The aftermath of the COVID-19 lockdown will likely see a significant litigation spike, as there will inevitably be disputes about parties’ contractual obligations and who bears the risk of lockdown ramifications.
We have looked back on the COVID-19 lockdown and collated some key learnings for businesses to future-proof their business from the risks of the COVID-19 aftermath.
1. Consider your existing contractual relationships and conduct a risk analysis of how the post-COVID-19 market could affect contractual obligations.
For example, do you foresee delay in obtaining supplies from overseas, which could result in a breach of contractual obligations? Can you get in early to engage with the other party and mitigate any potential fall-out? It is important to take legal advice and undertake a risk analysis to understand your ongoing contractual obligations, how they could be affected and how you can mitigate that risk.
2. The COVID-19 pandemic has highlighted the importance of an effective force majeure clause.
These clauses operate to suspend or excuse non-performance of contractual obligations in circumstances outside both parties’ control. See our previous article on force majeure clauses here. Your existing contracts may not have provided for a COVID-19-type situation but it is worth considering whether contracts could or should include a force majeure clause going forward.
3. Many businesses may find themselves exposed to the insolvency of a key customer.
If your business supplies goods and services on credit terms, leases goods or lends money, you may have a security interest in the goods or money should the customer go insolvent. However, if that security interest is not registered, you may lose out to another secured creditor. It is important to check that any security interests are registered on the Personal Property Securities Register to boost your priority to claim goods or proceeds in the event of insolvency.
4. Check the terms of your key contracts for any notice provisions which may need to be followed to preserve all contractual and legal remedies.
5. If you think your business could face financial difficulty, consider the new business debt hibernation regime (BDH).
This is a new regime introduced by the Government which allows businesses facing liquidity issues to place some of their repayment obligations on hold for a period of up to 7 months. The BDH regime requires the support of creditors and we suggest advice is taken on any BDH proposal. See our previous article on BDH here.
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