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29 April 2020

Covid-19: What your business needs to consider

Tips to help your business navigate these difficult waters.

We expect that you are getting sick of hearing that COVID-19 is an unprecedented situation which is causing never before seen stress for businesses of all sizes. Unfortunately, it’s the truth!

At Saunders Robinson Brown, our focus is getting the best results for great clients.  Part of what drives us is helping good people solve problems (especially through difficult times like these) by giving them all the information necessary to make informed decisions.

Here are some tips to help your business navigate these difficult waters.

Cash flow and cost cutting

Cash flow is the life blood of a business and for many businesses during this period, this is going to be significantly reduced or even eradicated. Your focus should be preserving cash now. Forecast cashflows for at least six months and review them weekly. Ensure your reporting is focused on cashflow. Consider your best case, worst case and most likely scenarios.

Review all of your variable costs to see what can be reduced or eliminated. Costs such as entertainment, travel and subscriptions may all need to be put on hold. Consideration needs to be given to any contract you have signed with a supplier as discussed below. Even if you have no contractual ability to vary a fixed contract we suggest trying to negotiate with your suppliers. Negotiations can include temporarily extending payment cycles, negotiating discounts, delaying or spreading performance over a longer period. If your contract is up for renewal soon, use that as leverage or consider offering to extend the existing term.

Focus on collecting debtors. Be proactive and look for alternative ways in which they can pay e.g. invoice financing. Consider which debts are genuinely at risk and include that in your updated cashflows. Consider whether you need to secure your position with customers who you are continuing to work with but who may also be at risk. Talk to your lawyer about reviewing your contract terms and registering a security interest on the Personal Property Securities Register to give you a better chance of recovering what you’re owed if a customer cannot pay.

Focusing on cashflow is not just about cutting costs, look at ways to maintain or improve your revenue. Be clear about what part of your business has the greatest positive impact on revenue and cashflow and focus your efforts on that.

Contracts

Review your business’ supply and general contracts to see what the ramifications are of the current lockdown level and any future levels designation.

There may be a force majeure clause that allows either party to delay performance of their obligations or even in some instances, cancel the agreement. However, it will depend on the wording of the force majeure clause as to whether it is triggered under the current circumstances and whether the obligations can be delayed.

If you are proposing to vary the terms of an existing contract then these variations should be documented in writing to ensure they are enforceable.

For more information please see our article here.

Employees

Engage with employees early, set out a plan and be up-front and clear with them. There are a number of different proposals you may need to put to your employees, depending on the circumstances of your business. These might include a reduction of hours and salary, taking annual leave or even redundancies. Our advice is be realistic, make the hard calls early and do them once, avoid “a death by a thousand cuts” which destroys culture and undermines the workforce you are retaining.

The COVID-19 wage subsidy can be a valuable top-up during these times provided your business is eligible. This will provide your business with a contribution toward your employees’ wages for 12 weeks. Please see our article here with further information about the wage subsidy.

If you are considering reducing an employee’s hours, putting them on annual leave or redundancies, standard employment law still applies.You still need to follow a fair and reasonable process with the employees and adhere to the terms of each employee’s employment agreement. Please see our article here with further information about redundancy and restructuring .

When considering a redundancy, an employer has an obligation to consider all other options available to them. For example, as an alternative, you could obtain the wage subsidy (if your business is eligible) and if you cannot top-up the employee’s wages to 80%, then you could keep that employee employed for the 12 weeks and simply pass on the wage subsidy.

Lease

If you have a premises lease, engage with your Landlord if you haven’t already. Depending on what version of lease you have signed, you may be entitled to a fair abatement of rental and outgoings during the period in which you are unable to access the premises (if you are a non-essential business).

If you are entitled to a fair abatement of rental and outgoings during this period, there is no strict methodology for how this is calculated and needs to be considered on a case by case basis.

For more information please see out articles here on non-essential businesses rental obligations during mandatory closure and what is a fair proportion of rent abatement.

