COVID-19: Joint Ventures

News / / COVID-19: Joint Ventures

Disrupted supply chains, abrupt decline in corporate earnings, funding cutbacks, concerns over commercial sustainability of contracts, key event cancellations and a marked reduction in consumer activity due to the COVID-19 pandemic have all had an impact on markets and businesses around the globe.

Joint venture (“JV”) participants in all industries and sectors are suddenly having to manage risks and take decisions they had not anticipated or prepared for in their contractual arrangements.  Many JV participants are finding it difficult to meet undertakings they have given to the JV and the severe impact on revenues has meant funding has been compromised.

This Q&A considers a number of questions currently being considered by JV participants. 

What happens if a JV party is unable to participate in an ‘emergency’ call for funding for the JV company?

With the present economic shutdown, many JVs are likely to meet liquidity challenges, as revenue sources stall and operating expenses begin to amass.  If one or more joint venture party is reluctant or unable to participate in a further call for funding the JV agreement will usually stipulate the consequences this has on the arrangement and the JV participant who is unable to partake.  However, not all JV agreements will detail the process where the requirement is for ‘unexpected’ or ‘emergency’ funding i.e. funding that has not been considered in the business plan or as part of the agreed working capital cash injections to be made by the JV participants.  In such circumstances the parties might consider working together to find alternative solutions which are palatable for all the JV participants.  In particular, it is worth considering:

  • Why a further round of funding is required at this time.
  • Debt arrangements (if any) that the JV company has in place.

If debt financing does exist has a dialogue been opened with the lender to discuss options that may be available to the JV company?  Consider discussing one (or more) of the following with the lender:

  • a short term increase in an existing working capital facility;
  • early/full draw down on an existing loan;
  • the restructuring of repayments; or
  • the relaxation of financial covenants. 

If the lender agrees to one (or more) of these options it may take the pressure off a call for funding from the JV participants and allow them a little time to consider other solutions.

In the event that debt financing is not in place could it be secured?   If debt financing is not an option (or even if it is, in addition to debt financing) consider also:

  • If any of the schemes currently being offered by the Government can assist the JV.
  • Whether any material capital expenditures or investments can be eliminated or deferred.
  • If force majeure or early termination rights may be invoked in key commercial agreements.
  • Whether the JV is able to dispose of any assets to reduce costs and obtain capital.

These options may also alleviate the need for a cash injection such that a call for funding can be avoided.

The JV company has a number of key decisions to make regarding ongoing projects and future investment, how do we manage these in the current climate?


  • how, when and by whom these decisions are to be made i.e. board decisions or (shareholder) decisions to be made by the JV participants;
  • whether the financial position of the JV company is likely to decline if lockdown continues; and
  • where it is a shareholder decision, what happens if the JV participants cannot agree on the matter.

Where feasible, JV participants should seek to manage risks and take decisions in compliance with their existing agreements including the management of disagreements. However, the usual ‘deadlock’ approach may not be a practical or an appropriate route for resolution in the current climate.  The JV participants might consider:

  • agreeing potential alternative decision making protocols and delegated authorities; and
  • discussing in advance how a disagreement in the current climate may be handled.

Doing so will establish a positive commercial basis for existing endeavors, help to maintain a good working relationship between the JV participants and reduce the risks of disputes down the line.

One of the JV participants is unable to fulfil its obligations.  How can we protect the JV?

Key issues to consider are:

What do the obligations relate to? Funding? Supply of goods or services to the JV?

What is the immediate risk to the JV? 

Does the inability to fulfil obligations result in a breach by the party and/or will the same trigger an event of default under the provisions of the JV agreement?

Can the risk to the JV be managed? If so, do the JV participants consider the contractual  arrangement documented in the JV agreement regarding such issues to be an appropriate process to follow to adequately protect the JV in the current economic climate?  The JV participants might consider an alternative approach or compromise to resolve the issues.

Is the solvency of a JV participant compromised? If so, look very carefully at the JV agreement to ascertain when specifically the insolvency related event of default may actually be triggered e.g. it may kick in just before a formal insolvency. If that is the case, the agreement may allow the solvent JV participants to take control of the JV interests/assets (through compulsory transfer).  This may in turn protect the JV by putting the JV assets out of the line of enquiry of an insolvency practitioner.

JV participants should also consider carefully the impact that the recent Government announcement on the temporary suspension of wrongful trading provisions may have on any solvency related issues being considered by the JV participants. Please consider our article “COVID-19: Change to UK Insolvency Laws”. 

Neither of the JV participants is in default of its obligations and despite best efforts the parties are unable to agree how to manage the unexpected risks to the business that have arisen due to COVID-19 pandemic.  What are the options?

Usually, in such circumstances the parties would look to the deadlock resolution process in the JV agreement to resolve disagreements.  Where the disagreement cannot be resolved, the JV agreement will usually provide for one or more of the parties buying out the shares of the others or where this cannot be achieved, the winding up of the JV company.  Before proceeding with such measures, it is worth considering the impact the existing economic conditions arising from the COVID-19 pandemic may have on the deadlock protocol you may ordinarily deem as an appropriate route of resolution.


  • how the assets are valued in any buy-out mechanism detailed in the deadlock provision.  Ascertaining the valuation of the assets in the current market conditions may prove difficult or where a valuation can be determined it may result in a much lower valuation due to the current economic climate.
  • in an exit scenario, whether the exiting party has any continuing obligations (e.g. funding commitments, assurance or guarantees in respect of given security or loan arrangements, requirement to continue to license its assets or IP etc.) which will continue after exit and whether the exiting party is in a position to maintain these.
  • the impact of any restrictive covenants placed on the exiting party.
  • whether winding up the JV will be acceptable where buy out is not financially possible for the remaining JV participant.

It maybe that an assessment of the position considering these factors may encourage the JV participants to try and resolve the disagreement or at least agree an alternative/temporary position rather than implement deadlock protocol and potentially end up having to wind up the JV.

In summary

The COVID-19 pandemic is requiring JVs to navigate through new and unchartered waters. JV participants are now considering revised operational structures and budgets and how to deal with potential deadlocks in decision making (rather than simply pursuing deadlock protocols which may not be the best approach in the current circumstances). As we have described above, JV partners should give thought to alternative arrangements to work through these issues and endeavor to resolve disagreements in order to avoid unintended outcomes. Working together collaboratively during these difficult times will be the only way to ensure survival going forward.

The above does not constitute legal advice nor does it consider a complete list of issues JV participants might consider in the context of COVID-19. Should you have any queries, please do not hesitate to contact the author of this article or your usual corporate department contact at Ince.

Mona Patel

Mona Patel Partner

Related services: