The cost of fronting allegations against a company or its shareholders can be insurmountable in terms of financial and reputational cost, regardless of the validity of the allegation. The consequences of an unfounded fronting allegation, whether vexatious or unintentional, can be equally serious for the accuser and accused. Relationships stand to be irreparably eroded. In the event that the parties are still required to engage on a regular basis, the deteriorated relationship can make ongoing interactions difficult and stressful. It will always take time to appropriately address any allegations and follow the necessary steps to resolve the issues. Even the threat of fronting can lead to loss of business as customers terminate contracts and distance themselves from the company. Taking the necessary steps to resolve the allegations may also result in costs being incurred by both parties, causing financial strain. In the event that the unfounded allegation results in the financial failure of the company and its potential closure, the accusers may also face job losses.
STEPS FOR CLEAR COMMUNICATION:
Have a structured information session with all parties to explain their rights and obligations;
Avoid generalised and vague wording in communication; and Make relevant documents easily available to employees in respect of their rights and any funding arrangements attached to the transaction. Von Steiger is a senior associate with Norton Rose Fulbright