21 February 2019

Supply chains hit by manufacturers’ exits

Decisions by major automotive manufacturers such as JLR, Ford and Honda to limit production in the UK, or to move operations abroad, in some cases because of Brexit, are hitting not only their own workforces but also their supply chains, with businesses of all sizes already feeling the effects.

Honda, which has this week announced its plan to close its Swindon plant in 2021, with the loss of 3,500 jobs, is the latest in a string of large manufacturers to announce job cuts or production moves away from the UK. JLR announced the loss of 4,500 jobs in the UK and Ford has warned of similar changes. Dyson has also decided to move its head office to Singapore, away from its base in Wiltshire. It is likely that others will follow suit.

The knock-on effect is likely to hit engineering firms of all sizes, including component makers, dealers, repair and maintenance businesses and many more firms within often complex supply chains.

How can you limit the damage to your company?

  • Assess the proportion of work directly dependent on major manufacturers and the likely damage if that work-flow ceases
  • Review contracts to consider whether they are enforceable/what rights you have under the same in the event of non-payment or other breach
  • Review any retention of title provisions in place
  • Tighten up on credit control to maximise debtor payments
  • Safeguard against future losses by implementing deposit requests/pro forma invoicing/supplying on ROT terms
  • Consider the position of your own suppliers – is there a risk they will be unable to supply going forward?
  • Give careful consideration before entering into any long term commitments.

If a review of contracts highlights any problem areas, you may have a chance to re-negotiate and/or to get out of any onerous obligations. These sort of steps, together with streamlining the business generally (e.g. reducing overheads and costs where possible) will help to limit any negative impact of contract terminations, maximise debtor realisations and provide breathing space to source alternative sources of work.

In terms of streamlining the business, you may want to review the workforce commitment and consider your staffing levels for the future. You will need to consider potential costs of redundancy before making any such decisions. You may also need to review the make-up of your work-force in line with Brexit issues generally if there are any EU staff in your employment.

If you judge that your business is going to suffer, seek specialist advice so that you can consider all your options. Doing this early on could give you the opportunity to restructure and/or seek investment in order to avoid insolvency. Directors should also seek advice on their duties and what steps they should be taking in such circumstances so as to reduce the risk of personal liability.

Speak to one of our specialists for business advice:

Contract reviewsRobert Capper rcapper@hcrlaw.com or 01905 744 814
Employment adviceMichael Stokes mstokes@hcrlaw.com or 01905 678 545
Funding requirementsHarry Bengough hbengough@hcrlaw.com or 01242 246 411
Directors’ duties and restructuring adviceSam Payne spayne@hcrlaw.com or 01905 678 548
DisputesRichard Morgan – rmorgan@hcrlaw.com or 01432 349 661

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About the Author
Robert Capper, Partner, Head of Commercial Team and Sectors
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