COVID-19 is dominating not only our personal lives but also our professional ones, with measures being taken by governments around the world that severely restrict their citizens and which will fundamentally impact businesses. A crisis on this scale has not been seen by this or the previous generation.
The impact of recent events is hitting companies in every industry and jurisdiction. As companies take drastic action to manage their outgoings, carve out liquidity and preserve cash, directors of companies can expect a number of issues to arise and to which they will need to react quickly.
Whilst there are no magic bullets or standard answers to the environment within which we suddenly find ourselves, there are common themes and areas that directors are likely to need to consider in times of distress. The Restructuring team globally is market leading and has decades of experience in supporting corporates, lenders and other stakeholders in difficult times.
- One of the first things to do is to set up a crisis management structure, pull out any existing crisis management plan and allocate roles and responsibilities, also linking in your advisors. Ensure everyone is clear who is doing what as lack of clarity here is likely to cost later.
- Cash management will be key, working with your advisors to prepare detailed cash-flows and plans based on them. It will be important to be prepared, identify potential problems areas as early as possible and communicate with relevant stakeholders in good time.
- Be aware of the relief being offered by governments, banks and other bodies, e.g. time to pay for tax liabilities, government guarantees for loans, grants, etc., and keep monitoring what is on offer so that you can take advantage of any that help.
- Evaluate all options, engaging with your trusted advisors. Challenging possible alternatives with your advisors as sounding boards is usually a worthwhile strategy.
- Directors’ duties do not go away in a crisis. While governments around the world may provide relief from certain duties for limited time, directors should always keep their duties to the company and creditors in mind to avoid risk of liability. Take advice from your advisors before making decisions as it may be reasonable to make what appear to be unusual or odd decisions in the context of a crisis. Directors on the boards of international group companies should familiarize themselves with the duties in the relevant jurisdictions and try to avoid the risk of considering their viewpoint only on a division basis rather than an entity basis, including in respect of conflicts of interest. In light of the increased risk of claims against directors following an insolvency as a result of an increased availability of litigation funding, directors will benefit from working closely with competent, experienced advisors, being familiar with everything required of them and checking their D&O cover. It may also be helpful to consider appointing an independent director to help guide the group through this difficult time.
- Consider whether it will be necessary to ask your lenders to waive any covenant breaches or your pension schemes to accept lower contributions or to make decisions about what payments to make to creditors. Again here, early communication with stakeholders and/or regulators will be helpful.
- Your people are the most important asset you have so it will be important to do what you can to protect their health and wellness, including their mental health. To manage your staff levels during these unpredictable times, it may be possible to make use of annual or unpaid leave and sabbaticals rather than redundancies. Training and repositioning team members in the organisation should be considered, so human resources are deployed in those parts of the business that have the need. Given the risk of people being unavailable for periods of time, it will be important to identify key workers and make contingency plans around them. In addition, you may face issues relating to home-working, travel and immigration, which could be distractions from the core business but which need to be addressed.
- Look after your customers. Engage with them and see what you can offer to keep payments on track, such as instalment arrangements, relaxing requirements around non-returnable deposits and contractual cancellation fees. A plan should be developed to focus on key customers, with sales teams staying close to customers, being available and credit teams monitoring and following up on payments – with everyone holding on to cash, relationships may be the best way of ensuring payment.
- Carry out an analysis of your supply chain, identifying what is critical and where your risks are. There are ways to try to limit exposure, including identifying potential alternative and/or dual suppliers, seeking legal advice about options on the insolvency of the existing supplier and advance planning on managing an orderly transition to a new supplier. In these changing circumstances the usual checks about a supplier’s solvency may not be helpful. Be aware of any retention of title issues and termination rights in the chain. Be proactive as knowledge is king.
- If possible, there may be scope for creating efficiencies through the use of existing or new technology and it is worth considering what is available that might be helpful and therefore be worth investing in to create savings. In any event, in times of crises there is an increased risk of cyber attacks so it will be important to stay vigilant and avoid making any potentially false economies in relation to technology and security.
- With more focus and attention needing to be given to a number of areas, you will want to spend as little time as possible on non-core activities, such as dealing with existing litigation. It is worth noting that the English court has recently granted a longer extension than normal as a result of the Coronovirus so it will be worth exploring with your legal advisors whether there is any action that can be taken to create breathing space in disputes.
Throughout this crisis, long-term planning will be needed, together with constant monitoring of the situation both internally and externally. Keep close to your stakeholders and be planning to come out the other side. Look for the opportunities that may come from micro and macro changes to your market. In all of this, joined-up professional advice in all relevant jurisdictions will be important to help you through these uncertain times.
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