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Commercial Awareness Update April 2020
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<blockquote data-quote="Jaysen" data-source="post: 27919" data-attributes="member: 1"><p><strong><em>Primark Bags Deal to Pay Manufacturers</em></strong></p><p></p><p>By [USER=4861]@Lauren2[/USER]</p><p></p><p><u><strong>The Story</strong></u></p><p></p><p>Fashion retailer, Primark, faced widespread media criticism in recent weeks after refusing to pay suppliers for orders which were in production or transit at the time when the COVID-19 crisis began.</p><p></p><p>A deal has now been struck to pay £370m to manufacturers, however, new product orders have been cancelled. Primark is reported to have £1.5bn of existing stock left in its closed stores, which they are unable to shift, due to a lack of online presence.</p><p></p><p>Manufacturers are not the only party the retail chain failed to pay, having withheld rent payments to landlords totalling £33m across its 189 retail stores and seeking their cooperation for the period they are unable to trade. The company has taken these drastic steps to preserve capital reserves, having reported a plunge in sales from £650 million to zero, due to the closure of non-essential stores.</p><p></p><p><strong><u>What it Means for Businesses and Law Firms</u></strong></p><p></p><p>Disruption of manufacturing operations by a major buyer severely impacts global supply chains, given Primark is supplied by 1,033 factories, spanning 30 countries. Their initial refusal to pay caused a widespread shutdown of factories and the inability pay staff. The severity of this ripple effect will likely result in a restructuring of supply chains and cause many countries to revaluate their heavy reliance on certain trading partners, notably large retailers.</p><p></p><p>Commercial landlords have likewise suffered the domino effect of the government’s closure of non-essential businesses; it has become increasingly challenging for to extract rent payments from tenants hit hardest by the COVID-19 crisis, notably across the retail and hospitality sectors.</p><p></p><p>Landlords have responded by threatening legal action for non-payment. Criterion Capital, one of London’s largest property management companies, brought action against several tenants in late March on the basis they were unable to meet their own obligations to lenders. Intu, the shopping centre group, reported that receiving only one third of rents due at the end of March meant they were in breach of their own loan commitments.</p><p></p><p>Commercial tenants currently remain safe from eviction due to the government’s three month eviction moratorium. However, any inability to meet past and future rent obligations renders their long-term survival uncertain. Many may need to instruct lawyers to help restructure their debt or enter formal insolvency. Lawyers representing clients across the retail sector, amongst others, are likely to find themselves negotiating rent holidays or discounts and encountering increased litigation brought for non-payment of rent and subsequent breach of contract. They may also advise commercial landlords on diversifying their portfolios to mitigate against risk and guard themselves against the continuing decline of the retail sector.</p><p></p><p><strong><em>Tracking the Developments of Contact Tracing Apps</em></strong></p><p></p><p>By [USER=3460]@Alice Manners[/USER]</p><p></p><p><u><strong>The Story</strong></u></p><p></p><p>The UK has unveiled plans for an NHS “contact tracing” app. This will utilise smartphones to log the details of each person a user comes into contact with for a significant period of time, and then alert users when a person they have been in close contact with is diagnosed with COVID-19.</p><p></p><p>Google and Apple are collaborating to launch a system which will allow such apps to track the spread using Bluetooth. This will enable interoperability between Android and iOS devices. Contact tracing could form part of the reopening of society, although concerns have been raised as to its effectiveness, given the current lack of testing.</p><p></p><p><strong><u>What it Means for Businesses and Law Firms</u></strong></p><p></p><p>COVID-19 tracing apps may soon be rolled out across Europe, as technologists collaborate to develop smartphone software, in the hopes it will form a pan-Europe solution. Germany recently announced the launch of a similar tracing app, which has been delayed due to the rigorous cyber security tests required.</p><p></p><p>The data collected and stored by the app, despite being anonymised, raises concerns for data protection and privacy lawyers. The app will need to conform to existing regulations and require careful navigation through privacy concerns which will likely arise. The large-scale collection of data is potentially open to abuse and intrusion into citizens lives beyond tracking the spread of coronavirus and is the reason why Apple and Google will not allow the platform to utilise GPS tracking.</p><p></p><p>This story shows the important role that tech companies, collaboratively, may play in tackling the pandemic. Google and Apple are only developing the platform, on which the app will still need to be developed, so both businesses and law firms will be part of this process.</p><p></p><p>It is not clear yet exactly how the app would be used to reopen society. Would those who made contact with an infected individual be <em>required</em> to isolate for seven days? What would happen if someone diagnosed with coronavirus continues to make contact with others? Even if only an opt-in app, the legal limitations will need to be carefully considered.</p><p></p><p><strong><em>The Oil Crisis Continues: US Oil Prices Plummet, Saudi Arabia Struggles</em></strong></p><p></p><p>By Brian Chiu ([USER=4295]@Jiraiya[/USER])</p><p></p><p><u><strong>The Story</strong></u></p><p></p><p>For the first time in history, US oil prices have fallen into negative territory, trading as low as US$-40 per barrel on 20th April (The West Texas Intermediate, the benchmark for US crude oil), marking the most severe crisis in history. The effect of a negative oil price is that producers are effectively paying buyers to rid of their existing oil stocks.