The Commercial Law area of Otto Cameselle & Asociados wants to recall in this brief note which are the commercial mechanisms that can be used by both small and medium-sized companies, and by self-employed workers, to mitigate the negative economic consequences produced by the paralysis of the economic and business activity, and derived from the COVID-19 pandemic that our country is suffering.
1.- Renegotiation of the contractual terms.
These days there is a lot of discussion about the possibility of invoking the rebus sic stantibus clause, which is the one that would allow alleging that there has been a substantial alteration in the circumstances in which the contracts were agreed, and that therefore, it is necessary to modify their conditions.
The viability of such an invocation – which has always been interpreted restrictively by the courts – will depend a lot on the circumstances of each specific case and obviously on how long the current situation lasts, so no single solution can be ventured.
Now, regardless of this, we think it is reasonable to think that the expectations of the other contractual party may have fallen, given the general crisis that seems to be coming, and that it may be more receptive to a reduction in our consideration, which will not interpret as an attempt not to fulfill the contract but as the consequence of an unforeseeable event.
Therefore, we think that the first step to overcome the crisis -in addition to thinking if our cost structure is adequate or the business conceived is still profitable- should be to try to negotiate with our current or future creditors, either the price of things, well the terms of payment. They will be more responsive than under normal conditions. And this regardless of whether legally a Court can give us the reason.
Both to restructure the company and to the mentioned negotiation, it is convenient -although not essential- to be supervised by a specialist.
If it is detected that it will not be possible to pay creditors within the stipulated deadlines, this negotiation should start as soon as possible.
2.- Legal solutions.
In the event that the financial situation of the company is delicate, and a widespread default of debts, or some punctual but very important defaults, is foreseen in the not too distant future, and the aforementioned negotiation has not been successful, it will be essential to go to a specialist who can propose many solutions, which will depend on the structure of the society -or self employed-, both from a dynamic point of view (income and expenses) and static (assets and liabilities).
Normally, the specialist will propose that the so-called “pre-bankruptcy preconcurso” be requested, consisting essentially of a communication to the Commercial Court stating that you have difficulties in payment and that you are going to negotiate with your creditors a “composition´´ or agreement to be able to pay them. The advantage of this communication is that it is very fast and in practice gives you up to 4 months to reach an agreement with your creditors, in many cases allowing you to avoid the bankruptcy situation and the costs it entails. It would be the conservative and least traumatic solution, but not necessarily sufficient.
Another possibility would be to propose, if the company is viable, a request for competition accompanied, where appropriate, by a proposal (anticipated or not) of a composition. This way has a double advantage compared to the previous one: on the one hand, the bankruptcy declaration suspends the accrual of interest on non-mortgage debts, and on the other, if the majority of creditors accept a composition (for example, pay the debts in 5 years) the rest of ordinary creditors are linked, making the negotiation easier. The main disadvantage is that the economic cost is higher.
Finally, it should be noted that if the economic situation is very serious, delaying the adoption of these solutions can have very negative consequences for both the economic unit and the personal situation of the administrators.
Of course, at Otto Cameselle & Asociados we are at your disposal to help you with whatever is necessary.