Avoiding potential litigation or arbitration is a priority for all businesses. The question still remains! HOW? In view of the wide range of legal issues that the HCLA team deals with, we plan to share some tips that may be of further assistance to companies in mitigating potential risks.
When it comes to transnational business collaborations, EU companies routinely prioritize conducting detailed and rigorous due diligence (DD) on their Non-EU business partners.
Some companies may find it unnecessary to exercise due diligence on their business counterparts, i.e., European partners. The intention to trust their business partners simply based on word-of-mouth, a respected and known brand, or previous transactions between the parties is not sufficient for a rigorous due diligence process. However, in most such cases, this type of approach leaves them with potential challenges that may arise.
As such in order to minimize any potential future business risk(s), it is highly recommended that they:
- Conduct DD before the onset of a business transaction (even with well-known companies);
- Pay attention to the creditworthiness of the business partner;
- Review the business partner’s track record of meeting their contractual obligations; (and)
- Review any draft contracts or general terms and conditions you receive from your business partner relating to the potential transaction at hand (especially from larger and established companies in the respective industry).
There have been cases where some European companies have unexpectedly reneged on their contractual obligations, either by invoking a clause in their general terms and conditions, or by filing for bankruptcy, or under the pretext of sanctions. In every instance of this occurring, such risk-inducing behavior poses future challenges for business partners.
In order to prepare any company for handling such a post-transaction risk scenario, the early buffer of performing the respective due diligence process will aid them in this regard.