Contracts are generally written to cover all types of foreseeable scenarios. But ‘unforeseeable’ is also a known legal concept. Under the current circumstances, many contract parties will no longer be able to perform all contractual obligations, be it those that can’t supply ordered products, borrowers who breach financial covenants, etc. Both parties will need to assess the impact, risks, remediation and enforcement possibilities, in order to take the right decisions.
Taking the right decisions is what’s expected from boards of directors and management. In a crisis with so many uncertainties, that's evolving daily, has this ever been more difficult? Good governance isn’t about resolving every problem. It’s about choosing the best available option, taking into account what’s known at the time.
Good governance is about consulting relevant business stakeholders, calling in experts, where needed, to identify alternative solutions, consciously weighing different options and reflecting decision making clearly in (legal) documentation to be able to account for it at a later time.
The best option may not always be an easy one. Sometimes, when cost savings and restructurings and the many support measures taken from the government aren’t sufficient, a company ends up close to or in insolvency. It’s then crucial to act swiftly and try to leverage the different options the law and governmental measures provide (rather than waiting until it’s too late), thereby taking the right decisions, for the company, its directors, management and all stakeholders.