Given the unprecedented challenges presented by COVID-19, the fundamental question that resonates in this situation is: What can we do? At a historical moment in which the way in which the business world has operated has been unexpectedly interrupted generating great uncertainty, below we share some practical considerations that may be useful to address this situation:
1. Knowing the situation: To react appropriately and to make decisions that can mitigate negative effects, it is essential to know how COVID-19 can predictably alter the ability of the parties to meet their obligations. Distinguishing between transitory effects that could affect liquidity temporarily and situations that involve a prolonged or permanent challenge can help you determine the best way to react. Also, identify internal (e.g. labor obligations) and external (e.g. contractual and fiscal obligations) aspects as each requires a different approach.
2. Understanding the legal landscape: While the situation generated by COVID-19 is unprecedented in recent history, the legal provisions continue to apply in general. Seek appropriate legal advice to understand the possible legal effects of different decisions you may make, as well as to know if the legislation offers possible solutions for each specific case (Here you can find information and resources on legal aspects: http://consortiumlegal.com/blog/category/covid19/).
Seeking new agreements: In the face of situations that anticipate short-term transitional difficulties in fulfilling contractual obligations, consider mitigating them by reaching temporary agreements for reduction, suspension, adjustment of schedule or periodicity of payments. This may allow valuable trade relations to be maintained and normalized in the near future. In the event of anticipating an impossibility for the fulfillment of obligations in the medium and long term, consider agreeing to the termination of agreements in such a way as to prevent the amount of unfulfilled obligations from continuing to grow or the elements relating to contracts from losing value or their ability to mitigate losses to the parties. In the case of internal aspects such as labor relations, consider existing and newly approved legal remedies to meet your needs.
Identify potential chain effects: Identify potential chain effects that may result from the alteration of contractual or labor relations. Both for the operational continuity of your business and for your solvency and financial health. Identify your obligations that are about to expire or become due and their possible effect on your business. Pay special attention to obligations to government authorities, and advise on whether relief measures could apply to you in areas such as tax or social security obligations.
Develop a value protection plan: Proactively develop a plan that will allow you to protect your business from negative effects. This includes: (i) protecting the health of its employees by complying with the recommendations and mandatory provisions of the authorities; (ii) establishing business continuity policies, succession for key personnel and legal representation structure and powers of attorney; (iv) identify key contracts and relationships for your business; (v) ensure liquidity and cash flow by including the negotiation of existing agreements or obtaining new sources of liquidity.
Maintain communication: In crisis situations, communication allows access to information that could be vital to your business. Contact your advisors to ensure you have up-to-date and accurate information for decision-making. Contact your clients and counterparts to find ways in which they can jointly implement risk prevention or mitigation measures.