The Challenge of COVID-19
09 March 2020
It is nearly impossible to determine the potential effect of COVID-19 (formerly known as Coronavirus nCOV-19) on the world economies. It is changing as we draft this article and the news comes in of more events cancelled, businesses shutting down and, of course, more deaths. How do we prepare? What can businesses do to survive?
The virus will ultimately impact almost every business sector due to supply chain issues and suppressed demand resulting from uncertainty, travel restrictions and general disruption to ‘business as usual’. Legal implications and obligations are uncertain. Is COVID-19 a ‘force majeure’ event? Some may seek to delay or even avoid performance of contracts. Contracts may be terminated. COVID-19 may legitimately be the reason for non-performance (cancellation of a sporting event) or it may be used as an excuse for one party to avoid performance of a contract that is just not as lucrative as they previously thought. Supply and demand changes may result in the renegotiation of prices. Factories, offices may be forced to lock down if employees contract the virus. How will employers ensure business continuity? How will employers continue to pay their staff? What are the local laws in relation to sick pay and do they cover enforced longer lay-offs that may result from COVID-19. Can the business operate if everyone is at home? How does the business communicate that to its customers? We are hearing of more and more companies each day enduring a forced shut down of their premises. As COVID-19 gains a foot hold in Europe Google’s European headquarters in Dublin tested their systems by telling all staff to stay at home for a day to test their ability to continue while everyone worked from home. This pro-active approach should be applauded and replicated. We know of professional services firms in Hong Kong whose staff have been working from home for some weeks now.
The legal implications, the contracts in place and how a business should now act are all very fact specific issues to consider. The potential impact of COVID-19 will depend on many factors relevant to the business including, inter alia:
Does your insurance policy provide business interruption coverage?;
What are the contractual issues that may result?;
What are the notice periods to be given for performance, non-performance?
How might the contractual obligations be alternatively fulfilled?;
Within the Global organization of 1,617 offices in 167 countries, BDO has dedicated Crisis Management Team resources available to assist clients. Crisis Management Team services may include:
Setting up a client control room to frame the problem and assess the situation, build a plan complete with defined action steps across the organization including branches and sequels, prepare for both action and messaging, monitor progress and provide status updates;
Helping the client to understand the situation from a different perspectives and seeking to identify the important signals among the ‘noise’;
Facilitating an evolved decision-making framework informed by military models, behavioral and cognitive science, and design, to enable precise responses to the most difficult situations;
Task-forcing a team of focused specialists relevant to the required situation (e.g. forensic investigators, insurance specialists, accountants, cyber professionals, specialized attorneys, and real estate and construction experts, etc.);
Utilising resolution tools such as persuasive communication, strategic coalition building, structured problem solving and crisis-response techniques.
If you are the party affected by non-performance, what remedies are available to you? Performance, cost relief, damages? How long must you wait, and endure, non-performance before action may be taken? Ninety days? One hundred and eighty days? And how will that impact on your business? You have obligations, staff to pay and creditors seeking payment.
Within the Cayman Islands and wider Caribbean regions, the local Corporate Recovery and Insolvency divisions of BDO are resourced with highly experienced professionals who are available to advise and assist creditors and stakeholders seeking to recover value from corporate entities. Similarly, advice and assistance is offered to corporate entities that may seek protection from active or anticipated stakeholder pressure.
BDO invites such enquiries be directed to Declan Magennis or Russell Smith.