The current Coronavirus / COVID-19 crisis has far reaching implications for businesses. This guide seeks to identify and address some of the legal issues likely to affect businesses:
Contracts, Inability to Perform – It is very probable that large scale sickness, delays in national and international movement of goods and potential lock-down will cause supply chain issues making it impossible to fulfil contractual commitments. Many contracts contain ‘force majeure’ clauses which release or postpone contractual obligations where major events beyond the parties control interfere with performance. Force Majeure clauses are a device of contract and it will be necessary to consider contracts on a clause-by-clause basis to establish if the parties are released from strict performance.
Supply chain delays are likely to cause contracting parties to be unable to perform contract obligations by relevant due dates. Whether that delay amounts to a breach will depend on numerous factors including whether time is ‘of the essence’ in contract and what the contractual implications of late delivery are defined as being.
Contracts, Event Cancellations– Many businesses will either want to cancel event bookings that they have made or if they are venues, bookings they have taken. Careful analysis of the circumstances, contract clauses and relevant government guidance will be required to establish if the cancellation is justified and if it is, who will eventually be the losing party. Many contracts contain provisions for compensation on termination, but these may be subject to challenge – particularly in the case where the other contracting party is a consumer. Timing can be key to these clauses.
Another relevant consideration will be insurance – there are often strict procedures to be followed to enable a claim to be made under an event insurance policy – it would certainly be worth reviewing policy terms before taking action.
Frustration or Contractual Failure - In certain sectors performance might well become impossible, for example, events which see gatherings in excess of restricted numbers, flights which are grounded by new regulation or perhaps supplies which contravene newly introduced legislation. It may be arguable that those contracts are frustrated, freeing the parties from further contractual performance. In those circumstances consideration needs to be given to payments that have been made and whether either party is entitled to rebate. Frustration is a strict legal principle and legal advice should be sought if it seems likely that frustration might apply.
Tip – Many larger businesses are undertaking wholesale reviews of their contractual commitments. All businesses should review their contracts now, before issues become too serious, to understand precisely what their contractual exposure is and where possible seeking to negotiate variations to those contracts to account for delays or inability to perform. Legal advice on the application of force majeure clauses, frustration and other key factors is crucial
A good proportion of businesses will carry business interruption insurance. Business interruption caused by enforced closure, restrictions on trade or other indirect interference might potentially be a trigger event under the policy. It is crucial that businesses seek early advice in relation to the applicability of the policy and any specific protocols to be followed if a claim is to be submitted.
Tip – Take time to undertake a review of the insurance policies that you hold, familiarise yourself with the cover you have and the trigger events. Be careful to ensure that you do not vitiate cover terms through your action, or inaction. If in doubt, seek advice.
Acting on government guidance, many businesses are now looking to implement home working arrangements as social distancing and even possible ‘lock-down’ measures take hold. However the implementation of such arrangements raises numerous legal issues:
If ultimately the difficulties lead to the need to put staff onto short-time, lay offs and redundancy then it is crucial that legal advice is sought and a fair and proper procedure followed. A perfectly lawful redundancy can become an unfair dismissal if proper processes are not followed.
Tip – A timely review of employment policies and procedures is worthwhile. It might be possible to use checklists to have employees self-assess work stations. It is easy to make mistakes where employment relationships are concerned, particularly where employees are already stressed by the situation they are facing. Be mindful of this and seek legal advice before any significant steps are taken.
Most businesses will be only too aware of the burdens placed upon them by GDPR and the Data Protection Act. Home working has the potential to bring data issues to the fore, with GDPR and confidentiality becoming particularly relevant.
Is your business able to maintain necessary standards of compliance when your employees are working off-site? Is client data and documentation held securely? Will staff members be using their own telephones and email addresses and does that breach regulations or your own policies? Is your business subject to higher duties of confidentiality e.g. do you hold confidential medical records?
The data related issues go further though. Do the software licences you hold permit use for homeworking - are they ‘per seat’ or ‘per location seat’ licences? Do you hold sufficient licence numbers to enable multiple staff log-ons when all staff are home working, rather than the odd few?
Tip – Take time to review your own policies and procedures and if possible stress test arrangements before they are fully implemented. Check your IT licence system, licences can usually be extended easily if necessary.
Catastrophic events can massively increase business risk. Businesses need to have careful regard for the financial strength of their business counter-parties. Where concerns exist regarding the solvency of contracting partners steps can often be take to improve the business’ position by adopting altered terms and conditions, by imposing retention of title clauses in relation to goods supplied and in certain circumstances by seeking security from contracting parties when credit is being given. Businesses should ensure that their trading terms are kept under constant review and many sensible business operators will be immediately tightening up their terms and conditions in light of the present difficulties to ensure that risks sit with the other contracting party.
Where difficult trading conditions lead to business failure it is crucial to seek advice as quickly as possible. Often businesses can be restructured using various insolvency processes, so as to ensure that profitable parts of businesses are protected whilst failing areas are removed. Early advice is the key here to ensure business survival.
When trading circumstances are difficult credit is generally tightened and it is common for debtors to delay in the payment of invoices. Cashflow ‘squeeze’ is a common factor leading to business failure. Businesses should ensure that they maintain robust credit control procedures during any down period – this might become increasingly difficult if staffing levels drop-off due to illness. It is usually the businesses most efficient at pursuing payment that are paid first and in an environment where business failure is likely to increase, it is crucial that businesses do what they can to ensure that they are at the front of the payment queue. Businesses should ensure that they have in place, and rigorously enforce debt collection protocols. This might involve engaging legal assistance at an earlier stage to ensure that any advantage is not lost.
Tip – Manage business risk by reviewing (and where necessary altering) T&Cs, by ensuring robust credit control procedures are in place and enforced, by seeking security where possible and by commencing debt recovery with appropriate urgency. Where businesses do act quickly in seeking restructuring advice they maximise the chances of a successful outcome.
In a period where ill health is likely to be prevalent it is worth giving thought to business continuity arrangements. Many owner managed businesses rely on business decisions made a small number of individuals. Some businesses can become deadlocked if key personnel are unable to engage in business decision making. It is sensible to review internal governance and to consider how a business might become deadlocked if certain key personnel become unavailable. Often these issues can be overcome by putting in place Power of Attorney, or reviewing and revising internal business structures and decision making processes.
Tip – Review business structure to ensure that it is workable in the absence of key personnel and where not, put in place interim measures to address.
For more information on the article above contact Andrew Perkins
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