure

What happens if my development agency goes bust mid-project?

Last updated 9 October 2026

Most of what is written about this is either reassuring and wrong, or cites a statutory protection that runs in exactly the opposite direction to what you need. Here is the actual position, in the order it will matter to you.

First: how likely, and which procedure

In the twelve months to August 2026 there were 50.1 company insolvencies per 10,000 companies in England and Wales — about one in two hundred. That is down from 52.5 the year before and far below the 113.1 peak of 2008-09.

Liquidation is overwhelmingly the common case, and it is the worst one for a customer mid-project. Check which it is before doing anything else: the appointment is filed at Companies House and published in the Gazette.

Where you sit in the queue

You are an ordinary unsecured trade creditor. That is the last tier before shareholders. The statutory order, which is worth seeing in full because it explains the outcome:

1. Fixed charge holders, out of the assets charged
2. The expenses of the insolvency itself
3. Employees — wages for up to four months before the relevant date, and holiday pay
4. HMRC, for VAT and certain deductions, since 1 December 2020
5. The “prescribed part” carved out of floating-charge property for unsecured creditors — 50% of the first £10,000 of net property plus 20% above that, capped at £800,000 for floating charges created on or after 6 April 2020
6. Floating charge holders
7. Ordinary unsecured creditors — this is you, ranking equally with every other one and abating in equal proportions if there is not enough

One honest note. You will read that unsecured creditors typically recover “pennies in the pound”. There is no official UK statistic for that and I am not going to invent one. What you can do is specific and better: read the office-holder’s progress reports filed at Companies House for that company, which state what, if anything, is being paid.

And the liquidator can simply walk away

Your half-finished build is precisely the kind of unprofitable contract this is for. If it is disclaimed, your remedy is to become a bigger unsecured creditor, which is not the same as being paid.

There is one lever: an interested person can require the liquidator in writing to decide whether to disclaim, and if 28 days pass with no notice of disclaimer, the power is lost. If you need certainty in order to plan, that letter is how you force the question.

Note that this is a liquidation power. There is no equivalent in administration.

The protection everyone cites, and why it does not help you

Search this topic and you will be told that insolvency legislation stops suppliers terminating when a company becomes insolvent. That is true, and it runs the other way.

Section 233B of the Insolvency Act applies to contracts for supplies made to the company that has entered the insolvency procedure, and it restricts that company’s suppliers. If your development agency goes into administration or liquidation, the provision protects the agency — its hosting provider, its SaaS tools, its subcontractors cannot walk away or demand arrears as the price of carrying on. It gives you, the customer, nothing at all.

Where it does matter to you is the mirror image: if your company enters one of those procedures, your agency cannot terminate the development contract merely because of it, and cannot make payment of your arrears a condition of continuing.

Who owns the code, at the worst possible moment

This is where supplier insolvency turns from a bad debt into an existential problem, and it is decided by something you either did or did not do at the start.

Under the Copyright, Designs and Patents Act 1988, the author of a work is its first owner, and where a work is made by an employee in the course of employment, the employer owns it. Source code is a literary work. So the code your agency’s staff wrote belongs to the agency — not to you, however many invoices you paid.

Transferring it requires more than payment: an assignment of copyright “is not effective unless it is in writing signed by or on behalf of the assignor”. No signed assignment, no ownership. At best you have an implied licence of uncertain scope, and uncertain scope is a terrible thing to be holding when the counterparty no longer exists to argue with.

Two consequences:

• The copyright is an asset of the estate. The office-holder realises it like any other, and can sell it — to a trade buyer, a competitor, or the former directors through a pre-pack. You can end up needing to buy a licence to your own product.
• The subcontractor chain. The employment rule covers employees. If the agency used freelancers and never papered the assignments, it never owned that code either — so it could not have assigned it to you. Insolvency does not cause that defect; it just exposes it.

What about escrow?

Source code escrow holds the source with a neutral third party, released on defined events — typically the owner’s insolvency or material default. It is a real answer to this problem and more commonly agreed for bespoke work than for licensed products.

Nobody publishes how often release conditions actually get triggered, and the figures that circulate trace back to a supplier’s own press comment from 2009 with the underlying count withheld. So treat the arrangement itself as the thing to check, not the statistics.

And the useful question is not “do we have escrow?” It is when was the deposit last compiled from scratch by somebody other than the supplier? A deposit that has never been verified is a filing cabinet, not a safety net.

The order to do things in

1. Establish which procedure it is, from Companies House and the Gazette, and get the office-holder’s contact details.
2. Secure what you control already — domains, hosting, cloud accounts, app store listings, repositories. Ownership of the accounts is a separate question from ownership of the code, and it is the one you can still act on.
3. Find out whether you have a signed assignment. This determines everything that follows.
4. Trigger escrow if you have it, and have the deposit verified immediately.
5. Submit your proof of debt, and consider the 28-day letter if you need a decision on disclaimer in order to plan.
6. Only then think about the lawyer. The first four steps are time-critical; the legal position is not going to improve or decay in a fortnight.

Sources. Procedures: Insolvency Service, Options when a company is insolvent, GOV.UK. Statistics: Company insolvencies, August 2026, Insolvency Service, published 18 September 2026, seasonally adjusted. Priority: Insolvency Act 1986 sections 175 and 176A and Schedule 6; the prescribed part calculation from SI 2003/2097 as amended by SI 2020/211, in force 6 April 2020; pari passu ranking from rule 14.12 of the Insolvency (England and Wales) Rules 2016. Disclaimer: Insolvency Act 1986, section 178. Supplier termination: section 233B, inserted by the Corporate Insolvency and Governance Act 2020, in force 26 June 2020, and Schedule 4ZZA. Copyright: Copyright, Designs and Patents Act 1988, sections 11 and 90(3). All retrieved 9 October 2026. No official UK figure for unsecured creditor recovery rates was found, and none is given here. This is a description of published material, not legal advice — if your supplier has failed, take advice on your specific contract.