Despite a number of restraints, working life appears to be getting back to “new normal”.
For company secretaries and in house lawyers, it is, at last, an opportunity to look back, reflect and then put lessons learnt, since March, into practice. By doing so, the risk of disputes arising in any new lockdown, may be mitigated.
Festering in the inevitable “post lockdown in tray”, may be some of the following:
“But you gave me your word” – Alleviating risks of contract disputes should be near the top of the tray. During lockdown, many businesses were all too ready to find short term “fixes”. The motivation was simply to keep key supply chains working. These included: reducing service levels, waiving acceleration clauses and varying payment schedules. All too often, the “fixes” will have comprised an exchange of e mails or, simply, a Zoom discussion. What may have worked for both parties during lockdown, may now no longer appeal to one.
As a result, one party may want to enforce the original terms of the agreement. It may, of course, be possible to rely on legal remedies – for example those described as “estoppel” or “force majeure” (Read paragraph 8 of our ’10 steps to take to protect your assets in unfamiliar times’ article).
But “self help” is, often, so much more effective. Assuming that the parties still have a good relationship, this may be the opportunity to “fix” the original contract to reflect the existing informal arrangement. Time may need to be spent in negotiating a formal variation. Nevertheless, that’s still cheaper than the potential cost of a contractual dispute, with a key supplier, at a later date.
As a preliminary step, ask staff to “ferret” through their in boxes. Hopefully, this will reveal email exchanges relating to variations or, perhaps, simply a list of agreements that colleagues remember varying. A summary of the change, and the background, may be the “icing on the cake”. Then check the changes against the original agreement. Will they will survive a post lockdown dispute?
Remember to also look at practical – non legal issues, such as:
- Checking the solvency of counter parties;
- What agreements have been created informally by staff (see below) and collate lists;
- Your ability to stock pile or take early delivery for important supply chains;
- Read key suppliers business continuity and disaster recovery plans;
- To what extent are your key suppliers exposed to potential disruption to their own supply chain; and
- Use the time to negotiate non-exclusive arrangements with third parties – particularly where a key exclusive supplier has failed to perform.
“Is this binding?” What new, important, agreements have been created during lockdown? Traditionally, the formality of the seal assisted company secretaries to keep control of the execution of documents. During lockdown, the ritual of “affixing the seal” was not practical for many organisations (Read paragraph 9 of our ’10 Things Affecting the Property World – COVID-19′ article). A number of other signing options evolved, including using powers of attorney. While the seal may have had its day, now may be the opportunity to update and formalise existing delegated arrangements for who should still sign agreements and, perhaps, more importantly, who can authorise their execution.
Under the constitution, it is the board and its delegates who can authorise the signing of agreements. During lockdown several agreements may come into effect without signature (for example, those created by an exchange of e mails). Agreements signed or entered into, in error, may need to be renegotiated. However, other informally approved important agreements may need to be formally “ratified” by the board or the delegated committee, in case counterparties, or for that matter, the auditors (internal or external) want evidence of signing authority.
While discussing board approval, most constitutions permit the holding of meetings of the board or committee by electronic means (such as Zoom, Skype or the telephone), or the passing of resolutions in writing (including by e mail). However, some older constitutions may not. In these cases, boards may want to look at formally “ratifying” transactions. Boards may also need to ask the organisation’s members for consent to update the constitution at an AGM or other general meeting.
Is this really how we have to do things – can we change it? – Company secretaries of organisations with several external shareholders, looking at convening an AGM or other general meetings during lockdown, were relieved when the Corporate Insolvency and Governance Act was passed earlier this year. It contained relaxations for holding AGM’s during the pandemic. However, these relaxations may be expiring soon. Read our recent note on AGM’s in 2020 here.
Accordingly, many organisations have been amending their constitutions to permit “hybrid” general meetings. These enable members to participate both electronically as well as in person. If changes are required to the constitution to facilitate internal administration, now may be the time to take the opportunity to do so enabling the convening and holding of general meetings an easier process going forward.
Taking a few basic “housekeeping” steps, now, may save that weary refrain, at the next Zoom meeting, “if only……….”.
If you would like to discuss any of the issues referred to in this note, please contact Partners James Lyons or Michelle Mullen.
