Business Disruption Due to COVID-19
March 20, 2020
Categories : Coronavirus
Types : Alerts
In addition to the very serious healthcare issues facing us, COVID-19 is likely to create many issues between business parties now and throughout 2020. Businesses can be disrupted by (a) the virus affecting their employees and their ability to work productively, (b) a reduction in consumer/business demand, (c) supply chain interference due to the virus shutting down suppliers or delaying their ability to provide necessary goods, and (d) a business’ customers being unable to timely pay their obligations due to the virus impairing those customers’ businesses.
As we all look to managing our way through these challenges and toward a restoration of normal operations and recovery, it becomes important to identify the steps and options business can take to address the business challenges. Businesses which best navigate those steps and options are likely to contain the harms done and recover more successfully.
For those facing disruption and needing to recover, businesses should consider their resources and options including:
- Evaluate key contracts (leases, delivery contracts, etc.) for force majeure and other limits – businesses that cannot perform may be legally excused from performing depending on the terms of the contract.
- Review insurance policies for coverage for business interruption, loss of income and related coverages – depending on policy terms and facts giving rise to the interruption (for example, whether it was compelled by a government shutdown order) businesses may have coverage for certain losses and keeping track of losses attributable to covered items will matter.
- Monitor federal and state responses to the shutdowns – federal and tax benefits, grants, loans, subsidies for employees, emergency/disaster declarations seem likely but the form they will take and how to use them is currently unknown; we are monitoring these closely and robust policy responses can be anticipated.
- Businesses that are potentially subject to closure orders may need clarity if they think they are or should be exempt as life-sustaining. For instance, confirmation or clarification that a business is exempt can be sought under Pennsylvania order. We are monitoring these orders and have observed that some clarifications have been successfully sought in just the short time the Pennsylvania order has been in effect.
Other items that are just generally good business practices will become more important in responding to the COVID-19 challenge:
- Be proactive with customers, lenders, landlords, trade creditors – you will need them, and, in this environment, we expect most will be open to ways to address the challenges. Businesses who sell on credit will likely experience a slowdown in payments –paying attention to those receivables is good practice at all times, and more so now.
- Review expenses and monthly spend and where feasible size them to fit the amount of revenue currently expected – medical business will probably need more, certain hospitality less, retail may be mixed – different sectors of the economy will be affected very differently, and one size will not fit all. There are longstanding legal requirements (like family and medical leave laws, employment laws generally and the WARN act governing large layoffs), and businesses should expect additional rules to be imposed in this area as part of the policy response to COVID-19. We are also monitoring these closely.
For lenders, landlords and creditors to such businesses and for customers facing supply interruptions:
- Understand how your borrower, supplier may be affected and look for ways to work with them — but expect (and plan for to the extent possible) supply interruptions, payment issues, delivery delays and closures.
- Review leases, delivery contracts, other key contracts for force majeure and limits that may excuse performance in this situation – this is essentially the “flip side” of the evaluation that suppliers must make and expect that Courts and policy makers will look sympathetically on suppliers who cannot perform due to a forced closure.
- Review your own business interruption insurance — this may particularly apply to landlords where their premises and/or tenants’ businesses are subject to closure orders.
- Monitor federal and state responses to the shutdowns for benefits applicable to businesses adversely affected by the shutdowns – recall that in the mortgage crisis, moratoria were placed on foreclosures and evictions; similar policy responses should be anticipated here and we are monitoring those closely.
If you have any questions about how recent regulatory developments with the coronavirus (COVID-19) pandemic may affect your business, Montgomery McCracken attorneys are available to assist. Visit the firm’s Coronavirus (COVID-19) Resource Center for more information and updates on this constantly evolving situation.