25 March 2020
Most businesses will be feeling the immediate effects of the virus on their livelihoods and be struggling with what options they have and what to do. It won’t all be easy. That’s where we can step in. Give us a call or drop us a email; but to get you started here are some things you might be thinking about which we can help you with in the coming days, weeks and months.
We have highlighted below some of the issues and questions which you may be grappling with.
The legal implications are potentially wide-ranging and complex.
The commercial team here at Gibson Sheat is well resourced and working remotely. We will continue to work, effectively and with, we hope, very little disruption to the services we provide.
While every business will be different, the following is a summary of the process we at Gibson Sheat have been through and recommend all businesses follow to ensure you are keeping your business agile and able to weather COVID-19.
- The Government’s strategy appears to assume the virus will be around for some time. Taking that into account undertake a simple but considered SWAT analysis of your business (a review of your strengths, weaknesses, opportunities and threats) or similar, and from that develop a strategy for your business for the immediate future.
- Prepare a financial model to help you understand your thresholds for revenue drop, and your cash-flow requirements.
- Put a process in place to monitor changes in WIP, sales, revenue, debtors and available cash in real time.
- Review all of your discretionary spending.
- Review your current and potential contracts, particularly those which contain medium to longer term financial commitments.
- Consider whether any of the Government’s support packages might be relevant to your circumstances.
Talk to any of our commercial partners about our experience in undertaking this exercise. We appreciate we are currently in uncharted territory, and welcome any input or further suggestions to this list.
Some of the key legal ‘‘must address” issues to consider and which may arise for all businesses, include
- Current contracts - Are you a party to a contract under which your or the counter-party’s performance is made impossible by COVID-19? You will need to check whether the contract contains a “force majeure” clause which may have the effect of suspending or discharging a party from their obligations. Unsurprisingly, a force majeure clause is interpreted strictly and to the letter, which means there is limited or no room for a generous dose of flexible thinking on it to make it fit with the level 4 lock-down. This is because there is a good chance it will not list a pandemic as an event that entitles you to suspend or be discharged from performance. Most of these clauses have been drafted with volcanic eruptions and earthquakes in mind – which means that many of them will be unhelpful. If there is no force majeure clause or it is unhelpful then give consideration to whether the contract has been “frustrated”, which is a form of relief available in law – if there is nothing of help in the contract. Being discharged from a contract is an extreme remedy and rarely available so please call us before you make any irreversible decisions, especially if they are likely to have significant financial consequences.
- New contracts - When negotiating new contracts, we will now all be acutely aware of the risks presented by the likelihood that COVID-19 will continue to circulate and impact on the economy for some months to come. This means that consideration must be given to managing that risk in your new contracts. For example, who will pay the costs of setting up and then disestablishing from a venue if there is another lock down?
- Debt Restructuring – If you have cash-flow issues which are impacting on your ability to meet your obligations to creditors, talk to your creditors (including banks) promptly. Explore whether you can restructure the terms of your debt. For some businesses lending may be on the family home, banks and Government have agreed to a 6 month principal and interest holiday for mortgage, the details are yet to be finalised. Contact your bank as each bank will be administering it themselves and keep talking to your bank so you are able to take this up as soon as it is in place.
- Leases/Rent – Consider whether your lease contains any clauses which may provide relief. Recent standard forms of lease contain clauses which may entitle tenants to suspend the payment of rent in the event the Government requires businesses to close.
- Insurance – Consider whether you have insurance policies which could respond to the negative implications of COVID-19 on your business. To date for many business that is not the case but it is prudent to carefully check
- Employment Considerations – Consider your obligations to your employees. While in a strictly legal sense, employees who are required stay at home may not be entitled to payment, in good faith, employers should be considering other options before looking to possible redundancies. Those other options will include sick leave, annual leave, a reduction in hours (and therefore pay) and, of course, the government assistance available. Don’t forget there is government assistance for salary and wages and isolation related leave for all businesses, self-employed and sole traders see https://covid19.govt.nz/government-actions/financial-support/ for details and how to apply. Yes, for you small businesses out there that includes your own salary and wages
- Insolvent Trading – If you are experiencing severe cash-flow problems, and potentially trading while insolvent, you may wish to consider the implications of that from the perspective of your obligations as directors of your company.
If you need advice, or would like to discuss any of these matters, please contact any of our commercial partners whose contact details are set out below, or call us on 0800 55 44 66 or (04) 496 9990