IACCM Contract Management Forum

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2018-08-09 19:51:57

Bankrupt Customer; Principles Formed a New Company

Happy Thursday Everyone! Hope you are all doing well. Hoping to receive some guidance and speaking points on a request I recieved from my sales folks.

We completed a large portion of a project w/ Company X that later went bankrupt. We had a sales contract w/ Company X for the overall project. We received payment for the portion that was completed. Now the principles formed a new company and want us to complete the remainder of the project. However, the new company (& unfortunately, our owns sales team) is trying to pursue using the voided sales contract for the remainder of the remainder of the project to be completed. Basically, just change the name from Company X to "New Company".

I have few basics reasons why that is something we should NOT do. For example, the contract is legally void b/c Company X is no longer in existence; the terms in old contract were not favorable to us as the seller; the risks of doing business with the new company are much different than the old.

Would anyone mind sharing a few additional & impactful reasons why using the old contract isn't a good idea?

Thank you in advance. Have a good weekend.
 •  Schlumberger  •   2018-08-12 06:54:16


Just in case you still need a few other pointers, consider the following:

One thing sales people understand is numbers so approach it from an accounting point of view. Since the contract is void, consider discussing the fact they will not be able to meet all the GAAP principles for revenue recognition and if your accounts folk are diligent they probably will back you up ( but run this by them - accounts - first. Companies interpret or apply GAAP revenue recognition differently ).

Since Company X no longer exists and as such has no contracting capacity, it cant assign/novate the contract which will impact collectability should the New Company choose not to follow through with what it has implied it would do re: payment

If you are required to create a new agreement using the same or similar terms and conditions, consider preparing a risk assessment analysis of the contract and let the stakeholders approve the risk they are taking on by utilizing the same Ts & Cs so everyone is on the same page. Whatever discussions or approvals were obtained for the former Company should not apply to the New Company.

All the best!
 •  Anonymous  •   2018-09-17 18:33:36
Thank you for the guidance Mofoluwaso Falade.
Replies: 2
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