June 24, 2020
Authored by: Marc Trottier, Andrew Schoulder and Jason DeJonker
Part III: Supplier considerations: Assessing and leveraging your leverage
As most global markets attempt a return to normal (or a new form of normal) business, it is hard to imagine a sector or an industry that isn’t already reeling from the effects of the past three months. Getting back on your feet is hard enough in the current environment, without having to worry about further setbacks impacting your business. But how would you react if your key supplier called tomorrow to let you know that they were insolvent and unable to provide you with goods or services? Worse, what if you had already placed (and paid for) a large order with them that was critical to your ability to continue business?
In addition to the customer risk mitigation measures we looked at in Part II of this series, management needs to have in place systems and options to avoid the impact of supply-chain risk. Continuously monitoring your supply chain is essential during this period, to avoid the risk of your suppliers’ misfortunes infecting your own business (particularly for your critical suppliers and those for which there doesn’t appear to be a possible replacement).
But what is the legal position? What can (and can’t) you do if you catch wind that your key supplier is about to pull down the shutters? In the US, a termination provision in your supply agreement allowing you to terminate for insolvency or bankruptcy events (so-called ipso facto clauses) is completely unenforceable. In fact, any