We are currently living through a defining time in history with the COVID-19 pandemic. But history does often repeat itself, many times with a new twist, and we should take this opportunity to learn and grow from the difficulties we are experiencing. There has been an unforeseen supply chain disruption due to the shutdown of nearly all businesses, along with directives to stay at home.
Compared to any other crisis in history, the coronavirus pandemic has had a more significant effect on the world. Therefore, this situation warrants a different response. Supply chain professionals who are responsible for internal workflows and external networks must understand not only what will occur during this pandemic, but also how the actions we take right now will impact the future.
Measures to Prevent, Manage and Control Disputes
When businesses ultimately resume normal operations, companies will require an array of dispute resolution mechanisms. To meet this need, Alternative dispute resolution (ADR) experts offer various mechanisms, such as arbitration (a neutral party issue a binding resolution) and mediation (a neutral third-party helps the disputing parties to arrive at a decision, and the parties retain ultimate control of the decision).
A wide array of dispute management mechanisms can be considered to address broken or challenged supply chain relationships and develop a robust buyer-supplier network. It is best to adopt a comprehensive and practical solution for long-term business survival, where possible.
Other mechanisms for dispute resolution include early-stage mediation. The process of mediation encourages individuals and enterprises to seek dispute resolution quickly and discreetly with the assistance of a neutral party.
Ways Companies can Minimize Business Risk
Review your contractual obligations
During the ongoing COVID-19 crisis, many companies have been revaluating their contracts to understand whether they have force majeure clauses, what those clauses involve, and how they could impact the business. Companies are also assessing whether other provisions could allow parties to suspend or excuse performance in the present situation.
Also, businesses should evaluate contract language on material adverse events or changes, the difference between defaults and circumstances of default, service levels or threshold amounts, and precursors for termination rights.
This crisis has led many counterparties to make concessions, and discussions with business partners usually yield the most effective solutions. But when involved in these negotiations, remember to preserve your common law and contractual rights as well as document the particular facts that are impacting you and bring about a change in performance.
For instance, what are the primary reasons for disruptions in your supply chain? Is it due to a government-ordered shutdown, the inability of another counterparty to uphold its obligations or an increase in pricing?
The nuances can be essential to avoid disputes in the future that may occur after the dust settles. Additionally, when considering that the coronavirus crisis has occurred, it may be hard to argue for more changes or accommodations, as the pandemic is no longer an unprecedented event.
Assess your Financing Documents for Cross Defaults
In present circumstances, borrowers and lenders should evaluate all credit and debt agreements, not merely those that seem to be at risk of default at first glance. The borrower’s exposure can be increased significantly through cross-default clauses being triggered by a breach of contract or an obligation to pay.
The issue of cross-defaults can be particularly worrisome for companies that have complex capital structures. It is vital to identify the issues at the earliest and take steps to reduce or remedy defaults to avoid severe consequences.
Evaluate all Relief Options
It can take months, or even years, to obtain a court judgment from a contract dispute arising out of the coronavirus pandemic. Therefore, as always, first understand whether negotiating a resolution can offer longevity and preserve clients and counterparty relationships. Besides, evaluate all other possibilities for relief.
Assess what funding programs your company may be eligible to apply for. It is not only vital to apply for relief as you may be entitled to useful benefits, but it is also crucial to show efforts towards mitigating damages occurring due to the breach of an obligation by a counterparty.
Further, review all your insurance plans and consult your attorney, not only your broker, to assess your insurance coverage. The “fine print” of insurance plans often contains significant hidden details. Today, many new concepts emerging regarding the available insurance coverage under present circumstances.
Facing Supply Chain Disruptions? Consult an Experienced Attorney Today
If you are a business owner who is facing supply chain problems due to disruptions caused by the COVID-19 pandemic, consult a skilled corporate attorney at Davis, Bingham, Hudson, Buckner, P.C. today. Our lawyers will thoroughly assess your supplier agreements and insurance policies and guide you on the most effective measures to minimize your losses. For a detailed consultation, call (334) 821-1908 today.