What are the contractual issues that businesses need to think about as they get back to business following lockdown?

Damien Charlton, Julie Huntingdon and Chris Hugill look at the SRA Standards and Regulations (STaRS) for solicitors which came into effect late 2019, and represented a whole new regulatory landscape for the legal profession. The enhanced reporting and transparency obligations have an important impact on in-house practice, so this webinar gives you the opportunity to reflect on how the new rules impact on in-house lawyers, in both your professional and personal lives.

This webinar is part of a series designed for in-house lawyers. If you would like to register to receive invitations to future events for in-house legal counsel, please email damien.charlton@wardhadaway.com.

You will need to check the terms of the contract you have with the debtor to make sure you are still entitled to be paid (including checking any force majeure clause).

It is also important to remember that the current exceptional circumstances might also affect your contractual rights in other ways too – please see our commercial & contracts site for more information.

Depending on the type of debt you are owed, there might be some additional restrictions in place that you will need to consider. For example there are certain restrictions on landlords being able to forfeit leases, evict tenants or send High Court Enforcement Officers to collect outstanding rent.

Assuming there are no sector-specific restrictions in place then you should be able to start county or high court proceedings to recover the debt.

As an alternative to starting court proceedings, if the debt is undisputed a creditor can usually opt to issue winding up proceedings against a debtor instead. However, the recently introduced Corporate Insolvency and Governance Act introduces a temporary suspension on the ability of creditors to present winding up petitions to recover money unless the reason why the debtor cannot pay is not related to covid-19. For more information click here.

Often taking firm action is the right thing to do, particularly given that it is a sad reality that it is the creditor who shouts the loudest that will often get paid first. However, one important consideration is the commercial reality that many businesses (and indeed individuals) now find themselves in.

Whether taking legal action is likely to result in payment is always a question any creditor should ask themselves. Some creditors might also want to try to support their customers during these difficult times and/or have concerns about their long term reputation if they pursue the debt too aggressively. However, even if that is the case it is still possible to engage constructively and positively with those who owe you money to try to reach the best possible outcome. This could include:

• Having clear and consistent credit control processes in place
• Obtaining statements of means to help understand what a debtor can afford to pay
• Agreeing realistic payment plans
• Negotiating formal payment holidays
• Putting in place voluntary security to secure the debt
• Identifying those debtors who can’t pay as opposed to won’t pay and targeting resources accordingly
• Looking at what other options might be available, including recovering under parent company guarantees

• Yes, if contributions to a defined contribution (“DC”) scheme exceed statutory minimum for auto-enrolment purposes, it may be possible to reduce employer contributions to the statutory minimum, but not further.
• However, the processes required for reduction of DC employer contributions will necessitate obtaining legal advice:
  • Reducing employer contributions may require changes to the employment contracts of affected staff (as does the furlough process).
  • Reducing employer contributions may also require negotiation with trade unions or other staff representative forums.
  • Where group personal pensions are used, the contractual format may not permit changes of employer contributions, and hence it may also be necessary to enter into a new contractual arrangement. Choosing a new group personal pension plan is a not insignificant task in itself.
  • Employers with at least 50 employees are required to conduct a 60-day consultation process with affected employees if they propose to reduce employer contributions (but please see below).
  • Finally, it may require a change to the scheme rules and engagement with the scheme trustees if the scheme is operated under trust.
• For DB schemes, specific considerations apply (see the last section, below).

The Cabinet Office has published a helpful Procurement Policy Note (“PPN”) on relief available to suppliers due to Covid-19 (available here). This can include making advance payments to suppliers, if necessary. The PPN sets out actions that public sector bodies should take (until at least 30 June 2020) to ensure continuity of service and to ensure that its suppliers can resume normal contract activity once able to.

The actions public sector bodies should be taking include:

• Informing its suppliers (that they believe are at risk) that they will continue to be paid as normal until the end of June 2020 (even if service delivery is currently interrupted). Risk might include supply chains collapsing and/or significant financial implications for a supplier
• If a contract involves a payment by results mechanism, basing payments on previous months (e.g. the average monthly payment over the previous 3 months), and
• Ensuring that invoices submitted by suppliers are paid immediately to maintain cash flow in the supply chain and help to protect jobs.

If you are a supplier to a public sector body, you must act transparently and on an open-book basis, making cost data available to your public sector clients. You must also continue to pay your employees and subcontractors / suppliers. Suppliers to the public sector must not expect to make profits on any undelivered elements of a contract. The PPN makes clear that, should suppliers be found to be taking undue advantage, or failing to act transparently, a public sector body can take action to recover payments made to that supplier.

The PPN requires public sector bodies to urgently review their contract portfolios and take steps to support suppliers who they believe are “at risk”. However, no definition of “at risk” is given in the document.  We would suggest that if you are a supplier and you have yet to hear from a public sector client, you should seek to get in touch with them as soon as possible, particularly if you have concerns about your supply chain, staff retention and/or are experiencing financial difficulties currently. Given the requirement for transparency, you may be required to provide evidence, so it may be helpful to have any relevant documentation ready to send, if necessary, as this may help ensure a decision is made by the public sector client more promptly, particularly as the public sector body may have a number of contracts to consider.