Management
Finance Directors and dispute resolution |
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| Management | |
| Written by Gervase MacGregor at BDO LLP | |
| Friday, 15 January 2010 | |
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What can Financial Directors should do to prevent their business from facing difficult litigation.
Few businesses have managed to come through the challenging economic environment of the last 18 months entirely unscathed. The speed and extent of the recession has forced many to make tough choices and to find innovative ways to cut costs and manage their business. So what can Finance Directors do when managing cost cutting exercises or any changes to prevent finding themselves in a contentious, costly, time-consuming and difficult dispute? Conduct a detailed review of the risk before taking measures to cut costs. Conducting a detailed review of the risks may be perceived as both expensive and time consuming. But that is by no means necessarily the case. And the costs of failing to take some fairly simple steps upfront can lead to much greater cost and damage further down the line, not just in terms of a greater risk of litigation. Focus on the specifics and take a look at the precise nature of the risks you may expose your company to as a direct result of the measures they are taking to cut costs and share financial risks. Address risks in the face of changing contexts and business conditions. Risk assessment should not be a one-off exercise. Monitoring and controls to cover risks should adapt and change. Effective risk management should not place an unduly onerous burden on management but is a process of continually reassessing as the business environment changes. Therefore Financial Directors should always be vigilant and aware of what his happening in and around their business. With recovery on the horizon we are beginning to see an increase in claims as contractual arrangements that are not delivering in line with expectations are coming under intense and critical scrutiny as businesses take stock of the merits of bringing a claim. In addition, the recession has flushed out many issues that would have been less significant or largely obscured in a time of generally good business performance. Finally fraud that has remained undetected can easier come to light as a result of lower turnover or the redundancy of the fraudster. What should Finance Directors do if they find themselves caught in a dispute – either facing a claim or threatened by a potentially threatening dispute? Address issues as soon as you suspect something might be wrong, because problems will only get worse. There are often clear warning signs that all is not as it should be. It is sometimes very important to collect information or address the issue as the problem manifests itself, rather than trying to do so retrospectively. While it is usually better to seek to resolve disputes through dispassionate discussions or mediation it is still all too common for parties to adopt an intransigent position and to let their emotions take control. We therefore advise Financial Directors to seek advice from an impartial and detached party as they can help deliver a sense of perspective that those involved in the disagreement may struggle to achieve. Take professional advice from a very early stage. Taking professional advice early does not necessarily mean incurring significant professional fees. In fact, it’s likely that consulting with a lawyer or forensic accountant before the positions become too entrenched may save considerable time and expense further down the line when events have gone too far and options have narrowed. Many of the disputes that arise from measures taken to survive the recession will unfortunately lead to litigation. But by identifying risks early and putting in place a reasonable approach to managing risks on an ongoing business, many of those problems could and should be avoided. Finally, when things do go wrong, don’t compound the problems – there are professional specialists that can help to make things better, and stop things from getting worse. Gervase MacGregor, National Head of Advisory and a partner within the Forensic Accounting stream at BDO LLP.
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