By Andrew Foyle

Arguably, the biggest single challenge currently facing many businesses as work streams dry up is maintaining cashflow.

Undoubtedly, many companies are already scrutinising their contracts in order to find some provision that might either release them from their liabilities or offer grounds for early payment.

Even where there is no such entitlement, many suppliers are finding extended payment terms imposed upon them. Or, with no explanation, businesses are simply not being paid. 

The cancellation of orders is widespread and overlaid upon this is confusion around government help and forbearance schemes that are in place in certain industries.

So, what can a supplier do if they are not being paid? Or, for someone on the other side of the fence, do any contracts really contain a “get-out-of-jail-free card”?

Unfortunately, as things stand (and it’s important to note the situation is fluid), there are no easy answers to the first question. In “normal times” the answer might involve service of statutory demands or raising of court proceedings. 

However, during these extraordinary times, the Scottish Courts are more or less closed to new business. Only urgent matters are being processed. Unpaid invoices may be existential for a business but, unfortunately, are unlikely to be deemed urgent by the courts. 

The Herald:

Andrew Foyle is Joint Head of Litigation at Shoosmiths in Scotland and a solicitor advocate

Even if the courts were functioning normally, the closure of offices makes correspondence difficult. What’s more, social distancing makes it challenging to arrange sheriff officers to serve court documents on parties.

So, what is the answer? First and foremost, dialogue is key. When lockdown finally ends, businesses will need to transact with each other again. A breakdown in trust and confidence during this challenging period may mean an important supplier is lost. 

A business can ill-afford to be perceived as a “bad guy” and being known as a non-payer during this crisis might damage a business in the medium term. 

Consequently, more enlightened debtors will be happy to reach arrangements with suppliers. However, if debtors shun attempts at dialogue, the answer is to act to the limits of what is possible in the current environment.

There are still steps that can be taken by a business owed money, including statutory demands. 

Acting now might put the supplier in pole position once the justice system returns to life. Many suppliers may seek redress for outstanding payment(s) so acting now may help move a claim up the chain when “normal service” resumes

Of course, there is also the other side of the coin to consider. Unsurprisingly, legal queries around so-called Force Majeure clauses in contracts have spiked in recent weeks.

These are contractual terms releasing parties from their obligations in certain circumstances beyond anyone’s control. What constitutes such an event might be set out in the contract or might be left open to the interpretation of the court, depending on how it is written.

Is it a get-out-of-jail-free card? That depends on how favourably drafted the clause is. If performing the contract is simply unprofitable or difficult, this will likely not release a business from its obligations.

Likewise, if the business is now focused on, for example,. manufacturing ventilators for hospitals rather than parts for motor vehicles, that is a business decision and will almost certainly not release the company from any obligation to its suppliers.

Consequently, during these uncertain times, whichever side of the fence a business finds itself, I’d recommend parties take care to ensure a contract states what it should! Moreover, to avoid further reason for unwelcome surprises, caution must also be exercised in correspondence to ensure a business doesn’t accidentally lose or waive its rights.

  • Andrew Foyle is Joint Head of Litigation at Shoosmiths in Scotland and a solicitor advocate

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