Legal implications of covid-19 pandemic

Businesses of all types and sizes are still reeling from the shock and short term impact of coronavirus. It’s very difficult to think strategically when you are fire fighting. This is where experienced, practical legal advice can be very valuable in identifying not only the short term implications but also the medium term legal issues and commercial risks.

Below, we list some of the main issues your business should be considering now.

Checklist of covid-19 legal issues

  • Personal Guarantees – if your business is facing acute difficulties, check whether you have given personal guarantees in the past and the implications. If you have given a personal guarantee for an existing business loan and are worried that your business’ financial position may deteriorate, check whether you can cancel the guarantee now. Be careful about personal guarantees being required for loans offered to support your business due to covid-19.
  • Warranties and Earn Outs – many business sale agreements concluded in the last year or 2 will have clauses depending upon performance. almost all businesses will suffer a decline in performance due to covid so earn outs may be impacted and could be an area of dispute in the future.
  • Insolvent Trading – even in normal times, the question of whether a company is insolvent can be contentious. In the current business situation, it is unclear whether there might, in legal terms, be a further degree of leeway in deciding whether a business can recover. Directors are under a duty to ensure a company does not trade insolvently.
  • Terminating Contracts – Covid-19 has resulted in almost every business being unable to strictly comply with the terms of contractual commitments. Not every breach will give rise to a legal right to terminate and there are potential risks in assuming you can terminate existing contracts. If you do have the legal right to terminate, there are often formalities you must comply with and it’s important to understand the other implications.
  • Bonuses and Commissions – many employees, agents and consultants are on performance related pay. If the employee, agent or consultant is unable to meet targets due to no fault of their own, what are the legal implications of this? Avoiding disputes in the future is a strategic advantage for businesses to recover quickly. Communication and handling these issues legally correctly and in the best way is recommended.
  • Events of Default – many corporate and business loan agreements will include detailed events of default provisions. Breach of covenants in bank funding agreements can result in severe implications. It is important to check all loan facilities and be proactive rather than reactive. Contact us if you need help and advice in achieving the best available outcomes. Ignoring the problem is very unlikely to be the best approach.
  • Communicating with Shareholders – company directors are facing huge challenges in a rapidly changing business environment. the last thing a business needs is disputes or disagreements with shareholders. In many companies, shareholders may have limited rights to information and/or to influence decisions. However, shareholder or director disputes are the last things your business needs in this situation. We can advise and assist on what legal rights shareholders have in the fast moving, fluid, covid-19 situation. We can also assist in the right forms of communication and consulting with shareholders to avoid disputes at a later date.
  • Remote working arrangements – with so many staff now working remotely there are a raft of legal issues and implications including privacy, data security, performance issues, furlough and redundancy. The starting point is to review employment contracts and policies.
  • Arbitration and mediation clauses – many commercial contracts include arbitration or mediation clauses and for good reason. However, if contract disputes must be resolved by these methods, this is inherently slow. Many businesses will not be able to wait to resolve contract issues and disputes related to the pandemic. If you need legal advice on what to do if your contract requires problems to be dealt with by arbitration or mediation, please contact us.
  • Limitations on liability – what is the status of limitation of liability clauses where covid-19 has created a loss for the innocent party much higher than the limited liability?
  • Mergers and acquisitions – if you are in the process of a corporate transaction what is the status of clauses dealing with a material adverse effect (MAE) under the acquisition agreement?
  • Time of the essence clauses.

Samantha Randolph

Tactful, smart and very effective. You definitely need Samantha on your side.

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