Fears of a possible Greek secession have surfaced before, but “there is a realisation that this really could happen”, says Michael Voisin, a capital markets partner at Linklaters.
The prospect of mass litigation, enforced currency and capital controls, and an obligatory shutdown of the banking sector in a country leaving the euro have forced companies to tighten contracts and scrutinise their supply chains in order to minimise exposure to Greek counterparties.
This contingency planning is harder because it is uncertain how a eurozone exit would play out.
“Even if there was consensus for a country to leave in, say, three months, if you announce that the euro will cease to be the currency of a particular country in three months’ time, what would happen in the intervening period? The exchange controls, the capital controls, the tanks at the border – they’d all need to be ready to go,” says one lawyer.
This scenario could explain why some companies are not as proactive as they could be in disaster planning, says Simon Collins, the UK chairman-elect of KPMG, who describes most companies’ efforts as “superficial”.
Making sure a contract is governed by English or US law, that it specifies the place of payment and that it defines the currency used are all key to securing a favourable judgment if payments are disputed. A clause that explains that by “euro” what is intended is “the currency in circulation in Germany” may later prove to be invaluable.
“It puts you in a better position to look at the paperwork now and to think about how it may work in different scenarios,” says Ian Johnson, a restructuring partner at Slaughter and May.
The point is to avoid re-denomination risk, since it is very likely that a new currency would plunge in value against the euro.
Winning a favourable judgment may be difficult enough, but getting that contract enforced may be even harder.
If Greece left the EU as well as the euro, its courts would no longer have to respect the decision of another EU court. Even if Greece stayed within the EU but left the euro, its courts would probably have to adhere to domestic laws enforcing re-denomination of all contracts, from credit default swaps to holiday villa rentals, into a new currency.
“There’s a limit to what you can do if you don’t hold any collateral or insufficient capital outside Greece,” says Charles Proctor, a banking partner at Edwards Wildman. “You’d be looking at overseas assets particularly … The problem is you’d be in a long line of people doing exactly the same thing.”
Simon Gleeson, a finance partner at Clifford Chance says corporate protection lies in minimising exposure to banks and businesses in affected jurisdictions. “It’s that simple,” he said. “Don’t extend credit terms to suppliers. Put on the brakes.”