26/03/2020
In the UK and also globally, the spread of coronavirus is creating fundamental changes in our way of life – with individuals, businesses, organisations and also entire economies all facing an uncertain future.
It’s unknown how long the international emergency will last, what measures will be taken by governments to mitigate the crisis, and (when the pandemic is all over) whether countries will return to ‘normal’ – or a paradigm shift will occur.
For General Counsel and other in-house lawyers, giving the correct advice depends on having up to date and detailed knowledge on rapid changes in government policy – certainly on a day-to-day basis, sometimes even hourly – and communicating that information quickly to the Board.
Good communications
A crisis management plan is essential – and the ability to communicate that plan effectively, on a regular basis, to a wide range of stakeholders. Any information vacuum is unsettling, especially for employees – who want transparency and confidence that their concerns are being listened to.
Staff will be understandably concerned about maintaining their financial livelihood during any period of absence, whether on account of an instruction from their employer, in light of the relevant guidance to self- isolate for a period of time or as a result of caring for a dependent. Managing this situation will require a careful juggling of priorities and considerations, not least operational, financial, safety and business continuity.
Suppliers and customers need similar confidence about supply chains, warehousing and inventories. In essential services, regulators and other authorities will also need re-assurance. Those communications may also be market sensitive – at a time when UK and global financial markets have been in freefall.
Operational resilience is now being tested to the extreme. Businesses should therefore be vigilant, detailed and accurate in recording how they manage the crisis.
Contract Review
A review of contracts to check the extent to which contractual obligations can be met, by both the business and by any suppliers/ customers, is critical.
In some cases, the role of General Counsel will be to pause steps being taken which could potentially result in proceedings in due course. For example, switching to different suppliers, or using different products or raw materials due to shortages, may result in a claim for repudiatory breach if a breach by the original supplier has not been sufficiently established.
Other risks include:
- Potential health and safety investigations resulting from failure to adequately protect health and safety of employees and/ or failure to take reasonable steps to control spread of coronavirus at sites under the control of the employer;
- Employment claims resulting from reduced salaries, temporary layoffs or termination after an employee contracts coronavirus;
- Data protection claims resulting from disclosure of employees’ travel, health or personal information;
- Concealment of market or commercially sensitive information relevant to coronavirus.
COVID-19 could also create a number of claimed force majeure difficulties between businesses, where parties can potentially excuse or delay performance if the contract allows them to do so and if the pandemic has directly caused the failure to perform. In some cases, the contract may be frustrated. An organisation wishing to claim force majeure should act quickly to exercise its rights.
The financial stability of key suppliers and customers will also need to be assessed. Any requests for changes to payment terms, for example, should be explored and investigated. Contracts should be reviewed to consider rights to recover assets and/or ring fence goods. Actions taken outside of the agreed procedures could result in a claim for breach of contract.
Finance and funding agreements
GCs should also be looking at any material adverse change (MAC) clauses in financial and funding agreements to assess the risk of credit and funding lines to the business. The Coronavirus Business Interruption Loan Scheme (CBILS) is now available through participating lenders to support a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance and GCs may need to work with their FD to assess whether their business can avail itself of this scheme or the Bank of England’s new Covid Corporate Financing Facility for businesses over £45m turnover.
Insurance cover
The organisation’s insurance portfolio should be reviewed carefully to see whether any insurance cover is available to assist with financial difficulties or losses arising out of the coronavirus outbreak.
Most business interruption cover is only triggered when physical damage is caused to the insured’s premises or property. Even where the policy covers business interruption caused by disease, the standard wording is for the policy only to cover diseases named in the policy wording, which almost invariably will not include COVID-19. However there are some insurance policy extension wordings which might respond to coronavirus-related losses, so the scope of the organisation’s insurance cover should be reviewed.
Helping senior in-house lawyers
The 2020s are likely to see many General Counsel having an increasingly major role in helping the Board to shape strategy and achieve its corporate objectives. With that come fast-changing responsibilities and expectations, and the need to be supported by an in-house legal team and outside advisers that can demonstrate business value.
Bevan Brittan’s GC Exchange is a team of expert lawyers and a knowledge hub that helps senior in-house lawyers navigate the business landscape. We want to support senior legal professionals operating in today’s fast-paced commercial world, by harnessing our strengths, rich collective experience, up-to-date commercial knowledge and strong relationships.
Please sign-up and as a member you will receive the latest knowledge, insights and news to underpin your strategic decision-making and help you stay up to date with the latest legal, risk and compliance issues. By enriching your knowledge, you can more effectively manage risk and take future-focused decisions.
For further support and advice relating to the impact of COVID-19, please view our COVID-19 Advisory Service page.
