Legal tips Protecting yourself when your counterparty is in distress As the financial pressure on oil & gas companies continues, the risk of insolvency in the industry is becoming increasingly acute. It is vital to be alive to the possible insolvency of co- venturers, suppliers and contractors in order to ensure your interests are protected. Set out below are some key points to remember when managing your relationships with counterparties in this environment: – – Act quickly! – virtually all methods of improving your position rely on you acting before your counterparty enters an insolvency process. Do not delay – – Trusts – if you are a Participant, make sure the Operator holds Joint Property on trust for all the Participants, and holds them (where possible) in jurisdictions that recognise trusts – – Retain title – if you are a Contractor that
– – Be prepared – you will get little formal notice of an insolvency process, so listen to market gossip and be prepared – – Check your insolvency triggers – many are out of date (administration, for instance, does not need to happen by a court order) or reference the wrong terms. For example, in England, the meaning of ‘bankruptcy’ is different than in America – – Check to see what the insolvency of your counterparty allows you to do – for instance, many standard form contracts do not envisage the insolvency of an Operator, and leave the Contractor without the contractual ability to terminate
supplies goods, retain title until all debts are paid. This way you can enable the purchaser/Operator to take possession of the goods, so that their business is not affected, but you will be in a much better
position if they become insolvent – – Ensure credit is secured – if your
counterparty is struggling and wants credit, consider obtaining guarantees, security or letters of credit – – Step-in rights – if you have a business critical supplier, and intend to use step-in rights in the event of insolvency, discuss internally how you would exercise those rights now. It is better to think through the issues and find solutions now, before you need to exercise the right
13
Made with FlippingBook Annual report