</p><p></p><p>Producers find themselves with a chronic oversupply of oil due to decreased global demand, owing to the COVID-19 outbreak disrupting the global supply chains. Commodities provide a stark example of the chaos coronavirus has brought to global markets.</p><p></p><p>President Trump has offered a financial lifeline to the US oil and gas industry. He cut a deal with the Organisation of Petroleum Exporting Countries (OPEC) and its allies, including Russia and other G20 countries, to slash global oil production by 10%. Yet, despite his efforts, the freefalling oil prices is a huge blow to Trump’s pledge to save jobs in the oil sector.</p><p></p><p>The US is not the only economy suffering due to the oil crisis. Saudi Arabia slashed its oil selling prices and ramped up production after Russia refused to coordinate to reduce supply to prop up global oil prices. The market suspected that Russia intended to undercut the US, the world’s top oil-producing country, to acquire a larger market share as the cost of production in the US is significantly higher than the two countries.</p><p></p><p><strong><u>What it Means for Businesses and Law Firms</u></strong></p><p></p><p>US oil producers have been hit hard by the cumulative effects of the COVID-19 pandemic and the price war, with a wave of oil bankruptcies predicted. Nearly 100 producers are predicted to file for Chapter 11 (insolvency) over the next year (Haynes and Boone), at a loss of 240,000 jobs within the industry (Rystad Energy).</p><p></p><p>Several other oil-producing countries should also brace for prolonged bleeding. The downturn in oil prices has caused Saudi Arabia to urgently diversify and restructure the country’s finances, given oil export accounts for 42% of the country’s GDP. This crisis will likely speed up their existing 2030 program for diversification of their non-oil economy, such as investment into tourism and entertainment. Long-term, SA is likely to seek increased foreign investment to attain this goal.</p><p></p><p>Contractually, oil is traded using futures contracts, contractual agreements to pay a price now, in anticipation of future delivery. These contracts then expire on a monthly basis. For purchasers, ‘locking in’ this price whilst it is negative, may confer commercial advantages when the price recovers. However, given the surplus, acquiring storage space, which is also sought by the producers, is coming at an increased cost. This increased expense may mean no advantage of betting on the movement of oil prices and purchasing whilst the price is negative.</p><p></p><p>Deal activity within the oil space is likely to experience a significant downturn. There is currently minimal demand for infrastructure such as oil drillers, marking a potential downturn for projects work. However, US, Singaporean and Chinese oil storage facilities are reportedly near capacity and oil producers have begun chartering “supertankers” to store surplus oil. Acquiring new storage space may be top of their agendas and provide alternative finance work for law firms.</p></blockquote><p></p>
[QUOTE="Jaysen, post: 27919, member: 1"] [B][I]Primark Bags Deal to Pay Manufacturers[/I][/B] By [USER=4861]@Lauren2[/USER] [U][B]The Story[/B][/U] Fashion retailer, Primark, faced widespread media criticism in recent weeks after refusing to pay suppliers for orders which were in production or transit at the time when the COVID-19 crisis began. A deal has now been struck to pay £370m to manufacturers, however, new product orders have been cancelled. Primark is reported to have £1.5bn of existing stock left in its closed stores, which they are unable to shift, due to a lack of online presence. Manufacturers are not the only party the retail chain failed to pay, having withheld rent payments to landlords totalling £33m across its 189 retail stores and seeking their cooperation for the period they are unable to trade. The company has taken these drastic steps to preserve capital reserves, having reported a plunge in sales from £650 million to zero, due to the closure of non-essential stores. [B][U]What it Means for Businesses and Law Firms[/U][/B] Disruption of manufacturing operations by a major buyer severely impacts global supply chains, given Primark is supplied by 1,033 factories, spanning 30 countries. Their initial refusal to pay caused a widespread shutdown of factories and the inability pay staff. The severity of this ripple effect will likely result in a restructuring of supply chains and cause many countries to revaluate their heavy reliance on certain trading partners, notably large retailers. Commercial landlords have likewise suffered the domino effect of the government’s closure of non-essential businesses; it has become increasingly challenging for to extract rent payments from tenants hit hardest by the COVID-19 crisis, notably across the retail and hospitality sectors. Landlords have responded by threatening legal action for non-payment. Criterion Capital, one of London’s largest property management companies, brought action against several tenants in late March on the basis they were unable to meet their own obligations to lenders. Intu, the shopping centre group, reported that receiving only one third of rents due at the end of March meant they were in breach of their own loan commitments. Commercial tenants currently remain safe from eviction due to the government’s three month eviction moratorium. However, any inability to meet past and future rent obligations renders their long-term survival uncertain. Many may need to instruct lawyers to help restructure their debt or enter formal insolvency. Lawyers representing clients across the retail sector, amongst others, are likely to find themselves negotiating rent holidays or discounts