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12 October 20214 minute read

The Consumer Goods Essential Legal Update 2021

This year the consumer goods sector has begun to return to a place of normalcy, but the damage of the last 18 months is still being felt with supply chain issues, workplace ethics and product supply all being impacted. A panel of DLA consumer goods specialists discussed the current landscape of consumer goods as well as horizon scanning for what next.

In the session our panel made some key observations:
  • In the UK, the Government’s COVID-19 statutory protections for commercial tenants are:
    • The existing covid protections against forfeiture in England will remain in place until March 2022,
    • Commercial Rent Arrears Recovery has been restricted to reflect the Government’s aim to ringfence COVID-19 arrears and treat them differently from future rents, and
    • Winding up petitions cannot successfully be presented between 27 April 2020 and 30 September 2021 where COVID-19 has had a financial effect on the company, unless the company would be unable to pay its debts regardless of COVID-19.
  • If faced with supply chain disruption due to materials/products shortages, there needs to be an assessment of contracts to determine what rights and obligations your suppliers and customers have in the context where deliveries of supplies and output are disrupted/delayed and what possible legal excuses may apply. During the pandemic there was somewhat limited action taken to enforce contracts as it was a global issue. Will it be the case here even though sellers are missing out on demand? There can be ways of contractually obtaining to be reserved a share of the available supply. Materials shortage is another lesson learned to take onboard when revising/renegotiating your contracts.

  • Digital diversification, including the incorporation of new payments and finance products, as a tool to drive customer demand to meet market needs, needs careful legal and regulatory mapping. Businesses must look at the contractual structures to identify commercial and compliance responsibilities. As products are innovated at speed, legal planning must prepare for review of compliance and contractual structures as they evolve and become embedded. Financial services collaborations bring extra regulatory considerations and the need to identify the role and responsibilities a business has.

  • If a company is looking to sell a business which has a poor ESG profile this is likely to lead to worse deal terms for the seller or could even lead to the collapse of a deal. We have also seen companies buy businesses within their existing supply chain to give themselves additional security from supply disruption and also ensure they can have more accountability over the ESG strategy in the whole supply chain.

  • To address the shortage in materials, at the same time as focussing on ESG-related opportunities, businesses can look diversify their business through a number of channels, for example;
    • Circularity – encourage consumers to return/ recycle unwanted items, which may shorten supply chains, decrease material miles and reduce energy consumed in production of raw materials
    • Second hand market – this is popular in luxury markets, allowing brands to retain control over their products and take advantage of their resale value
    • Venture capital – organisations are setting up their own venture funds to invest in entrepreneurs innovating in complementary fields, or impact projects which help to mitigate risks across supply chains.