Despite disturbances in the commercial Force, such as Brexit or US tariffs, the UK is fundamentally a trading nation, buying and selling goods and services all around the world. Indeed, those sorts of disruptions mean that British businesses are constantly having to deal with new stakeholders in new markets.

This creates a quite different set of risks from relationships within the UK. Dealing effectively with these potential downsides means applying a new approach not just to dispute resolution and debt collection in foreign jurisdictions at the of the transaction timeline, but also to how relationships are first established overseas and how risks are assessed before they might become a reality.

Unfortunately, meaningful due diligence about the relevant foreign business environment is too often left until a company is facing the prospect of a significant bad debt or a major investment write off.

Not every international scenario ends as satisfactorily as calling a professional contact in Sydney, who refers the matter to a colleague in Brisbane who in turn persuades a retired lawyer friend to leave their sun lounger on the South Pacific island of Vanuatu in time to rush to the airport to intercept the absconding sole director of a British debtor and serve vital legal documents on them within the timeframe needed.

Pre-engagement fact finding

Before entering into a commercial relationship with any counterparty in a foreign jurisdiction, even more homework needs to be done than just checking the financial standing of the prospective customer, supplier or joint venture partner. If the trading partner is British but is overseas-owned or controlled, this may also be relevant.

Among a wide variety of considerations, the following issues need looking into.

1. Business culture and ethics

Are contracts taken seriously, or are they just a starting point for further negotiations? Is there a ‘won’t pay’ rather than ‘can’t pay’ culture? Can the contractual relationship be governed by the law in England & Wales or Scotland, rather than that of the foreign jurisdiction? Is that be respected in court proceedings?

2. Societal differences

There can be unexpected aspects in other jurisdictions, especially in formal insolvency procedure. Sometimes employees’ interests or saving a business as a going concern trump the normal UK presumption that creditors’ interests must come first. Local creditors are given higher priority over foreign claimants in some jurisdictions.

3. The commercial legal system

Is the legal regime creditor or debtor-friendly? Is there bias against foreign claimants? Can proceeds won in court be repatriated to the UK? Are there workable dispute resolution processes, such as mediation or arbitration?

4. Court capacity

How efficient is the court system? How long will it take to bring a case to court?  What could it cost? How much do judges know about cross-border issues? Is there a culture of out-of-court settlements?

5. Local professional capacity and capability

Is there effective regulation ensuring decent professional standards?  Are there sufficient professional advisers experienced in cross-border matters and, vitally, independent? Will potential or actual conflicts of interest be disclosed?

6. Banking system

Are state-owned banks prevalent? Or are there independent (and preferably international) financial institutions? Banks subject to influence by governments can behave differently to UK expectations if they are involved in workout or insolvency processes.

Insolvency & restructuring regimes

Settling disputes or recovering debts may sometimes involve either threatening or actually forcing the counterparty into a local insolvency procedure. In this scenario, different questions need to be asked to understand how this option might work out:

• Is there a functioning insolvency regime?
• Has it been revised since the global financial crisis and the pandemic, bringing it up to modern standards?
• Does it have a formal cross-border recognition and assistance facility?
• What do insolvency processes cost?
• What is the history of recoveries by creditors?
• How long do any recoveries and distributions to creditors take?
• What is the capacity and the skill level of the insolvency profession?
• Is the regime creditor or debtor-friendly, or is it neutral?
• Does it discriminate against foreign creditors or any other particular group of creditors?

We looked in detail recently at how cross-border insolvency around the world works in practice.

We also examined why no single insolvency regime is like any other worldwide.

Using the appropriate professional advisers

Existing UK advisers might not necessarily be the right choice to support action overseas. Some will have the international knowledge, experience and reach needed, others will not and will have to be supplemented by advisers who do.

One specialist expertise often essential when there is a problem with a foreign exposure is forensic investigative and witness appearance skill, but these advisers must be internationally experienced. What works in litigation and in court proceedings in the UK may be inadequate overseas.

Speed is of the essence

There is no difference between the UK and international situations in that very few get better through delay. Far better to address as soon as a hint of a problem is identified, rather than hesitating because of concerns about taking action in a foreign land.

The one qualification to this is on the vexed topic of costs. It is vital to establish the likely costs at the beginning so far as this is possible and the communication process if costs are likely to increase before commencing any formal proceedings. Understanding the potential timeline is also key.

If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners, who can discuss options with you. We have offices nationwide and by contacting us on 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.