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It is possible that this could result in businesses failing – retailer and household brand Laura Ashley has announced that it is seeking to appoint administrators after rescue talks were thwarted by the COVID-19 outbreak.
When a business fails, the impact of that failure inevitably ripples through a supply chain, often affecting a number of associated companies, partnerships and sole traders.
In order to put your business in the best possible position upon a failure in your supply chain, ensure your terms are favourably drafted, for example allowing you to collect your administrative costs of any recovery action if a customer is delayed in making their payments.
Consider whether the contracts with suppliers will allow you to seek alternative supplies in the event of supplier disruption or failure.
If your business customers want extensions of credit lines, consider measures you might want to take such as obtaining security or a personal guarantee.
Check the position in connection with any retention of title clauses allowing you to collect goods supplied but not paid for. Such provisions can be very effective and enforceable against liquidators and administrators. However, how your customers actually treat and store those goods can have a significant impact on your ability to rely on such provisions.
Well drafted and enforced terms can be helpful to businesses in these challenging times. For a review of your terms and practical advice about how best to put your business in the best position in the event of the insolvency of a customer or supplier, contact Alan Bennett, Amy Gallimore or Katie Farmer of our Restructuring Team.