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Potential Options for Businesses Struggling to Meet their Contractual Obligations

As a business owner, foreseeing a possible financial shortfall can raise a host of concerns. From failing to make payroll to risking default under a commercial lease or other key contract, in these circumstances there are several issues that require careful prioritization and a proactive approach in order to mitigate any potential business or reputational harm.

Depending upon the circumstances, while there are several concerns to be addressed, there may also be several options available. From a legal perspective (setting aside options such as securing financing or bringing a consulting team on board), some potential options for preventing costly contract breaches include the following:

1. Seek to Renegotiate Key Agreements

One option may be to renegotiate. If your business is facing a default, revisiting the terms of the deal may be preferable to both parties when faced with the alternative of non-payment and potential litigation. Even if a complete renegotiation is not on the table, a landlord or supplier may be willing to delay collection without fully waiving its rights of enforcement.

2. Explore Ways to Cut Unnecessary Costs

Are there contracts you can terminate without penalty that are not business-critical? Alternatively, can you terminate or suspend non-essential services under a managed services or diversified services agreement? While many service and supply contracts include minimum-term commitments, in some industries and under certain contract models, business clients can retain broad termination rights as well.

3. Identify Potential Grounds to Pursue Litigation

Is your business struggling because a supplier is failing to uphold its end of the deal? Or, do you have a major client (or multiple clients) that are behind on payment? If your company has rights it is not currently enforcing, it may be time to consider legal action, including possible litigation.

4. Consider Your Options for Bankruptcy

Federal bankruptcy laws provide relief to struggling businesses under prescribed circumstances. Due to its implications, businesses often should consider bankruptcy only as an option of last resort. But, if bankruptcy is your best option, filing under Chapter 7 or Chapter 11 (or another applicable section of the U.S. Bankruptcy Code) can provide necessary relief from unsustainable financial obligations.

5. Consider a Buyout

A fifth option may be to consider a buyout. If a venture capitalist, competitor or other potential suitor believes that it can reverse your company’s fortunes, exploring potential acquisition opportunities may produce viable and favorable solution.

Of course, this list is not exclusive, and each set of business circumstances requires its own unique assessment. If you have questions about your company’s legal options, we encourage you to contact us for a confidential consultation.

Michael L. Feinstein, P.A. | Fort Lauderdale Business Litigation Lawyers

If you would like to speak with a lawyer at our Fort Lauderdale law offices, we encourage you to schedule an initial consultation. To speak with one of our experienced attorneys in confidence, please call (954) 767-9662 or inquire online today.