Top tips: Time for a commercial law health check

Mark Lowndes. Photo / Supplied

Lawyer Mark Lowndes says now is the time for a commercial law health check.

What are the key focus areas for managers in the current climate?
Responsive managers will be actively reviewing the core functionality of their businesses. A commercial law health check is an important part of this, focusing for example on banking arrangements, corporate structure and the board, risk management, contracts, credit strategies, intellectual property protection and employment arrangements.

What are the issues surrounding banking arrangements?
Review the security structure and interlinking guarantees and securities, and be clear on what financial covenants are being monitored by the bank. Consider switching part of an overdraft to a term loan to avoid an overdraft limit being reduced. Above all else, maintain good communication with the bank and consider sharing your banking business.

How can clients' needs be best managed?
Make sure terms of trade are watertight and that they actually form part of the contract - often it isn't clear if the "printed terms" actually apply. Review provisions covering liability, risk until delivery, payment and default interest, and retention of title. Consider other security and make sure a retention of title clause is registered on the Personal Property Securities Act or it can be ineffective.

What are some early actions business owners can take to head off potential problems with credit?
Look at payment terms, policies and processes. Also look at the organisation's risk profile if top clients fail, and at securities, guarantees, General Security Agreements and agreements to mortgage. If a debtor is in trouble, move fast with commercial and legal initiatives.

How can key relationships - with staff, suppliers, clients and other stakeholders - be best managed?
It is essential to review supplier and employment agreements. Regarding supplier agreements, check for guarantees and check liability and risk-related provisions. Consider commercial risks around supplier failure. Ensure employment agreements are valid. To be valid there are some provisions that must be included. Ensure there are strong provisions to protect the company (eg restraint of trade, intellectual property ownership), and have strong processes around departing employees. Look at taking advantage of the new 90-day trial period.

* Mark Lowndes is a partner at Lowndes Associates, an Auckland and Wellington-based commercial law firm: www.lowndeslaw.com/