Our German Desk
We have prepared the following tips for businesses to guide them through the current circumstances. Urgent advice should be sought where cash flow problems are arising, or where contractual obligations may not be able to be met. The best protection is preparation.
Talk to the people you deal with
Check in with the people you do business with regularly. This will include:
- Suppliers, to foreshadow any issues with supply.
- Customers to identify any issues that may arise with existing or future obligations and upcoming payments.
- Banks, to understand your options if you are encountering difficulties with repayment of debt.
Be flexible and innovative
Many businesses may be understanding and accommodate changes to contractual arrangements, including payment options or levels of supply, if they have time to plan for these changes. It is better to start this conversation as soon as possible. Flexible amendments now may avoid or minimise the risk of businesses having to rely on strict contractual rights later on.
Review your contracts
Check to make sure your contractual arrangements are clear and that you understand them. Be aware of what contracts could be enforced against you, or what grounds there might be for terminating contractual arrangements. For example, do your contracts have a force majeure clause? What are the grounds for terminating the contracts?
You should seek advice before relying on force majeure or terminating any contractual arrangements, or if a counter-party seeks to rely on force majeure or terminates arrangements it has with you.
Security
Check your security arrangements to ensure that you have adequate protection in the case of creditor insolvency. Make sure that guarantees have been properly executed, and financing statements have been properly registered on the PPSR.
Business insolvency
If you have concerns about your own solvency, or the solvency of a party you are dealing with, there are a number of issues to consider:
- Insolvency may be an event of default under a contract, justifying termination of the contract;
- Directors need to be aware of their specific duties once it becomes apparent a business may be facing insolvency. These obligations have come into focus particularly in the construction industry. For example, a director must ensure the companies’ activities do not create a substantial risk of loss to the company’s creditors, and that directors reasonably believe they will be able to perform obligations when they are agreed to.
- In some situations, companies may need to consider formal measures such as voluntary administration or creditor compromises. These processes need to be carefully managed.
- There are a range of enforcement options available to companies to recover debts due. These should be carefully considered before being exercised.
If you have any questions about contractual rights, issues with parties you have contracts with, or your or your counterparties’ solvency, please get in touch with our insolvency/restructuring team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
