From time to time businesses – and business people – find themselves in positions where contracts, or a lack of contracts, that once ‘seemed like a good idea’ no longer serve the parties involved. Sometimes such situations have mutated into a position that permits one or more of the parties to hold a legal, but unfair, advantage over another. That which is legal is not necessarily moral or commercial.
What constitutes an unfair advantage is open to conjecture. The terms of the arrangement suited the parties once upon a time, so something unforeseen must have occurred since. We might conclude that ‘unforeseen’ infers a ‘lack of foresight’ from some or all of the parties.
Unfortunately hindsight is not a cure for an absence of foresight.
This is one of the more sensitive aspects of my work and whilst I can recount tales in terms of opening position and outcome, the exact methods are not something I can share. I have selected an example where there was no written contract (surprisingly common), but I have done similar with tough contracts. I call it jailbreaking.
Legal advice typically provides no way out. When my jailbreaking methods are posited to solicitors, they are horrified: “you can’t do THAT!” By the terms of the contract, or prevailing laws, that is absolutely correct. But of no practical use other than to highlight specific legal hot spots. So what next?
I am not a solicitor but I do have a good understanding of English Law and international contract law – and I do extra homework when necessary. I actually love Law, not quite as much as 500 year old accounting principles, but it’s close.
What do I do ‘against legal advice’? Nothing that could land me or anyone else in jail! I make an assessment of the consequences of breaching contracts. It is an assessment of risk and reward, cost and benefit. Some of the cost will be hard cash, some of it will simply be an ‘aggro factor’. It is also important to consider where the power actually lies.
This story is about three people who formed a company together. Each was supposed to be a director and hold one third of the shares. One of them operated what was effectively a separate business within the company. Of the other two, one of them formed the company with themselves as the only director and only shareholder, promising to ‘do the paperwork’ later …but they never did. The company grew and grew, especially that ‘business inside’. My work started when the ‘business inside’ asked for advice about marketing, acquiring assets and planning for growth. They also wanted guidance on the outstanding director and share issues. All quite straightforward, the kind of entirely positive work I do every day – business development, planning, finance and a spot of housekeeping around governance.
I was astonished by what I found. Insolvency, fraud, a strong whiff of money-laundering and a deliberate effort to conceal information from ‘business inside’ (‘mushrooming’ – kept in the dark and fed you-know-what).
On analysis it transpired that ‘business inside’ (which operated as a trading style of the company, with a different name) generated all the profit despite producing a relatively small proportion of the overall turnover. ‘Business inside’ was profitable and very well organised. The others lost all of this money, and more, with what they were up to. “OMG” in the modern vernacular.
‘Business inside’ needed a jailbreak. My starting point is always to propose an alternative, equitable course to all parties. However, parties that are in possession of all the money and who draw comfort from the protection of Law (deeply ironic in this scenario) are not keen on listening to a reasoned plea. They are similarly impervious to ‘…or else’. Which in this case led to ‘else’ being served.
My strategy was to forcibly remove ‘business inside’. The others, as predicted, started legal action. To say the balloon went up would be an understatement, the balloon’s ascent more like a missile. ‘Business-now-outside’ and I had an exciting day out in London at the High Court. Legal action takes months, even years, to play out. At some point there would need to be a settlement but until that time, my client could get on with accumulating a war chest of cash whilst I – perfectly legitimately – kicked the can down the road and ramped the other side’s legal costs in the knowledge that, having removed their cash generator, the only conceivable way they could continue to trade would be to commit more crimes. It was entirely possible that the company might collapse before the legal battle concluded.
Less than two years later, my client’s business is three times as big as it was ‘inside’, with seven-figure revenues and an immaculate Balance Sheet. It took over a year for the conclusion of the legal battle to be reached. The net cost? A small five-figure sum that was about a third of the ‘worst case’ I had calculated at the beginning.
It was an inconsequential amount in the grand scheme of things – and a small price to pay for freedom!