General Business Considerations for Responding to Coronavirus Disease 2019 (COVID-19)
***Information and guidance in client updates was up to date at time of publication. During the pandemic, information and guidance has been changing rapidly. If you have any questions about the information contained in a client update, please contact the author(s) or your Miller Johnson attorney.***
The coronavirus disease 2019 (COVID-19) outbreak has brought about uncertainty and disruption to businesses. Although we do not know the full extent to which COVID-19 will impact business operations, the business section offers the following general business considerations in response to COVID-19:
- Contract Review. Evaluate the company’s contracts, including any real property leases, that may be affected by COVID-19. Analyze force majeure provisions, terms for allocating limited supply/output (i.e., rationing), cross-default provisions, invoicing and payment terms, etc. Review and update standard/form agreements to address COVID-19 issues and ensure that the most current, updated versions are available to employees.
- Assemble a COVID-19 Response Team. Think about forming a nimble COVID-19 response team comprised of individuals from key groups/departments to monitor employees’ health, safety and welfare, supply chain disruptions, the company’s financials and compliance with emerging legal requirements.
- Confirm Liquidity is Sufficient. Project the company’s financials in three different scenarios (best-case scenario, what you expect, and worst-case scenario) in a cash flow statement and balance sheet. In certain cases, the U.S. Small Business Administration may be able to provide low-interest loans to small businesses and non-profits that have been severely impacted by COVID-19.
- Ensure Supply Chain Stability. Confirm the company’s inventory count and calculate how long the company’s current on-hand inventory will last. Work actively with suppliers to confirm their ability to perform and adapt to further changing circumstances.
- Increase Online Presence. Leverage online and social media resources to inform the company’s customers of any anticipated disruptions. If possible, invest in the ability for customers to shop and conduct business via online or automated distribution channels.
- Contact Insurance Professionals. If the company has business interruption insurance, contact your insurance agent and other relevant professionals to confirm what the company is (or is not) covered for when there is an extended incident. If coverage is available, begin a process to document the claim and damages.
- Due Diligence. Discuss with counsel, specialists and other advisors the risks, uncertainties and ramifications caused by COVID-19. More than ever, do not treat due diligence as a rote exercise, but rather a gating item to evaluating and affirming the viability of a long-term, resilient partnership.
- Valuation. The valuations of buyers and sellers are likely to deviate more than normal, as the disruptions and uncertainties caused by COVID-19 are viewed differently by asset owners and asset acquirers. Parties may need to develop creative approaches to reach agreement on value, rather than simply applying a multiple to a measure of earnings. Contingent purchase price (e.g., earnouts) may be more prevalent in the near-term.
- Financing. Borrowers should carefully review financial covenants when negotiating (or renegotiating) a credit agreement. Existing borrowers should review their current credit agreements and may need to work with the lender to amend the credit agreement or obtain a short-term waiver of non-compliance/default. Where debt financing is limited or unavailable, companies may need to explore creative ways to recapitalize.
- Timing. Expect workflow delays as parties work remotely and attend to urgent personal and family matters. Governmental agencies may also be delayed in responding to filings, information requests and other notices. Build extra cushion into expected performance time frames under your contracts.
- Staffing. Evaluate potential knowledge silos within the organization and vulnerabilities should the individuals associated with these silos become unavailable for extended periods of time. To the extent possible, promote information sharing and knowledge management/capture practices to mitigate the effects of prolonged or unexpected absences.
- Real Property Conveyances and Closings. Check with local counties and title companies about the possibility of e-recording real property conveyance documents and whether those services will remain available during any office closures. As local counties move forward with closures, registers of deeds in charge of recording real estate conveyance documents will also close, which may cause delays in real estate purchases, sales and financings.
- Real and Personal Property Taxes. If possible, pay any past-due real and personal property taxes now before local municipalities and counties close offices to prevent interest and penalties from accruing during prolonged closures.