Many businesses are financed by loans or other types of facility from banks and other financial institutions.
Such facilities are often provided based on the assets held by the business.
Disruption arising from the Covid-19 outbreak means that cashflow is in many cases heavily reduced. Values are falling across asset classes, and reserves are being defrayed to meet unexpected costs.
This will cause some businesses to be in technical default of their financing agreements. There may well be an obligation on businesses to notify their banks of these circumstances.
Stewarts has seen many examples during previous global crises of banks acting wrongfully in seeking to terminate financing and enforce security, often in an aggressive way. Our long and repeated experience is that at times of crisis banks generally seek to protect their positions by calling in loans and declaring defaults, where possible.
Businesses may, therefore, find that financial support is removed at the time when they need it most.
Businesses facing default on their financing arrangements, or other pressure from the banks, should take early advice on their options to resist or reduce such pressure.
The Covid-19 outbreak may also affect the pricing mechanisms in more exotic financial services instruments, such as swaps and derivatives.
Businesses negatively affected by changes in pricing should ensure that their counterparties are not taking advantage of the situation by misapplying the provisions of the instrument.
In these cases, businesses should confirm whether there are any provisions (for example, a force majeure clause) that might be triggered to reduce or nullify the changes.
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Banking and financial disputes expertise
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Banking and financial disputes
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