A Business Perspective – Coronavirus/Covid-19

Alongside the health crisis being caused by Covid-19, the coronavirus is rapidly causing economic difficulties for business which, owing to what some consider to be not fast enough action by the Government, is leading to job losses and closures.  It is naturally a very difficult time for all.

Richard James, the head of our corporate practice, comments: ‘Business owners are being forced to make very rapid decisions about their future and what to do.  In a question to the Prime Minister last Tuesday, Robert Peston of ITV, queried why the package of financial support will largely be in the form of loans, leading to future debt that businesses will have to carry, notwithstanding the obvious unknown about what the future might hold.’

Some businesses will inevitably choose to close, rather than taking on additional liability; others simply will not be able to replace their cashflow, with diminishing orders, on the one hand, and, on the other, staff who, quite rightly, need to remain at home, in light of the advice to self-isolate if they or a family member has symptoms or, from today, because they need to look after their children (following Friday’s announcement about school closures).

Given the acuteness of the situation, what should businesses do?

It is essential to consider future cashflow projections, taking account of potentially lower staff numbers, a lack of willingness (or even ability) for customers to pay (given the economic circumstances) and a potential downturn in orders.

‘Financial support will, in the most part, be in the form of loans and therefore forward planning to see how these future circumstances can be balanced against a business’ financial reserves and possible funding requirements, needs to be undertaken.  The various grants that will become available, alongside a halt for many of business rates, will help but those savings will not be felt for long.

A failure to fulfil orders under contracts or to meet other obligations will not necessary be excused, as a result of the worldwide pandemic.  For those with properly drafted terms and conditions for their business, what is known as force majeur (or sometimes more commonly the ‘Act of God’ clause) might come into play.’

Force majeur seeks to halt each party’s obligations if certain events arise (often called force majeur events); it will depend upon the specific wording of each clause but events such as pandemics, epidemics and work interruption, compliance with law (once the relevant Covid-19 legislation has been implemented) or Government orders.

Of course, if the current crises continues for a lengthy period, often any party affected can, once a certain period of time has passed, invoke the right for the unaffected party to give notice and terminate, albeit they would need to follow the specific steps required by the clause itself.

What if we have to leave Commercial Premises?

From the perspective of businesses’ offices or retail premises, head of commercial property, Janet Milton, comments: ‘For tenants of commercial premises, the fact that a business may be unable to use their property will not absolve them from paying their rent or meeting their other lease obligations.

If all of the benefit to the business of the property (which might include their ability to use the space for something else, provided within the confines of the demise under the lease itself) hasn’t been lost, it will be difficult to argue that the coronavirus amounted, in law, to what is known as frustration, as a way of absolving liability.  Frustration is a slightly different concept, where performance of the terms of the lease had become impossible or so radically different from what the parties had envisaged, that they should be released from their obligations.  Often, in the context of leases, this will arise from destruction or significant damage to the property itself, rater than something else preventing occupation or use as had been intended; in other words the situation in which we now find ourselves.  Commercial tenants should therefore seek to discuss their circumstances with their landlords, to see if some leeway or different arrangements can be agreed.

Unlike business contracts, most leases do not include a clause allowing for force majeur and therefore the considerations above, would not apply to a business’ premises.

How do we look after our Employees or Workers?

Naturally, businesses have an ongoing obligation to protect the health and safety of their staff.  Employees must not therefore be treated differently if they are required to follow the advice to self-isolate, whether because they have symptoms or if someone in their household shows symptoms of the virus, in line with the WHO guidance.  Social distancing is being applied with potential meetings minimised or achieved through other means, such as telephone, video chat or via similar technologies.

Ensuring records are up-to-date and undertaking an audit of your team’s home working environment, allowing for rapid deployment of remote working, if needs be, will help to maintain staff morale and business continuity.

Within workplaces, employers are providing enhanced facilities for hand-washing and the use of sanitiser or similar products, to minimise the possibility of cross-contamination.

If an employee needs to isolate, they can download an isolation note, for use, instead of the usual sick note, via the website for NHS 111.  Self-isolation because of Covid-19, through illness or as a result of illness of a family member, or due to childcare where the employee does not fall in to the now clearer list of key workers, will not now risk jobs as it might have done.  The job retention package, where employers can claim for 80% of their workers’ salary entitlement should, it is hoped, retain many more on firms’ payroll without business leaders having to make the harder decision to enforce redundancies.  The mortgage repayment holiday for home-owners that need the support will at least delay probably the most expensive monthly outgoing for most; and for renters, emergency legislation is being introduced to ensure that landlords cannot, for the moment, commence proceedings for possession/eviction, if rent is delayed.

Financing the Downturn

For businesses, it would appear that the Government is expecting firms to cut their cloth accordingly and where they are viable take steps to obtain additional finance to support liquidity, through the Coronavirus Business Interruption Loan Scheme, administered by the British Business Bank, to be delivered via the retail banks and commercial lending sector.  It should be noted, however, that a business that would not have secured finance prior to the onset of Covid-19, however, may not necessarily be approved for this additional support.

Retail, hospitality and leisure sector businesses may be entitled to a cash grant of £10,000.  Businesses with a property with a rateable value of between £14,999 and £51,000, the cash grant will be at the higher level of £25,000.  Grants will be issues via Local Authorities.

HMRC’s Time to Pay scheme will continue to be open to businesses who consider that they may experience difficulties in making their tax payments when due, with business owner’s self-assessment payments on account also being deferred by a number of months.

Will insurance provide some Assistance?

Businesses with insurance cover that includes pandemics and Government-ordered closure will now, it is understood, be able to rely on the Government’s advice for people to avoid certain businesses, and following the lock-down, all non-essential businesses, provided that is the only barrier to making a claim and where all other conditions of the particular policy have been met.

So is there anything Positive to Consider/Do?

Marketing that will amount to tangible additional business should arguably be the focus, added Richard James, given that general marketing activity or work that might attract clients to start projects in several months, will not directly address the heightened cashflow pressure.  The only caveat to this might be where a business agrees instalment payments, starting now, where a new project can get underway.

The other big area that we’ve seen is businesses expanding their delivery models (what one commentator called pivoting) to increase demand.  So, instead of selling products from a retailer’s shop, moving to online, or offering delivery where this wasn’t a major feature of the business previously – many in the food and beverage sector have rapidly moved to home delivery and take-out models, where before this would have been a minimal or non-existent feature of their offering.

For business owners, things cannot simply grind to a halt; it will be those who now take pro-active action to manage the crisis, future plan and seek any opportunities that may exist, that will stand firm against the tide of Covid-19 sweeping the world.

Businesses must consider their financial and operational model, take necessary action and consider how they might attempt to enhance what they can offer, to offset the damage and loss caused by the current crisis, and implement their plans so that, with the financial support on the way, they can move fast and decisively, standing them in a better position to come out of this stronger and better placed to capitalise on their future opportunities.

Richard James and Janet Milton