What to do with payment obligations after quarantine?

Pandemic and quarantine have put the activities of many companies on hold: the contracting parties have not only suspended operations but also failed to carry out payment obligations. Business owners will need to assess the situation and decide on further actions after the quarantine. These decisions will also apply to issues of debt and liabilities of and to the companies. To properly assess the situation, it is necessary to find answers to the following questions:
Did the quarantine restrictions directly affected (or still are affecting) the business and its possibility to carry out obligations?
For example, the business activity of restaurants was prohibited, there was no profit, that's why it was not possible to repay the loan.
Did the debtor have the possibility to carry out the obligation in a different way than it was previously planned?
For example, construction works have been planned but the construction team didn't have an opportunity to come from another region because of the traffic restrictions. Why didn't another party find other specialists or use other types of transport? In this case it does not matter that the contractor faces losses. This does not affect the necessity to carry out the obligation.
Could the debtor predict the circumstances and consequences?
If the obligations arose before the quarantine, it was difficult to predict the restrictions introduced because of the quarantine. However, if the next tranche of the credit line has been used in April, it is unlikely that the debtor did not understand that the situation could worsen or additional restrictions introduced in the nearest future.
Do the contracts provide special conditions in case of force majeure?
For example, notifying another party or providing evidence of these circumstances within a certain period of time.
Is the fulfillment of the obligation valid after the end of the quarantine?
Are both parties interested in fulfilling the contract? Is there a unilateral withdrawal from the contract?
Are there any laws that were in effect during the quarantine and apply specifically to this situation?
For example, it goes about property lease for businesses whose activity had been strictly prohibited.
Having answers to these questions, you can assess the legal problem and prospects of the case.

It is also necessary to assess the resources needed in order to collect the debt or counteract the debt collection; the probability of the successful debt collection or possible bankruptcy of the debtor. After the quarantine the standard operation of courts will be restored, but they will be overwhelmed with thousands of other cases. It's very unlikely that this circumstance will facilitate the speed of legal proceedings.

Special attention should be paid to the enforcement of court decisions. It might be reasonable to check whether the debtor transfers assets to other companies. The best option is to secure the performance of obligations if it is possible (mortgage, bail piece, pledge, guarantee).

Importantly, the force majeure only releases from the liability (fines and other sanctions), not from the obligation itself. Sooner or later you will have to pay the debt, deliver the goods, provide the service. Exceptions to this rule can be made only in case when because of the duration of unforeseen circumstances both parties are not interested in the contract anymore.

Domestic Litigation team at INTEGRITES is ready to provide clients with full legal support on the newly introduced quarantine-related changes.
Oleksandr Onishchenko, Partner
+38 044 391 38 53, Oleksandr.Onishchenko@integrites.com
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