These two things can be used as a strategy for entrepreneurs to survive amid the threat of recession after the pandemic.
The emergence of a force majeure can result in a suspension of the implementation of an agreement. One result that can be caused by the emergence of force majeure is the end of a contract that has been established by both parties. But usually in the case of termination of an agreement it must occur because force majeure will incur a greater cost, because the party who feels disadvantaged because they do not receive the fulfillment of their rights will bring this dispute to the Law.
As an alternative to avoid much larger funding, Bezaliel Bazuki Erlan, Armila & Rako Law Firm partner through the Surviving After Covid-19 webinar organized by Relative Perspective Media suggested that the parties renegotiate the agreement
Renegotiation of an agreement is where the parties renegotiate and decide what needs to be done so that the parties can continue to fulfill their obligations despite the forced conditions. According to Bezaliel, there are two things that entrepreneurs can do in the current conditions, namely:
Restructuring is an effort to improve the capital structure that must be done because the company has reached the point of default or insolvency. Debt restructuring does not suspend or eliminate the obligations of the entrepreneur in paying off his debts to the debtor. Here the debtor seeks a temporary dispensation but still has the good faith to pay off the loan. Debt restructuring mechanisms have often been applied, ranging from rescheduling payments, payment leave, to adding collateral.
Another way for the company to survive in its current condition is through refinancing. A characteristic in refinancing efforts is the involvement of third parties. The entry of these third parties is to pay debtors’ debts to the first creditor so that the third party replaces the creditor’s position.
This refinancing is also often known as the ‘dig hole-close hole’ approach, only that refinancing is wiser because the parties will consider a more in-depth financial risk analysis.
The refinancing mechanism is seen as more profitable than the restructuring mechanism because the debtor’s debt repayment period will be longer. In the business world this time is very important, to the extent that it is often likened to ‘gold’. The longer the period of time the debtor has to repay, the more likely the debtor will repay the debt without liquidating his assets.