As we all now wade through the effects of Coronavirus (COVID-19) on our business and markets, business owners and management need to quickly identify and plan for issues. Below is a brief, non-exhaustive checklist of some key business areas to assess. These initial considerations are intended to help first identify the issues your company faces, then an analysis, prioritization and understanding of the circumstances become your vital next step.
Contracts:
Identify and review existing, critical contracts for key provisions impacting your business, and obligations between your customers and your suppliers. Some of the key clauses to review include:
- Force Majeure
- Termination rights
- Conditions precedent
- Timing for performance and grace periods
- Notice requirements for anticipated events
- Events of default and remedies
- Can you delay performance on an existing contract? If, for example, you’re in due diligence for a contract to purchase assets or a business, what rights do you have to back out or delay?
- When entering into new contracts consider adding clauses to address rights and obligations relative to Coronavirus or future outbreaks of infectious diseases.
- Identify alternative options if you anticipate a need to address a coming or immediate contract issue with a customer or vendor, being proactive in your approach and avoiding a misstep is paramount.
Insurance Policies:
Review all insurance policies to assess potential coverage for resulting losses to property or profits and potential claims by third-parties. For all types of coverages you should review deadlines and notice requirements to ensure coverage is not compromised by failing to follow policy requirements. Insurance coverage that should be reviewed include:
- Business Interruption Coverage. Businesses commonly have coverage for business income losses due to an interruption in operations and extra expenses to keep the business running during the disruption. Coverage turns on fact-specific determinations unique to each claim and the specific policy wording.
- Civil Authority or Ingress and Egress Coverage. A government-required closure of a business or facility may be covered and could apply based on the risk of contamination alone.
- Liability Insurance policies. In addition to the direct risks of loss discussed above, companies may face future liability from third parties alleging that some action or inaction of the company led to their own illness or some other type of loss. It is important to review current coverages for making sure you have adequate coverage for predictable or possible claims.
Communicating with Shareholders/Members/Investors:
Management and managing owners of a business should be prepared to address the effect the outbreak has had and might have on their business. Companies need to prepare and implement a plan for the timing and extent of necessary disclosures and continuously evaluate that plan to comply with disclosure obligations.
Credit Facilities:
Understanding your position relative to your lender first requires that you identify the potential for a breach or freeze of credit. Equally important is to identify contingency plans to make sure you have liquidity to get through the disruption.
Dunlap & Seeger is prepared, with our team of cross-disciplinary attorneys, to support and address the concerns of our clients. Each issue requires a detailed understanding of the operational and legal implications affecting businesses, and their customers, suppliers, employers and investors. Our attorneys are ready to help clients navigate problems and implement an effective response. We are continuing to monitor the developments and will provide updates as necessary.
