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Commercial disputes on the rise – what you can do to mitigate risk

09 Dec 2020

One of the many unfortunate business outcomes of the pandemic has been an increase in the number of contractual disputes arising over the last few months.

As the potential impact of the coronavirus outbreak began to become clearer in the first part of the year, many businesses found they had to act extremely quickly just to find a sustainable way forward and took urgent steps that might not have been signed off by all the relevant parties.

What we’re now finding, as some of the dust is beginning to settle, is a growing number of disputes between business decision makers who have differing opinions about what has been done and whether specific decisions should have been taken.

For example, businesses that have taken out loans to cover their costs may not have got the agreement of all the relevant people before doing so, and the impact of the resulting debt on business operations is now causing friction between the different parties.

Operational decisions taken by one director or shareholder without input from the others can also be the source of tension.

This can be particularly common in start-up businesses and in tech-focused firms where different individuals look after the commercial/sales and technological parts of their operations.

Decisions that may have been uncontroversial before the events of this year can be viewed entirely differently in the more challenging economic conditions we now find ourselves in and that is leading to a large number of disagreements.

These sorts of issues can cause real problems for the businesses in question and can indeed threaten their very viability, especially if they’re only just getting off the ground.

If you find yourself in this sort of situation, the most important things to do are gather all the relevant information, rather than leaping to conclusions, and make sure the lines of communication are kept open, so there’s a genuine chance for disputes to be resolved before things get too problematic.

Contracts

It’s essential that you look objectively at the potential impact of the dispute on the fabric of the business.  That impact is wider than the subject matter of the dispute itself and can include increased financial pressure due to costs and some faltering in operations as a result of valuable management time having to be spent resolving a fall out.

What these sorts of disputes really highlight is the importance of getting all the structures that your business needs to run smoothly at the earliest possible opportunity, rather than hoping for the best that difficult issues don’t arise.

Understandably, many businesses see documents such as shareholders’ agreements as a non-essential luxury that can be put off when apportioning the limited funds available at start up or diversification.

Unfortunately, that saving in the early days can end up costing all parties much more in the long run if a dispute does arise and there is no agreed method of resolution.

Getting formal agreements in place from the start on matters like dispute resolution processes, financial management and exit agreements means that everyone has an agreed reference point from which to work and that discussions can then be focussed and time limited so allow everyone to move on quickly.

If, however, you do find yourself in a business dispute of any sort we can assist to resolve that with you as quickly and as simply as possible.

For further information on dispute resolution, please contact Lucy Gray.