Often, commercial financial disputes and difficulties recovering funds don’t involve complex legal problems – rather, they involve practical problems poorly handled. In today’s blog, Mark Ryan shares some of the commercial problems and solutions he has encountered in his years of practise as the Legal GP. Read on!

  1. Always document what you have agreed upon, at the very least in simple terms. Record parties’ names, addresses and essential obligations – such as supply methods and payment. This document does not have to be word processed or specially formatted to be effective and enforceable by law. Handwritten in lead pencil in a notebook or sheet of A4 paper, dated and signed by all parties is enough to prove what has been agreed upon.

 

  1. If a supplier intends to threaten to charge interest or add ‘bookkeeping fees’ for non-payment after a payment period has expired, this is not enforceable unless it was part of the original contract or agreement. Adding these to an account rendered or reminder at a later date is not enough. To enforce interest and these fees in these circumstances, the initial contract/agreement must provide for this eventuality and consequence. It is not difficult to include them in a basic order document.

 

  1. Suppliers who are distributing products under a contract/agreement should always include in the original document – whatever form that might be – a Romalpa clause. This clause states that title in the relevant goods remains with the vendor until the purchase price is paid in full, even though the goods may have been delivered to the purchaser before the purchase price is paid. Although these are enforceable in limited circumstances the ability to threaten to repossess a product can be helpful when trying to negotiate a non-payment.

 

  1. Sellers to companies – especially ‘shell’ companies or companies primarily created by an accountant for asset protection and tax advantages – should always insist that the director/s of the company provide written guarantees for the performance of the company. In this way, a vendor has greater backing if a payment dispute arises. Company directors and their addresses are also identifiable by a simple, low-cost ASIC search. Sellers can further protect themselves by requesting that the director/s identified disclose their assets and financial position. Whilst this process may feel cumbersome during the negotiating process, it can work to mitigate risk and prevent headaches down the track. Genuine business operators will likely not object to providing this information and even appreciate your diligence.

 

  1. The well-known maxim ‘stones don’t bleed’ is appropriate in the context of recovering dollars under contract. It means nothing for a contractual document to be formatted perfectly if the dollar obligations it includes cannot possibly be enforced. Similarly, there is no point engaging the court to order the obliged party to pay, if the party is considered a ‘stone’ and has no ability to provide payment. To mitigate this, a seller should not only insist on director/s’ guarantees, but investigate the property holdings of each party. A title search is low cost and easily achievable. To enter into a contract with someone whose financial means are unknown to you is unwise.

 

  1. A title search will also reveal if the spouse of a party is a joint proprietor. In these circumstances, it’s important to insist that the spouse is included as a party to the contract as without them, the property becomes untouchable for enforcement.

 

  1. Credit checks by companies like Equifax can also be conducted with the permission of the financially obliged party. Again, whilst this process may seem intrusive, it will help to ensure you’re partnering with genuine operators.

During the course of everyday business, the above investigations and processes are not always convenient, appropriate or commercially viable. However, they should always be considered in the case of significant commercial transactions – regardless of whether they may threaten a business partnership. In less significant transactions, Mark Ryan recommends common sense, weighing up acceptable risk and having a chat with the Legal GP. Find us here.