The eurozone crisis and the fallout taking place in Greece are keeping Europe on edge. An increasing number of analysts anticipate a new recession. Perhaps you, too, are wondering how the situation will affect your business, especially your international contracts.
Below is a short outline of potential issues that we think are relevant. We have approached these issues from the perspective of doing business, or planning to do business, with foreign parties that run a higher than average risk of being "hit" by the current economic situation. Potential issues Due Diligence
Where M&A transactions are contemplated, it is advisable to assess the target's risk to material exposure as part of the due diligence process. This could, for example, be the case where the target party has entered into agreements that might not be fulfilled if the situation in the eurozone worsens. The target may also have assets where the value may be affected by a worsening situation. It is appropriate to adjust your due diligence questionnaire – and contract review procedures - to this eventuality. Price
If a country leaves the eurozone, debts payable in that country may have to be redenominated to the new national currency. It is conceivable that an unfavourable compulsory exchange rate would be chosen. Consider stipulating the following in relevant documents:
payments should always be made in euro (not in the newly-adopted national currency) payments should be made in a country unlikely to withdraw from the eurozone the agreement should be governed by the laws of a country unlikely to withdraw from the eurozone, and disputes should be resolved by the courts of that country if, despite the above provisions, your debtor is likely to pay in a different currency: your company may terminate the agreement and seek early payment of its claims agreements with a fixed interest rate should stipulate that the interest will be adjusted (increased) to the market level (the agreement should outline how this will be done) agreements with a variable interest rate should stipulate which reference interest rate will replace the previously agreed-upon reference interest rate (often, EURIBOR of EUROLIBOR) your company must be indemnified for any exchange loss between the moment of conversion in accordance with the prescribed exchange rate and the moment of payment. Payment / security
In business-to-business situations, productive supplier credit is regularly used. As a...