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How to tackle firms breaching contracts

QUESTION: I’ve heard that the credit crunch has meant that, intentionally or not, companies are increasingly breaking their contracts. How can they do this and legally where do I stand if this happens to me in my business?

SCOTT KENNEDY, corporate partner, Cleaver Fulton Rankin, replies:

Those who follow football might be permitted in thinking that a contract isn’t worth the paper it’s written on. The summer saw a number of top players seemingly able to ‘walk away’ from their club contracts.

While this certainly was the appearance due to the very particular blend of employment law principles and ‘player power’ at work, the reality for the less prosaic but infinitely more numerous agreements which exist in everyday commercial life is very different.

Realistically, if a party breaks a contract then they have probably done so because they are unable to fulfil their obligations or the effects of complying are worse than breaking it.

Purchasers who bought apartments off-plan 18 months ago who find that their current market value is much less might well prefer to forfeit their deposits rather than complete the purchase. A wronged party to a contract can apply to court seeking an order for spe

cific performance of it or damages for the loss they have suffered as a result of the contract being breached.

Before going to court and incurring further costs, ask yourself these questions: has that party got the ability to pay damages or the finances to perform the

contract? Will bankrupting them simply prove a pyrrhic victory? Should you just cut your losses and move on? As ever, seeking professional guidance is the best advice.

QUESTION: I own one-third of a business partnership and have just had a recent health scare. What is the best way to ensure all parties are protected in the event of death or a serious illness?

ANSWER: Stephen Hill, senior partner with S Hill, investment advisers, replies:

There are a number of issues that can cause untold problems for the business and partners if proper business protection planning is not put in place.

In your case the best solution for all parties would be to take out life insurance, this can ensure that the business

remains in control of the partnership in the unfortunate event of any business partners dying. A partnership like yours would dissolve if any of the business partners die, without an agreement being in place stating the contrary.

By having a life insurance agreement in place, this ensures that the business can carry on as seamlessly as possible in the circumstances, and control stays with the partnership.

It would also provide a substantial cash sum that would give the remaining partner’s the opportunity to purchase the deceased’s share of the business without having any financial problems.

Furthermore, it means that the deceased beneficiaries receive the cash sum, and eliminates any interference in the running of the business.

However, it is very important to note that the sum assured should reflects the value of the individual’s holdings and as such it should be regularly reviewed.

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