Stable Agreements In Unstable Times

In the current climate of economic uncertainty, businesses need to consider the risks they face in dealing with other parties. Whether you are a customer or a supplier, there is a risk of business interruption or an inability to collect funds or goods owed if a counterparty is in financial stress. This paper outlines some of the matters that businesses should consider when contracting with third parties.

Right to terminate on insolvency

It is important to ensure that any agreements you enter into contain an appropriate right to terminate for insolvency. What is "appropriate" will depend on the circumstances.

The definition of "insolvency" should be sufficiently broad to enable you to terminate the agreement as soon as an event occurs that could lead to the counterparty actually becoming insolvent. The earlier you are able to terminate an agreement entered into with a distressed company, the greater your ability to reduce the risk of exposure.