As has been widely reported the economy and our businesses are dealing with unprecedented issues due to COVID-19 and the lockdown. All businesses are reviewing their balance sheets and cash flow positions and are subsequently taking action in order to secure its long term sustainability. We have set out below some of the actions taken by our clients whilst working with them.
We have seen that businesses are working creatively with their supply chains to deal with issues arising from pre-agreed contracts. An example of this is where a contractual programme of work has been agreed between the supplier and the client, where the supplier has purchased goods in reliance on the agreed programme of work. These goods cannot be turned into cash as the supplier cannot supply the goods or the associated services due to the lockdown. The goods have been purchased for the benefit of the client and will be used in the future, but as the supplier requires cash to sustain its business, we have seen that customers are willing (cash permitting) to be flexible and in one example purchased the goods from the supplier (to assist with cash flow) where the legal title to the goods transfers to client but the supplier continues to hold the goods in its warehouse until they can be used after the lockdown.
The above example shows how supply chains are helping each other and how business’s assets can be used creatively to assist with cash flow.
Another aspect of the lockdown are the business opportunities that are created. We have seen that businesses with existing supply chains for in-demand goods such as personal protective equipment including face masks are being inundated with orders. We have provided assistance drafting bespoke commercial contracts due to the high value and potential risk of these contracts. Due to the high demand for these goods, there is a big risk for delays and the goods not matching their specification as well as the fact that the manufacturers are in China. A supplier’s standard terms and conditions may not provide the required protection to the supplier, in relation to these potentially high risk orders.
Businesses are also taking this time to change the structure of their business where required, so that they are in the best possible position once the lockdown ends. We have assisted clients with changes to their corporate structure (for example to a more tax efficient structure or a fairer structure between shareholders), buying out existing shareholders and updating both its terms and conditions of business and company shareholders agreement.
If you require any assistance with corporate or commercial matters facing your business please do contact us.