Thursfields Solicitors look at the termination of contracts as a result of financial difficulties

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Getting out of a contract can be just as important as getting into a contract. Most businesses will be familiar with the standard termination clauses which provide for a number of triggers for termination.

A material breach not remedied, or a series of breaches is usually a trigger for termination of a contract. It is important when using this trigger evidence is collected and documented of the breach (and the contractual obligation or standard that has been breached) and the notices which need to be served are served in accordance with the provisions of the agreement.

Generally speaking, there will be a number of financial difficulty scenarios which will also be a trigger for termination. Broadly speaking, these may include insolvency, entering in to a CVA or being wound up - put into liquidation or administration.

However, since the implementation of the of the Corporate Insolvency and Governance Act 2020 it has become very difficult and, in some cases, impossible for a supplier to terminate contracts for the supply of goods and non-financial services on the grounds that a corporate customer has entered into corporate insolvency procedures.

With rumblings of recession looming now would be a good time to have your terms and conditions and contracts reviewed. You may need to rely on other terms to terminate contracts that are no longer financially viable or are with financially uncertain customers. You can only do that however, if such terms are incorporated into your contracts. If a corporate customer has entered into an insolvency event then you as a supplier would need a new termination right, arising after the start of the insolvency process and not triggered by the process or consent from a specific person such as the administrator or court permission on the grounds of your hardship.

Termination on notice or at convenience can be useful clauses to terminate a contract for any reason – the application is still uncertain in light of the changes to protections during insolvency proceedings but including such a clause may be beneficial. Clauses for termination on notice can have their drawbacks and may not be suitable for every contract.

Termination rights in the lead up to an insolvency process can also be useful.

The most important point is to recognise that one size does not fit all when it comes to terms and conditions. They should be drafted to suit your business, how it operates, the nature of the goods/services you supply and the relationship you have with your customers.

Our Commercial Team can assist you on getting the right terms and conditions in place for your business. Contact Hannah Clark at Thursfields on 0345 20 73 72 8 or email [email protected]