Remediation Dispute Resolution - FTI Consulting

Business Model &
Workforce Transformation

Efficiency and effectiveness:
Driving change across the business cycle

Operational &
Financial Resilience

Creative destruction:
Building resilience from the balance sheet up

Digital Trust
& Ecosystems

A new world of threats:
Managing cybersecurity risk in changing times

Escalation Planning
& Response

The Anatomy of a Crisis:
The right approach to crisis preparedness is a holistic one

Remediation &
Dispute Resolution

Investigations and disputes in a post-COVID world:
When will the storm hit?

Government &
Stakeholder Relations

Strength in leadership:
The new rules of stakeholder engagement

Economic Impact
& Sustainability

Resilience and Sustainability:
Two sides of the same coin?

Real-Time Data
Analytics

Data is the lifeblood of resilient businesses

Businesses must brace themselves for a storm of investigations and litigation in the wake of COVID-19.

COVID-19 has created an environment where employees and other company stakeholders are more likely to engage in various forms of misconduct. Fraudulently boosting financial results due to pressure to meet market expectations and internal targets, misappropriation of corporate assets, and gaps in companies’ internal controls are just a few examples of the heightened issues due to COVID-19. In fact, whistleblower activity is up globally by 35%, and history supports there will be increased investigations as during the 2008 financial crisis complex US enforcement actions increased by 60%.

of business leaders surveyed were not involved in the legal processes at their organisation (compared to just 28% for operations and 29% for strategy)

0 %

of business leaders expect to be victims of fraud in 2020

0 %

of business leaders surveyed said they would likely be involved in an investigation, compared to 18% for political disruption and 19% for trade restrictions

COVID-19 has also opened a Pandora’s box of disputes – the inevitable consequence of insolvency issues, restructuring and supply chain disruptions. More than 440 COVID-related class actions have been filed in the US since March. Force majeure clauses are being invoked worldwide: in February alone, such clauses were invoked for over 3,000 contracts (valued at $38bn) in China. The surge in legal action is certain to continue around the world.

The reasons are easy to understand. Companies are seeking to reduce exposure and mitigate damages through amendments to terms and pricing across various contract types, from securities and M&A to employment, fraud and insolvency. Financial pressures are forcing businesses to attempt to escape contractual obligations with some parties and seek reassurance (or damages) from others. Deadlines, supply conditions, fines, penalties and termination possibilities will all be contested. Even pre-existing disputes will be disrupted in this increasingly hostile environment: previously settled obligations may become impossible to fulfil, and remediation efforts rendered insufficient.

Businesses will not only face intense scrutiny from governments and regulators, but also the dual risk of direct enforcement action, and legal action from third parties (e.g. class-action lawsuits) as pre- and post-COVID misconduct is exposed.

PREPARING NOW WILL CREATE COMPETITIVE ADVANTAGE IN THE NEW NORMAL

Understandably, few businesses anticipated these issues. In January, FTI’s Resilience Barometer^TM found fewer than one in five companies expecting to be litigated against in 2020. Only 9% of business leaders anticipated investigation from regulatory bodies. Political disruption and trade restrictions preoccupied twice as many respondents as regulatory investigations.

The world has now changed. Fortunately, with prompt action, lack of preparation can in many cases be remedied.

of business leaders surveyed said they had been litigated against in the year, and 19% said they expected to be litigated against in the next 12 months

PROTECT

Businesses must quickly identify supply chain vulnerabilities, review financial and regulatory compliance, ensure that internal controls are operating effectively in the new environment, assess obligations to vendors and review contracts. In-house counsel can play a key role in finding avenues of renegotiation to aid in cost reduction across the business, and to ensure business continuity in a contentious environment.

ADAPT

Business leaders must also adjust oversight of the business to prevent misconduct, overhaul investigation and dispute action plans, and renegotiate contracts that are no longer appropriate. Fraud and other threat detection systems should be optimised.

COMPETE

Business fundamentals must ultimately be re-evaluated to ensure they suit emerging business conditions: Systems for negotiating and performing contracts should be modified to build resilience against new threats, and to stay ahead of the evolving regulatory landscape.