and encountering increased litigation brought for non-payment of rent and subsequent breach of contract. They may also advise commercial landlords on diversifying their portfolios to mitigate against risk and guard themselves against the continuing decline of the retail sector. [B][I]Tracking the Developments of Contact Tracing Apps[/I][/B] By [USER=3460]@Alice Manners[/USER] [U][B]The Story[/B][/U] The UK has unveiled plans for an NHS “contact tracing” app. This will utilise smartphones to log the details of each person a user comes into contact with for a significant period of time, and then alert users when a person they have been in close contact with is diagnosed with COVID-19. Google and Apple are collaborating to launch a system which will allow such apps to track the spread using Bluetooth. This will enable interoperability between Android and iOS devices. Contact tracing could form part of the reopening of society, although concerns have been raised as to its effectiveness, given the current lack of testing. [B][U]What it Means for Businesses and Law Firms[/U][/B] COVID-19 tracing apps may soon be rolled out across Europe, as technologists collaborate to develop smartphone software, in the hopes it will form a pan-Europe solution. Germany recently announced the launch of a similar tracing app, which has been delayed due to the rigorous cyber security tests required. The data collected and stored by the app, despite being anonymised, raises concerns for data protection and privacy lawyers. The app will need to conform to existing regulations and require careful navigation through privacy concerns which will likely arise. The large-scale collection of data is potentially open to abuse and intrusion into citizens lives beyond tracking the spread of coronavirus and is the reason why Apple and Google will not allow the platform to utilise GPS tracking. This story shows the important role that tech companies, collaboratively, may play in tackling the pandemic. Google and Apple are only developing the platform, on which the app will still need to be developed, so both businesses and law firms will be part of this process. It is not clear yet exactly how the app would be used to reopen society. Would those who made contact with an infected individual be [I]required[/I] to isolate for seven days? What would happen if someone diagnosed with coronavirus continues to make contact with others? Even if only an opt-in app, the legal limitations will need to be carefully considered. [B][I]The Oil Crisis Continues: US Oil Prices Plummet, Saudi Arabia Struggles[/I][/B] By Brian Chiu ([USER=4295]@Jiraiya[/USER]) [U][B]The Story[/B][/U] For the first time in history, US oil prices have fallen into negative territory, trading as low as US$-40 per barrel on 20th April (The West Texas Intermediate, the benchmark for US crude oil), marking the most severe crisis in history. The effect of a negative oil price is that producers are effectively paying buyers to rid of their existing oil stocks. Producers find themselves with a chronic oversupply of oil due to decreased global demand, owing to the COVID-19 outbreak disrupting the global supply chains. Commodities provide a stark example of the chaos coronavirus has brought to global markets. President Trump has offered a financial lifeline to the US oil and gas industry. He cut a deal with the Organisation of Petroleum Exporting Countries (OPEC) and its allies, including Russia and other G20 countries, to slash global oil production by 10%. Yet, despite his efforts, the freefalling oil prices is a huge blow to Trump’s pledge to save jobs in the oil sector. The US is not the only economy suffering due to the oil crisis. Saudi Arabia slashed its oil selling prices and ramped up production after Russia refused to coordinate to reduce supply to prop up global oil prices. The market suspected that Russia intended to undercut the US, the world’s top oil-producing country, to acquire a larger market share as the cost of production in the US is significantly higher than the two countries. [B][U]What it Means for Businesses and Law Firms[/U][/B] US oil producers have been hit hard by the cumulative effects of the COVID-19 pandemic and the price war, with a wave of oil bankruptcies predicted. Nearly 100 producers are predicted to file for Chapter 11 (insolvency) over the next year (Haynes and Boone), at a loss of 240,000 jobs within the industry (Rystad Energy). Several other oil-producing countries should also brace for prolonged bleeding. The downturn in oil prices has caused Saudi Arabia to urgently diversify and restructure the country’s finances, given oil export accounts for 42% of the country’s GDP. This crisis will likely speed up their existing 2030 program for diversification of their non-oil economy, such as investment into tourism and entertainment. Long-term, SA is likely to seek increased foreign investment to attain this goal. Contractually, oil is traded using futures contracts, contractual agreements to pay a price now, in anticipation of future delivery. These contracts then expire on a monthly basis. For purchasers, ‘locking in’ this price whilst it is negative, may confer commercial advantages when the price recovers. However, given the surplus, acquiring storage space, which is also sought by the producers, is coming at an increased cost. This increased expense may mean no advantage of betting on the movement of oil prices and purchasing whilst the price is negative. Deal activity within the oil space is likely to experience a significant downturn. There is currently minimal demand for infrastructure such as oil drillers, marking a potential downturn for projects work. However, US, Singaporean and Chinese oil storage facilities are reportedly near capacity and oil producers have begun chartering “supertankers” to store surplus oil. Acquiring new storage space may be top of their agendas and provide alternative finance work for law firms. [/QUOTE]
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