Question

                

Question 2

Ross Enterprises has a contract with Big Steel Company Limited in respect of Information Technology (IT) Services. The contract was signed on January 1^st 2020 and will be effected on the 1^st April 2020.

In mid-February 2020 Big Steel’s sales plummeted due to the Covid 19 pandemic. In addition, an already high long term debt, and operating cost, as well as Big Steel’s current negative cash flows situation placed the company in serious financial peril. Indeed if they cannot find a resolution soon to deal with their cash flow problems and debt, they will have to close operations permanently and send all employees home.

Upon hearing this pronouncement, the Trade Union representing workers at Big Steel advised management that they will take strike action. This further affected the operations of Big Steel and resulted in a loss of production, sales and the much-needed cash flows, which is critical to pay off their debt and meet current fixed operating cost. On 3^rd March 2016, Big Steel files for bankruptcy and sent all employees home.

On the 4^th March, Big Steel wrote Ross Enterprises advising of their circumstances and the virtual impossibility of implementing the sign contact for IT Services, which is scheduled to commence on 1^st April 2020.

Ross Enterprises is adamant that they have binding arrangement and wanted to proceed as per signed contract. However Big Steel has advised Ross that certain events, covid 19, global recession and a subsequent strike has culminated for which the company has little or no control of. Thus, it was impossible to implement the contract on the agreed start date due to these circumstances.

Advise Ross Enterprises on this matter.

Answer 1

In my opinion, there is nothing that Ross Enterprises can do in this situation since Big Steel Company Limited has been affected with events that are not in control of the company and has resulted in negative cash flows, labour strike etc due to which the company had to file for bankruptcy. Even if Ross Enterprises takes legal action against Big Steel Company Limited, the decision would be in favour of Big Steel Company Limited due to frustrated contract between both the parties as Big Steel Company Limited is not able to execute contract due to unforeseen events not in the company's control, despite willingness of both parties to execute it. Ross Enterprises has to look for another company to fulfill the Information Technology (IT) Services requirements.