Bitesize Brexit 2.0. Tips on what to do now: termination

The COVID-19 pandemic together with Brexit have meant many commercial relationships have had to stop or risk having to do so in the future. Are you ready to deal with what happens if any of your key contracts terminate?

No contract is 100% ‘Brexit-proof’. The current uncertainty about whether there will or won’t be a trade deal with the EU makes it unclear what contracts will be profitable and which won’t in 2021. For many businesses, some of their contractual relationships may well become untenable in the period after 11pm on 31 December 2020.

In this series of bite-size ‘Brexit countdown’ articles, we focus on the commercial implications of ‘Brexit 2.0’ in certain key areas and set out a high-level overview of the sort of things you should be thinking about with your teams and customers, and what you should be doing to get yourself Brexit-ready.

Last time, we looked at financial factors. In this article we look at the termination of contracts and business arrangements.

What sorts of things should you typically be thinking about?

Consider these key matters in particular for your relevant contracts:

• have you considered whether there is any compensation payable on termination?
• not every business will thrive following Brexit 2.0 and, sadly, some may go out of business. Have you considered how to preserve the best position possible if suppliers or customers go insolvent? Bear in mind, however, that the Corporate Insolvency and Governance Act 2020 restricts many suppliers’ rights to exit commercial contracts due to certain restructuring or insolvency-related causes, even where those rights are expressly set out in the contract. For more information check out Webinar: Corporate insolvency - The new rules and When does “Together we stand” become “I’m taking you down with me”?
• when contracts end or businesses go insolvent vital information may be lost. Valuable data about goods, services or customers could be locked up in a supplier who has ceased to trade or terminated their contract. How would you keep access to information and data?
• how do you capture, store and disseminate business critical knowledge, standard operating procedures and information (especially in the event of an insolvency or sudden inability to work across borders)?
• if you deal with closed-protocol suppliers then you may not have access to this sort of information in the first place. Critical data may be lost, even on something as vital as how to maintain a fire alarm system. Have you considered the implications of this?
• for closed-protocol suppliers, have you considered requiring them to place documents, operation manuals and similar in escrow accounts ensuring your business can continue in the event of their insolvency?

Of course, every business will need to consider its own particular circumstances based on factors such as, in particular:

• its location
• the nature of its goods and services
• the business, economic and regulatory environment in which it operates
• the location of its key customers and suppliers, and
• the make-up of its workforce.

There is no one-size-fits-all approach to the analysis you need to do but thinking about the commercial aspects above can help you decide what legal changes (if any) are necessary now and in the months to come.

At Shoosmiths, we have stayed close to Brexit developments. As always, we welcome any thoughts or comments from you and are ready to help you prepare for Brexit.

We are also producing briefings across all specialisms to keep you informed of legal changes anticipated in light of Brexit.

If you have any queries, do get in touch.

In the next article in this series, we’ll be looking at data.