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             25 October, 2020

Category:  Articles » Business » Change Management


Litigation Can Put You Out Of Business In A Heartbeat

         Views: 1191
2006-09-26 20:05:04     
Article by Mike Teng

Many companies underestimate the potential gravity of getting into litigious situations. Lawsuits, especially in cases where one does not have strong legal legs to stand on, are potential minefields for disaster. Many organisations work hard to grow the top line only to have a lawsuit siphon off the money. It is like having a purse with holes in it. Regardless of whether you win or lose the lawsuit, the ultimate winner is the lawyer. Unfortunately if your company happens to be the loser, the magnitude of the costs and damages could possibly derail your business overnight.

Many contractors in Singapore also got themselves into trouble by taking on contracts indiscriminately despite poor margins, unrealistic deadlines and liabilities. Eventually, they were held liable for massive liquidated damages for delays in completion and consequential damages resulting from their work. The risks involved were disproportionate to the returns from such jobs. Some of these sub-contractors were hopeful that they could make money from variation orders or additional scope of work not stipulated in the original contract. However, these variation orders were not properly signed off before the additional work was executed as a result some main contractors took advantage not to pay in times of contractual disputes. Also, projects often get delayed for many uncontrollable reasons and that these sub-contractors had to contend with counter claims and back charges from the main contractors.

In many cases, these sub-contractors could not afford a protracted litigation battle and had to settle out of court with the main contractors for an unfavourable settlement. Many of these sub-contractors would be been spared the headaches if they had avoided taking on such onerous contracts. Be wary of the ramifications of litigation especially in the case of China. An effective strategy in China means understanding the myriads of legal and regulatory issues at the state and provincial level, the city or even local level. Conflict and contract dispute resolution, remedies and legal recourse significantly differ from region to region. This can be a minefield through which to navigate. However, much of the headaches can be minimised if one clearly understands the legal issues involved at the outset. It is important to understand these issues at the start.

In China, the government has great involvement with the business sector. For example for state-owned enterprises (SOEs), it is difficult to delineate between public and private business ownership. Therefore, it is important to understand the legalities before entering into partnership with the SOE. With the entry into World Trade Organisation, China has progressively removed many artificial barriers in the business sector. However, China remains basically a closed market and tightly managed by the government. It is a prerequisite to understand the rules and regulations of your industry. The law will always catch up with you if there is any non-compliance whether deliberate or through sheer ignorance. Your disgruntled staff or competitors will report to the authority on your non-compliance as reporting against one another is a common communist trait.

Litigation once nearly destroyed America’s small aircraft industry. It also threatened to topple powerful brokerage firms because of the conduct of their analysts. The Catholic Church is also vulnerable to an onslaught of litigation due to the spates of alleged abuses by its priesthood. The other classic example is Arthur Anderson. The suspicion of improprieties and litigations caused massive customer defections.

If you reckon that your company can benefit economically by ignoring a law, you may be kidding yourself. Be extra careful. If non-compliance results in safety hazards for employees or the public in general, do not break the law, it is not worth it. Also, during hard times when you cannot repay your creditors, try convincing them to extend the payment period rather than sue you in court. Most creditors such as the banks would prefer that the matter be settled amicably as it is bad publicity for all parties concerned, both the plaintiff and the defendant.

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