Business Continuity

May 26, 2020

Businesses are continuing to look to the production of business continuity plans with strategic input from professional advisers, ranging from banking specialists to corporate specialists, to guide them into a strong position in their industries post-lockdown.

Business continuity plans will lay the foundations of driving the business forward post-lockdown, in progressing growth plans of the respective business. Often these plans will also form the basis of applications made to banks for third-party funding to fund the growth plans post-lockdown. Knowing exactly where the business sits post COVID-19 outbreak will give the business a competitive advantage in the post COVID-19 world.

The COVID-19 contingency plan should primarily look to cover how businesses adapt to the return of ordinary business once the lockdown measures are fully lifted in due course.

But what would a COVID-19 contingency plan cover? Here, we look at some measures that we would expect businesses to take in their COVID-19 contingency planning programme.

1. Establish a post COVID-19 continuity committee:-

The first step to take would be to consider establishing a post-COVID-19 committee, which we would typically expect to comprise members of senior management and a dedicated support team. Ideally, this team would be comprised of individuals working for each of the key functions of the business, for example, HR, IT and finance. Strategic input from different areas of the business comprising different business sectors can bring benefits to struggling areas of the business.

Senior management input will provide the driving force for all stakeholders of achieving the targets set out within the continuity plan.

2. Identify how critical functions of the business can resume normality:-

Ultimately, the objective of the contingency planning process is to ensure that the business resumes its strong financial footing once lockdown measures are eased. Businesses therefore need to identify what their critical functions are and how pre-lockdown successes can be achieved in a post-lockdown world.

3. Maintaining high health and safety standards:-

To ensure employers comply with the general duty of care owing to their employees, procedures need to be put in place to ensure all steps necessary are being taken by businesses to ensure employees’ health, safety and wellbeing. Evidently, the health fears arising by virtue of the COVID-19 pandemic will need to be addressed withappropriate health and safety measures, such as the following:-

a) Providing staff with appropriate health and safety equipment upon return to the workplace – for example, sanitisers and (if official advice recommends it) protective facemasks;
b) Consider back-up arrangements in the event certain employees are unable to fulfil their role due to illness; and
c) Establish a process for self-isolation of employees in the event that one employee, who has come into contact with other employees, contracts COVID-19.

 4. Cashflow

Businesses should consider how to fund the business post-lockdown. Successes with keeping aged debt to a minimum during lockdown, so far as possible, should be maintained. If there are cashflow issues, consideration will need to be given to ‘cheap’ third-party funding options, particularly in light of the government-backed loan schemes currently available, such as the Coronavirus Business Interruption Loan Scheme (CBILS). These schemes could assist in resuming growth plans of the business post-lockdown.

5. Contractual planning:-

Businesses should continue to monitor how their customers and suppliers are adapting to a post-lockdown world. In particular, risk assessments should be carried out on businesses ability to continue compliance with its contractual obligations. Contractual impact assessments should also be undertaken if there are concerns that counterparties may unable to carry out their contractual obligations. These should focus on impacts of potential remedial action – for example, would a force majeure clause be applicable, or will events of default be applicable. An additional consideration could be as to whether the effects of the COVID-19 pandemic constitutes a material adverse change.

6. Financial planning:-

If your business has borrowed money from a third-party or has lent money to a third-party, consideration should be given to contingency measures on these arrangements, or re-financing on more favourable terms to leverage extra working capital for the business. Of particular note are financial covenants contained within financing documents. Ability to comply with the relevant ratios could are likely to increase as operational revenue increases post-lockdown.

7. Insolvency planning:-

Businesses will need to give thought to the viability of counterparties remaining solvent. There would likely be severe implications if a counterparty went insolvent and was unable to perform their contractual obligations, which could have a subsequent impact on your business’ ability to go about its ordinary course of business. If there are insolvency concerns of counterparties, businesses should consider identifying other third-parties who may be able to perform the role of the insolvent party. Other measures to consider could include amending retention of title clauses to ensure title to assets remains with your business until payment is received.

If there are concerns about the business itself, directors will need to be extremely mindful of their duties to creditors of the business. Our recommendation would be for directors to document reasons why they do not consider the business to be insolvent and the commercial justifications behind that decision. This could be done within a set of board minutes. This is with a view to ensuring wrongful trading offences are not committed.

8. Restructuring:-

If certain areas of the business remain profitable whilst others do not, one option to preserve the continuing success of the profitable area of the business is a re-structure. This is particularly relevant, by way of example, if some sales are carried out via a website whilst others are carried out in shops. During periods of lockdown, website sales will be significantly higher than any shop sales. These profitable areas of the business could be preserved by way of a restructure, into a new entity.

9. Operational planning:-

An additional thought process will be as to operational logistics of businesses. Meetings are able to be held virtually, through the use of technology. Additional thought should be given to documenting disaster recovery plans, given increasing reliance on technology in remote working. Guidance should also be given to ensure working from home is deemed to be safe. This could include health and safety guidance on the use of chairs and working from home desk setups.

Post-COVID-19 contingency plans are therefore all-encompassing plans which will require input from all areas of a business. Given the ongoing and rapidly measures being introduced to ease lockdown, these plans will need to be tested regularly, and adapted if necessary.

On a wider scale, lenders are wishing to have sight of COVID-19 contingency plans as part of the application process for the recently announced government loan schemes, such as CBILS.

How can Herrington Carmichael help?

Herrington Carmichael can assist with its wealth of experience in helping clients plan against the impact of the COVID-19 pandemic. We are currently advising a number of clients on wide-ranging COVID-19 issues, including production of COVID-19 specific contingency plans.

Please contact a member of our corporate team for further help:

Yavan Brar: 07971 588 364

Matthew Lea: 0118 989 8155; or

Chris Gemson: 07799755934

This article reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.

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