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 1st, 2020 and will be effected on the 1st 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 flow 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 much-needed cash flows, which is critical to pay off their debt and meet the current fixed operating costs. On 3rd March 2016, Big Steel files for bankruptcy and sent all employees home.

On the 4th 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 1st April 2020.

Ross Enterprises is adamant that they have a binding arrangement and wanted to proceed as per the signed contract. However, Big Steel has advised Ross that certain events, COVID 19, global recession, and a subsequent strike have culminated for which the company has little or no control. 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

Ross emterpirses must negotiate well and send recommendations for business turnaround through economies of scale, focusing on concentrated markets with profitability, decreasing prices overall, refinancing existing debt obligations, ensuring penetrative pricing model to grab jigher customers market share and revenues optimisation. This will create win win scenarios for both companies ajd start agreed IT contract and prevent layoffs.

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