Following on from our Brexit Brunch discussion in March, it is fair to say that seismic change has taken place. The Covid-19 and Brexit transition environment marks perhaps the most challenging time for businesses in recent memory. Here, we highlight common threats boards must know about, as well as looking towards more positive opportunities.
The commercial sense
If your business operates across Europe, you must consider supply chain diligence – if you haven’t already. Review contracts with a term stretching past the 31 December to see if they provide for a ‘no deal’ or a ‘bad deal’. If not, think about introducing a Brexit clause, a clause triggered in the event of a no deal / bad deal when contractual performance becomes impossible or uneconomic.
The turmoil Covid-19 has thrown up means many boards are considering a restructure. Strong restructures ring-fence business assets away from vulnerable trading companies, or create distributable reserves that allow dividend payments in scenarios that might otherwise be unlawful. As part of a group wide restructure of assets and shareholdings, there is a chance to build loyalty with key staff through the creation of EMI options, particularly when those employees may have had a salary reduction and are vulnerable to an approach from a competitor.
Employment and HR concerns
With lockdown measures starting to ease, there are a number of employment issues businesses need to consider as they return to the workplace. These include:
Reviewing staffing levels
Identify areas of the business where redundancies need to be made to save costs. Follow proper procedures, including collective consultation where appropriate, to avoid unanticipated claims for unfair dismissal.
Look into making changes to working arrangements such as salary reductions and changes to working patterns whether employees continue to work from home or are returning to the workplace. Such changes ought to be subject to consultation and agreement with your workforce.
Dealing with staff reluctant to return to work
Employees may be reluctant to return to work for a number of reasons, such as they fall under the government’s shielding guidance or who have health and safety concerns. Take care in handling these situations to avoid unanticipated claims of constructive dismissal or discrimination.
As Brexit nears, businesses are still waiting for further information regarding the new immigration regime from 1 January 2021. Draft rules ought to be laid in the autumn, to give employers time to prepare.
In the meantime, employers who want to use the existing immigration system must apply for a sponsorship license immediately.
Dispute resolution and insolvency
You may find that you have claims against others or claims against you as a result of reduced performance during lockdown. This may need a careful review of whether force majeure was covered in your agreements, and if so if it bites. Often, Covid-19 may not have caused the issues and this becomes a red herring. Equally, force majeure may have a temporary rather than lasting effect.
You will need advice on the merits of claims. Once you have, you need to decide if you want to try and resolve such claims amicably, by building bridges with your customers and suppliers and negotiating new terms, or consider if the time has come instead to end the relationship. It may be that you have no alternative but to go to court, but in that event plan how to fund this.
If you are a tenant, with landlord’s rights of recovery currently restricted, this may be a time to renegotiate rental payments, including outstanding rent, or agree variations or restructuring of your leases.
Should your business move into distress, there may be some temporary statutory respite from creditors, but make accurate forecasts and seek professional advice on possible turnaround solutions. If necessary, there may be the chance to sell your business or merge with a larger, more cash rich entity.
Then there is Brexit. Where you have contracts with suppliers based in the EU, you need to be certain that you’ve addressed any jurisdictional or enforcement issues resulting from the UK no longer being part of the relevant EU regulations, to avoid unnecessary hurdles and delays post-Brexit.
If you have any specific issues or queries in relation to any of the points above, please do not hesitate to get in touch with the BLM team.
Matthew Poli, Partner, Corporate and Commercial
Stuart Evans, Partner, Commercial Advisory
Julian Cox, Partner, Employment
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