Bank

Engage with your bank to see how they can help your business, such as placing facilities on interest only or putting in place short term facilities or providing advice about what they are seeing others in your industry doing. You may be eligible for the Business Finance Guarantee Scheme which would allow your business to apply for up to $500,000 which would be repayable over 3 years. The Government would guarantee up to 80% of the loan. For more information please click here. If you are not eligible for the Scheme, then you should still engage with your bank to see if they can provide some temporary funding to your business.

Health and Safety

You will need to consider your obligations under the Health and Safety at Work Act 2015 (“HSWA”). Businesses operating during level 3 will need to mindful of these obligations now and as the country changes to lower alert levels, all other businesses will need to consider the application of the HSWA to COVID 19.

A business has a primary obligation to ensure the health and safety of its employees and to make sure that their employees’ health and safety is not put at risk when undertaking their employment. With this in mind, as your business reopens, you will need to take a number of practical steps to comply with your obligations, including:

  • Develop and document a return to the workplace plan;
  • Check emergency plans and equipment e.g. fire extinguishers and alarms;
  • Clean the workplace before reopening and maintain a strict hygiene and cleaning policy for employees and people outside your organisation; Reinforce the importance of hand hygiene by hand washing and hand sanitiser and social distancing;
  • Ensure employees can maintain physical distancing while carrying out their job and when taking breaks – consider changing work hours and staggering breaks;
  • Ensure contact with people outside the organisation is within COVID-19 guidelines and direct contact is limited and contactless; and
  • Ensuring a register of all members of the public who attend the business premises is kept.

Tax and Accountancy Advice

During this time it is important to engage with your accountant, both to prepare budgets and cashflows for the next six months and also to receive appropriate tax advice.

The Government has recently announced some tax benefits which allows businesses expecting to make a loss in the 2019/20 or 2020/21 financial years to receive a refund from tax paid on profit for the previous financial year to offset those losses.

The Government has also relaxed tax loss continuity rules, allowed IRD to remit use of money interest, increased the provisional tax threshold and allowed depreciation on commercial and industrial buildings.

We strongly recommend you engage with your accountant if you haven’t already.

Insolvency Law changes

The Government has recently announced the relaxation to certain insolvency laws under the Companies Act 1993 including duties imposed on directors in relation to reckless trading and incurring obligations.

An entity (company, trust or partnership) can now also go into “business debt hibernation” if approved by at least 50% of its creditors. This would allow a business a six month grace period where these debts cannot be enforced against it, providing the business with some time to trade through these difficult conditions without the threat of being made bankrupt or being placed into liquidation.

It your business is struggling to make payment to its creditors, you should consider seeking further advice on whether a “business debt hibernation” could work and whether your business would be eligible.

For more detailed information on these changes, please see our article here.

Stay positive and take opportunities

Ensure that you are continuing to market your business, even if the focus is on methods of marketing which do not cost e.g. social media, reaching out to customers by way of video conference etc. Try and avoid cutting all of your advertising spend if you can because your competitors will likely have reduced theirs which will make your advertising more visible or likely to be heard. Now is also a good time to negotiate a good rate with media outlets. Stay positive and don’t get bogged down in all the media negativity. Like all recessions, this too shall eventually pass. Ensure that you are identifying and taking advantage of opportunities that the current crisis creates for your business both now and in the future.

Summary

During this difficult time, it is important to make sure you are getting the right advice. Knowing the correct information allows you to consider all of the available options and make the best informed decisions for your business.

At SRB, we pride ourselves on being great to deal with and getting the best results for great clients. Please feel free to call us for a no obligations chat so you can see how good we are!

 

DISCLAIMER

The above information is of a general nature only. The information contained in this document does in no way constitute legal advice and all readers should contact a law firm for advice relating to your specific circumstances.

Anna Fox

About Anna Fox

Anna is the Managing Partner of SRB, and former head of our Commercial Team. She assists clients with major commercial transactions, including structuring business entities and advising on large scale property transactions. Anna also advises on securities law compliance.

View all posts by Anna Fox
Nick Strettell

About Nick Strettell

Nick is a Partner in Saunders Robinson Brown’s Commercial Team. He specialises in company law, commercial property matters and business sale and purchases.

View all posts by Nick Strettell