By: Paul Reuland and Alexander Pyle
March 26, 2020
Across the country, owners and managers of companies of all sizes types face a number of challenges as they assess the impact of COVID-19 (the “Coronavirus”) on their businesses and what steps can be taken to mitigate harm. With the myriad new laws, regulations and orders being promulgated by federal, state and local authorities, and a rapidly changing economic situation, there is a lot to consider. To help sort through all the issues that could be affecting your business, here is a list of key topics that business owners and managers should consider (including links to relevant prior client alerts):
1. Government Actions. Be aware of changing travel restrictions, quarantine orders, and limitations on public gatherings imposed by the federal, state, or local government. Consider the impact of these restrictions on the business and alternative solutions (such as remote work, teleconference, shift staggering, etc.). To the extent that a shut-down order is in place for all “non-essential” businesses, understand whether or not the business’s operations are considered “essential.” (Massachusetts Orders Workplace Closures and Restricts Gatherings of More Than 10; What Constitutes “Essential Services” and Does My Business and Workforce Qualify?)
2. Employment Law. The Coronavirus’s impact on employment and labor law has been, and will continue to be, far-reaching. Businesses should consult with employment law counsel concerning any lay-offs, furlough, or other employment actions that may be necessary. Federal and most state governments are enacting legislation that will help businesses retain their employees and provide paid sick leave and leaves of absence for employees affected by the Coronavirus. (The Reimbursement/Credit Process Under the Families First Coronavirus Response Act)
3. Cash Flow Considerations. Evaluate the business’s short and long-term cash needs and ability to access cash reserves and/or credit to meet the anticipated need. If necessary, consider bridge financing sources, such as an Economic Injury Disaster Loan from the SBA. (US SBA Offers Financial Assistance to Businesses Impacted by Coronavirus)
4. Review Existing Financing Arrangements. Initiate a review of any financing agreements to ensure compliance with terms (for example, debt ratio covenants, minimum capital reserves, and other financial covenants). To the extent that there are concerns about continued compliance, consider proactively approaching the lender to discuss potential waivers and/or forbearance agreements.
5. Review Key Contracts, Leases, and Insurance Coverage. Review the business’s contracts and leases to evaluate termination options, force majeure clauses, and amendment provisions, and to assess the financial and legal impact of a breach. Consider approaching key partners to negotiate an amendment to contractual terms if needed. The business’s insurance broker should be contacted to discuss business interruption insurance and why filing a claim (even if it appears as though there is no coverage) may be a prudent approach. (Critical Lease Issues in COVID-19 Crisis; Don’t Be Discouraged by “Your Insurance Does Not Cover This”; Insurance Coverage Issues Abound)
6. Shareholder Meetings. Review the business’s bylaws to determine if a virtual shareholder meeting is permissible under the business’s bylaws and/or state law.
7. Payments of Dividends to Shareholders. Reconsider any planned transfers of cash to shareholders through dividend programs or otherwise. Any such transfers could be considered unlawful if the business making the distribution is doing so at the expense of pre-existing or reasonably expected debts of the business. In most states, corporate directors may be held personally liable for any improper distributions.
8. Cybersecurity. As many employees may be accessing a business’s network from home, there is an increased risk that company data could be exposed in a security breach. If businesses have not already done so, they should implement written telecommuting policies and procedures to ensure their employees take the appropriate precautions to avoid a security breach. (Don’t Forget About Cybersecurity with Increased Telecommuting)
9. Legislative and Regulatory Relief. Federal and state governments are rapidly passing legislation and implementing programs to provide relief to businesses impacted by the Coronavirus. As demand for these programs is certain to be high, it will be critical to stay up to date on the available programs and benefits and submit applications without delay. (Federal and State Tax Efforts to Reduce the Impact of COVID-19; Federal Government Takes Fiscal Actions to Reduce Impact of COVID-19 on Businesses; Recent Actions to Support Small Massachusetts Businesses Affected by COVID-19)
Please continue to visit the Sheehan Phinney Bass & Green COVID-19 Resource Page for important updates and resources.