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Cancelling or renegotiating contracts: A guideline to alleviate the cash crunch

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Contracts

1. COVID-19 IS CAUSING A CASH CRUNCH

The COVID-19 pandemic and the resulting travel bans have put ASATA members in an unprecedented cash crunch. The key to survival is going to be to cut expenses to the bare minimum for at least the next four to six months, if not longer.

Four to six months? Are you serious?

We are in very uncertain times. The answer to the question ‘when will life return to normal?’ does not exist. We can only go on what happened in other countries. Most specialists agree that the most likely scenario is that life will be substantially disrupted for at least the next three to four months, but bear in mind that it will take the travel and tourism industry even longer to recover. ASATA will be hosting webinars on the coming weeks on the questions ‘when will this end?’, ‘when will travel resume again?’ and ‘what will the travel industry look like after COVID-19?’ in the coming weeks.

Here are some of the most important areas that require your immediate attention:

  1. Reduce your payroll: There are a lot of options before you get to retrenchment. Make use of the UIF options that are available. Here is a link to our FAQ on how to do this.
  2. Investigate whether you qualify for any of the government lifelines, and even if you don’t, apply anyway: Here is a link to our FAQ on what is available.
  3. Defer your taxes: SARS is offering concessions on PAYE and provisional tax, as long as you are up to date. Contact them!
  4. Speak to your bank: Many South African banks are offering debt relief to their business clients. This means that you may get a break on paying off your mortgage and other loans.

The rest of this article is about renegotiating contracts with other suppliers or service providers. Remember, every little bit is going to help.

2. What contracts you should be thinking about

Here are some of the contracts you should be thinking about cancelling or renegotiating. You never know, maybe some of these service providers are in a better position than you are right now.

  • Lease agreements
  • Telecommunications (e.g. your fibre company)
  • Call centre services
  • Software as a product (SaaP) or Software as a service (SaaS)
  • Marketing services
  • Accountants
  • Lawyers

3. Which contracts can you just cancel?

The first step is to decide whether there are some products or services that you can just do without and make a list of them. Think long and hard about this and remember that you can always conclude a new contract when things go back to normal.

Once you have your list, you need to find or request the terms & conditions or agreement you concluded with them. Here are the clauses you should look for:

  • Is there a cancellation or termination clause? This is a clause that allows you to cancel an agreement in certain situations.
  • How much notice must you give?
  • Are there any penalties for terminating the agreement? Always ask them to waive the cancellation fee. Many companies are very lenient right now.

Individuals (consultants) with an annual turnover or asset value of less than R2 million per year, take note:

If you are not trading as a company and your annual turnover or asset value is less than R2 million, you are protected by the Consumer Protection Act. This means that you only have to give 20 business days’ notice to cancel any fixed-term agreement and the service provider can only charge a reasonable cancellation penalty (section 14). Nothing in the terms & conditions is allowed to contradict this.

  • How must you give notice? Usually, companies are very strict on how you cancel – make sure that you fill in the right forms and send them to the right email addresses.

4. What if there isn’t a cancellation or termination clause?

Before you play hardball, you should just ask for some leeway. Most suppliers and service providers are looking to preserve their relationships with their current clients through this hard time and will be willing to make concessions. Don’t lawyer up on them before you have asked.

Unless there is a clause in a contract that says that you can cancel, you can only cancel a contract if there is a serious breach of contract. The government lockdown has made certain contracts ‘impossible’. In other words, the type of service or product that cannot be delivered during the lockdown.

Let’s use a lease agreement as an example because this is one of the biggest costs which you should try to avoid for as long as the lockdown lasts. You can’t go to your leased offices, even if you wanted to. However, this is not your or your landlord’s fault.

This is something which the lawyers call an act of God (in Latin vis maior or in French force majeure). What it means is that the contract may be suspended for a certain period. However, a lot will depend on what the agreement says and these clauses can be technical. If you don’t have any joy negotiating with your suppliers and service providers, we recommend that you get some legal advice.

If you are trading as an individual or a company with an annual turnover or asset value of less than R2 million per year, take note:

There is a chance that in cases where your service providers cannot supply their services or products due to the lockdown, you can rely on section 47 of the Consumer Protection Act. This means that you can get a refund.

5. ALL YOU CAN DO IS ASK (BUT DO IT NICELY)

Don’t be afraid to ask for a concession from your suppliers or service providers – anything goes in this situation. Don’t start with the legal arguments, because they immediately make people defensive. Rather say that you want to find a solution that works for both – we are all in this together after all.

Here are the different options you could consider together:

  • cancelling the agreement,
  • suspending the agreement (decide when you want it to resume),
  • delay payment for a defined period,
  • do smaller payments for a period.

Once you have agreed, make sure that you put it in writing. This is not just about good housekeeping, most terms & conditions or agreements contain something called a ‘non-variation’ or ‘no waiver’ clause. What this means is that you can’t verbally agree to amend the agreement. It has to be done in writing and, sometimes, the agreement will require that the amendment must also be signed. If you don’t do this, the amendment won’t be valid and the supplier could turn around and take you to court.

6. ASATA has already granted a concession

Normally, your ASATA fees would be due in April.

ASATA has agreed to allow members the option to:

  1. Pay their full membership by 30 April 2020
  2. Defer full payment for 3 months (payment will then be due by no later than 30 June 2020)
  3. A payment plan over 3 months (end April, May & June)

It would be appreciated if you could please indicate by reply mail which option would be most suitable for your business by no later than close of business 30 March 2020.
 
Please take note of the following important information with regard to Membership Certificates:

  • Interim Membership Certificates will be available on request and will reflect a validity date based on the payment option selected.  Please forward your request to hannie@asata.co.za
  • Your Annual Membership certificate, with a validity date of 01 April 2020 to 31 March 2021,  will be issued on receipt of full payment of your membership fee and submission of all required documents.
  • Members who are part of groups where Head Office is administering payment can request an interim certificate with an expiry date of 30 June 2020. 

An Interim Certificate will be issued subject to the relevant documents being uploaded even if payment has not yet been made as a result of the payment selection you have made based on the abovementioned options.

Comments re: PAYE I included in a WhatsApp to you as a separate matter for our large members.

The impact of COVID-19 on the travel industry is unprecedented and unpredictable. The nature of the content that is being shared on the ASATA coronavirus microsite is therefore constantly changing. Please check the date of the post to ascertain its recency.
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