If the past few years have taught us anything, it is that business today is conducted in an interconnected world; what happens in one part of the world will likely affect your business, your supply chain and your contracts here. As the war in Ukraine intensifies, and the United States and other nations start imposing sanctions as a result, it is likely that your business will be impacted by these events or sanctions, directly or indirectly. It is best to prepare ahead of time. Below are the likely near-term impacts on your business.
Payments. The initial set of sanctions by the United States and European countries have affected major Russian financial institutions. If your supply chain includes Russian companies, their ability to pay or receive payment could be affected. And, over the weekend, the United States and European nations stated that the Russian central bank and others may be limited in their use of SWIFT, which is the main method of transfers for most banks. The Russian central bank and others will also be limited in their ability to trade in U.S. dollars, euros and other such currencies. These sanctions could significantly impact payments to and from any business tied to Russia. If your supply chain includes Russian-related businesses, you should review your contracts to determine how you can alleviate these impacts on your ability to pay or be paid. You may also want to consider alternate means of payment, if necessary, though you should carefully consider these options to avoid running afoul of the sanctions put in place.
Adequate assurance of performance. The sanctions, whether they affect payment or other performance, may impact the ability of businesses in your supply chain to conduct business as usual. If your supply chain includes such businesses, you may receive a 2-609 letter from your customers requesting that you provide adequate assurance of performance. Alternatively, you may need to send such letters to your suppliers to seek assurance that they can and will continue to perform, or to your customers to assure they can continue to make payments or otherwise perform.
In the event that your contracts do not address the procedures for such assurances, the Uniform Commercial Code’s Section 2-609 allows a contracting party to request adequate assurance of performance within a reasonable time. If such assurance is not provided, the party making the request, depending on the circumstances, may be entitled to terminate the contract. Take these notices seriously and determine if you need to send them yourself.
Force majeure. In the past few years, it seems every potential cause for force majeure has come up in one way or another, from pandemics to now, war. If your business may be affected by Russian sanctions or supply, review your force majeure provisions to determine what notice you may need to provide, or what types of force majeure may excuse your performance or your suppliers’ performance. And, if force majeure comes into play, know what alternatives are available to you or your suppliers. Be ready to address these issues before they become emergencies.
As this situation escalates, please contact Warner’s supply chain and automotive attorneys to assist you in issues that may arise. We are staying on top of news related to the war in Ukraine and we’re here to assist and advise you through the potential impacts to your business.