KNOWLEDGE

Coronavirus and Business: 10 Practical Considerations for Clients

Morton Fraser_Richard McMeeken
Author
Richard McMeeken
Partner & Solicitor Advocate
PUBLISHED:
27 March 2020
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  1. Talk to your contracting partners about any difficulties that have arisen or that you anticipate might arise. Everyone knows that unanticipated issues are going to get in the way of normal business. So address them head on. Pretending that they don't exist isn't going to be of any help to you or your business partners.
  2.  If you are struggling financially take advantage of the government support. Our website provides guidance on how to access that support. Speak to your bank. The risk to banks is significantly mitigated by the government guarantee. Accordingly, lending below £250k ought to be made available by banks without the need for directors' guarantees or security. Taking on more debt now and restructuring that debt after the crisis has ended is preferable to closing down, which brings with it the risk of directors guarantees being called up or, if you are a tenant, dilapidations liabilities.
  3.  Take action right now in relation to employees. The government is supporting the furloughing of employees by covering up to 80 per cent of their salaries. Don't wait until you are in difficulties before doing this. Take decisive action now. Furloughing is the reality for all businesses and employees can be called back as soon as things pick up. Employment advice will be key in how to best approach this issue.
  4.  Take advice on your contracts. Can anything be done to suspend performance for a period of time in order to allow the market to return to normal? If not, can the contract be terminated entirely? Many contracts will contain wide force majeure provisions. Whether to trigger these and the proper way to do so requires careful advice. If there are no applicable force majeure provisions then has the contract been frustrated? Other than in times of war, frustration of contracts rarely happens. But it might in the current environment. If you want the contract to continue take early action. Speak to your solicitors.
  5.  While the majority of sensible commercial people will act properly in these times, some will not. Where you consider that a contracting partner is about to breach their contract in some way, take preventative action. While the courts are operating a much reduced service at the moment, urgent court applications are still possible and if you need to obtain interim orders to prevent financial harm being caused to you or your business it is important to act quickly and decisively.
  6.  If the breakdown in your contractual relationship is caused by a breach of contract by the other contracting party then you may have a damages claim against them. In order to preserve that claim for when the courts re-open for all business, make sure and do things right. Speak to your solicitor about your options and how to properly terminate the relationship. So much can turn on what is done at that stage. Service of a notice in the wrong form, to the wrong party or the wrong address can be fatal to a claim. Make sure that it isn't in your case.
  7. Remember that proving any case involves persuading the court that you are right on the basis of evidence. If you have no evidence, you won't win. Correspondence with the party in breach needs to be carefully drafted so that there is a documentary record. Take this time to gather any other evidence you need such as statements from people involved. Keeping a careful record of events can make all the difference between a successful and unsuccessful claim in the long term. If you are meeting up with contract partners, don't go along. Witnesses are important where nothing is in writing.
  8.  Directors need to still be cognisant of their duties to shareholders and to creditors where the financial position of their business has changed significantly. There have been calls on the government to relax the wrongful trading rules and allow directors to continue to trade businesses optimistically through the current downturn without fear of action being taken against them at a later date either by an insolvency practitioner or disqualification proceedings by the Secretary of State. However, no such rules have been introduced yet and so directors need to tread carefully and protect themselves against the risk of claims.
  9.  Remember that we have very detailed and effective insolvency laws in the UK. Not all insolvency options mean the end of your business. Speaking to insolvency practitioners and solicitors at an early stage can allow your business to continue. The whole point of administration procedure is business rescue. If your business goes into administration it gets almost complete protection from its creditors as a result of a statutory moratorium allowing it, where possible, to trade through this difficult period and come out the other side. Making proper use of our insolvency laws can keep your business on track, but very early advice is key.
  10.  Finally, this is a very uncertain time and there are lots of things that we can't control. Let's make sure that we control the things that we can. Good business and accounting practice. Quality service for our clients and customers. Good advice and support for the business community. And, above all, a great attitude. Even as we speak, the coronavirus seems to be peaking in Italy and as it slows, the financial virus that is infecting the country will slow as well. When it does, because of the nature of this downturn, the upturn may be quick and significant. So let's all be ready for it too.
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