It’s been almost six months since lockdown restrictions were lifted. But with Covid variants bringing new challenges, the long-term impact of the pandemic is as uncertain as ever. For business owners and key decision-makers, the past two years have brought huge change – and often the need for difficult decisions to be made at short notice.
Our lawyers have worked with businesses of all shapes and sizes to help them through the challenges of Covid. We’ve put together some top tips for owners and directors to help you prepare for the next stage and put your business in the best position for the future.
Corporate transactions and commercial contracts
- Allow virtual board and shareholder meetings: Your company’s articles of association should contain express provisions allowing board and shareholder meetings to be held virtually or as part of a hybrid arrangement (i.e., where a meeting is held both at a physical location and online). This will remove any doubt or argument as to whether these are permitted.
- Enhance your due diligence on target businesses: If you’re pursuing a new corporate transaction, it’s particularly important to fully evaluate the impact the pandemic has had (or may have) on the target business. You’ll also want to investigate what risk mitigation it has already put in place.
- Add a “force majeure” clause to contracts: This clause typically excuses one or both parties from performance of contract obligations following the occurrence of certain events. In some cases, there’s been uncertainty as to whether the Covid pandemic constitutes a “force majeure” event. This will depend on the drafting and interpretation of the relevant contract. You should consider amending your contracts to clearly spell out what constitutes a force majeure event and what the implications of this will be for your business and other parties.
- Consider your workforce following furlough: After the end of the Coronavirus Job Retention Scheme (furlough) in September 2021, companies faced the extra cost of employees coming off furlough and returning to work. You may have found you don’t have enough work for these returning employees or wish to streamline your workforce for efficiency. In either case, it would be sensible to consider whether redundancies are necessary and to follow a fair process when dismissing any of your employees. Your decisions may be further complicated by the latest outbreak that has led to a workforce shortage in some organisations.
- Prioritise employee health and safety: Covid is something we’ll be living with for the foreseeable future. You must ensure your employees have a safe working environment as we move through the different stages of the pandemic, so it’s vital to continue to abide by the latest government guidance. While further lockdowns haven’t been imposed, working from home is again recommended. Make sure your business is ready and able to be flexible.
- Update your remote/hybrid working policies: As we move away from traditional office-based working to full- or part-time homeworking, employers are faced with very different challenges to ensure their workforce is healthy and productive. You should update your contracts and policies to ensure there’s clear agreement regarding homeworking.
- Add Covid-related property clauses to new leases: From a tenant’s perspective, given the potential for further disruption, you should consider including Covid-specific clauses in any new property leases you enter into. These could include:
- Turnover rent: Rather than a fixed rent being payable, you could agree that the rent due is a percentage of the business’s turnover. Alternatively, a smaller fixed rent could continue to be payable topped up by an additional turnover-related sum. Such provisions do not need to be for the full length of the lease e.g. they could apply during the first 12 months of the lease only.
- Rent suspension: You could also agree that the rent payable is either reduced or suspended during a covid related lockdown. If your business (as a tenant) were to receive government rental assistance during this time, this assistance (or a proportion of it) could then be passed on to your landlord.
- Break clause: It’s quite common to include break clauses at fixed points in a lease. However, it’s possible to agree what is known as a ‘rolling break’ which is exercisable at any point on e.g. 6 or 12 months’ notice. You could also tie the trigger to specific events (e.g. in the event of a covid related lockdown) or make it exercisable only after a certain amount of time has elapsed (e.g. only exercisable after 12 months of the lease term has elapsed).
- Ask for a rent deposit: From a landlord’s perspective, a rent deposit is becoming more and more important due to the greater risk for tenant insolvency. If you’re a landlord, you should consider asking for a minimum of 6 months’ rent in addition to any other security you are obtaining (e.g. a personal guarantee).
- Keep on top of debtors: The pandemic has caused cash flow to fall dramatically in many industries. This has had a knock-on effect on those businesses who remain profitable but are seeing their debtors increase. You should make sure you’re on top of debtors and take legal action where necessary.
- Strengthen your terms and conditions: Check these are as water-tight as they can be. Linked to the debtor issue above, it’s particularly important to consider your payment terms and make sure your customers stick to them. The right termination clause, for example, can save a lot of wasted time and expenditure if your business wants to terminate early.
- Carry out due diligence before doing business with another company: The true effect of the pandemic on insolvencies is yet to be seen in light of the government support provided, and also the government restrictions on winding up petitions, however the restriction was lifted on 1 October 2021 (for debts over £10,000). It’s always important to seek advice early. More insolvencies will also have a knock-on effect on creditor cashflow, so it’s essential to carry out the necessary due diligence on a company’s ability to pay before you enter into business with it.
- Resolve internal disputes quickly: The pandemic has led to an increase in internal disputes between directors and shareholders. Such rifts can have a catastrophic effect on businesses, and with the ‘new normal’ we anticipate these disputes will continue to grow. It’s wise to seek legal advice early to resolve disputes and minimise disruption to your company.
If you would like more advice on how you can pandemic-proof your business, please contact James Brawn for corporate transactions and commercial contracts, Michael Kerrigan for employment law, Neil Mercer for commercial property and Alexander Neale for commercial disputes.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.