Utility firm Extra Energy - which supplies electricity and gas to 108,000 households UK-wide - has ceased trading, Ofcom has said.
The firm is the second largest energy company to go out of business after GB Energy two years ago.
The collapse comes as it was announced that new energy suppliers may have to pass financial and customer service tests in order to obtain a licence under Ofgem regulations.
Companies would have to demonstrate they have adequate financial resources and can meet their customer service obligations before being awarded a licence to supply energy under the new rules.
Consumer groups welcomed the new proposals. Alex Neill, Which? managing director of home products and services, said: “Measures to ensure suppliers are fit to enter the market and provide good levels of customer service are a positive step. Customers deserve to get an excellent quality of service and more must be done to encourage improved standards across the board.
The regulator said customers of the defunct supplier, which also had 21,000 business clients, would be transferred to a new operator.
Ofgem said that customers's energy supplies would not face interruption.
Philippa Pickford, interim director for future retail markets at the watchdog, said: “If you are an Extra Energy customer, under our safety net, we will make sure your energy supplies are secure. We will also ensure that domestic customers’ credit balances are protected.”
Customers were advised not to switch to a new supplier, which Ofgem said would be done for them.
Rik Smith, uSwitch.com energy expert, said: “On the day that Ofgem has announced its supplier licensing reforms to protect customers from financially unsustainable energy companies,
Extra Energy has become the seventh supplier to cease trading since 2016. At this point, the price which former customers of Extra Energy pay may change, but they will be free to switch away to another supplier if they wish.”
The firm, which was founded in 2014, is based in Birmingham. It was once claimed to be the fastest growing energy supplier in the country.
The company was plagued with complaints about its customer service. In the first three months of 2016, Citizens Advice said its 1,682 complaints per 100,000 customers was the highest complaints ratio ever recorded.
Peter Earl, head of energy at comparethemarket.com, said: “It’s pretty shocking that a company of Extra Energy’s size and scale could collapse so suddenly. It is great that Ofgem is taking swift action to protect those customers impacted, but it is vital that it starts testing existing energy companies on the viability, and sustainability, of their business as soon as possible and ideally any new ones before they enter the market.
"It may be that some of the smaller ‘challenger’ energy providers are taking on too many customers on loss leading fixed tariffs and then are not able to cope with changes in the wholesale price of gas and electricity and the subsequent loss of customers once they are out of their fixed tariff period."