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Steps for Business – continuation of business operations CHECKLIST OF IMMEDIATE ACTIONS IN RESPONSE TO CORONAVIRUS (COVID-19)
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Steps for Business – continuation of business operations

CHECKLIST OF IMMEDIATE ACTIONS IN RESPONSE TO CORONAVIRUS (COVID-19)

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Steps for Business – continuation of business operations

Current situationGovernments around the world are responding to the COVID-19 pandemic threat with draconian measures that we have not seen in a lifetime and which many would have never expected to witness.

These actions are having a significant impact on our way of life and challenging the underlying economic infrastructure on which individuals and businesses rely. An inability to go to work is requiring businesses to restructure their working practices by supporting wholesale moves to home working and where this is not possible look at reducing jobs and costs as the revenue stream they rely on is significantly eroded or stopped entirely.

At the same time as restricting personal movement and interactions and closing borders and certain types of business operations, Governments are putting into place economic support measures to enable business to mitigate short term cashflow issues and avoid as far as possible wholesale redundancies and liquidations. These steps are complex and assistance is required to follow the mix of support measures being proposed.

For all businesses the period of disruption will be critical. It is likely that many will see out a short cessation of activity with sufficient Government support but a prolonged dislocation in trading will likely lead to a significant number of business failures. Directors and managers are therefore well advised to require their businesses to remain aware of their own personal responsibilities and duties and take appropriate advice throughout the process.

In the following pages we have set out vital steps businesses should be taking to manage the current crisis and manage the situation going forwards.

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Steps for Business – continuation of business operations

OverviewThe current crisis is not a banking crisis (as in 2008) and banks are in reasonably robust shape but it will be necessary to consider existing facilities and where possible expand or call on existing liquidity lines.

Capital markets are continuing to function in spite of steep drops in stock markets around the world. Elements of this will be important for continued functioning of some government sponsored schemes.

Most governments have introduced measures to close or significantly reduce physical movement resulting in significant impacts on businesses throughout the economy.

In the event of a prolonged cessation of trading activity and for some businesses even short term cessation could lead to significant distress and potentially insolvency. It will be vital for directors and managers to be aware of and operate businesses in a way that does not breach duties to wider stakeholder groups and result in incurring personal liability.

Governments around the world are putting in place support measures. These are complex and time is of the essence. We advise all businesses to consider specialist support to avail themselves of support measures.

The sudden change in revenues will impact existing documents and may lead to covenant breaches and the need for amendments and waivers. Finance managers and legal teams need to be reviewing the impact on existing documents.

All businesses will need to review cashflow and liquidity in order to address a sudden and significant reduction in business revenues.

Review of existing facilities and maximising liquidity

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Steps for Business – continuation of business operations

Review and quantify existing facilities in light of current impact on revenues and cashflow.

Step 1

These all have their specific challenges in the current environment. See following pages.

Committed Bank Facilities

Receivables finance and

other finance lines

Uncommitted and overdraft

facilities

Hedging, derivatives and other financial products

Bonds and capital

markets programmes

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Steps for Business – continuation of business operations

Review terms of agreements and flag potential areas of concern (this will be particularly relevant to performance and financial covenants and market based tests)

Potential draw stop issues (check financial covenants, repeating reps, potential event of defaults and default continuing language)

Determine reporting obligations and form of notifications including timeframes and form of reporting (including supporting information)

Purpose Restrictions (check purpose limitations and ability to use funding for wider general corporate purposes, can this be repurposed)

Ability to utilise revolving credit facilities (check limitations on roll overs and access to revolving funding)

Review for flexibility including ability to seek alternative credit lines, sell assets and create security over existing assets

Material adverse change (check definition of material adverse change as limitation on further drawings).

Confirm availability of committed credit lines. There are a number of issues that may impact availability:

Step 2

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Steps for Business – continuation of business operations

Utilising incremental and accordion rights

(consider exercising rights to expand existing facilities

and drawings on uncommitted credit lines)

Determine form of notifications and

supporting information required

Continuation of overdrafts (discussion with lenders to address current overdraft and expansion of

overdraft facilities)

What additional fees and charges are likely to apply

Expand availability of uncommitted facilities.

Step 3

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Steps for Business – continuation of business operations

Review existing programmes and flag any areas of concern (this will be particularly relevant to prospective financial covenants and market based tests)

Consider rating implications and requirements to assess or redress potential rating downgrades

Understand requirements for consents and approvals including bondholder meeting timeframes and mechanics (majorities and written or physical meeting requirements)

Check financial covenants, repeating reps, potential event of defaults and default continuing language

Review impact of these items (mandatory reporting to trustee or obligations to make public announcements – review continuing obligations under listing requirements)

Consider availability of and conditions to further issues under programmes and facilities

Check terms of bond issues and capital markets programmes:

Step 4

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Steps for Business – continuation of business operations

Review existing programmes and flag any areas of concern (this will be particularly relevant to operational covenants, prospective financial covenants and market based tests)

Review impact of changes of underlying business volumes and business continuity requirements on ability to continue to operate facility

Consider availability conditions and restrictions on further purchases under programmes and facilities.

Check financial covenants, repeating reps, potential event of defaults and default continuing language

Review reporting obligations and determine form and nature of reports to be made

Understand requirements for consents, approvals and waivers

Check terms of receivables finance and other finance lines.

Step 5

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Steps for Business – continuation of business operations

Review swaps and other derivative products in place to determine mark to market positions

In relation to commodity and physical delivery products changes in demand may require termination or adjustment of delivery requirements

Requirements for FX and other financial derivatives may be impacted by reduced revenue and cashflows

Determine strategy for forecast period ahead which may involve terminating or expanding existing positions, entering into offsetting swaps or purchasing risk cover

Create a list of hedging, derivatives and other financial products.

Step 6

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Steps for Business – continuation of business operations

Consider alternative sources of funding:

Step 7

Review access to expand equity which may arise from existing shareholders or new equity to be invested in the business

Governments are putting in place substantial facilities to support businesses. See below

Borrowers may be able to access new markets where they have assets to support receivables or secured funding

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Steps for Business – continuation of business operations

For all facilities prepare a spreadsheet/data sheet and be aware of the following:

Step 8Contact at relevant funding provider

or appropriate dealer or

intermediary

Procedure, contacts and

requirements to enable waivers

and variations to proceed

Notification requirements

and obligations including relevant

timings

Understand decision making

requirements between syndicated

groups and bondholder meeting

requirements

Ability to transfer rights and

obligations intra group and outside

the group

Grace periods and exemptions that

may apply

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Steps for Business – continuation of business operations

Government supported programmes, facilities and financial support – see appendix (and links) for more details on schemes.

Step 9

This is supported by measures to make capital more easily available to banks and reduction in the Base rate

Term Funding Scheme (with additional incentives for lending to SMEs) (TFSME)

Release of countercyclical capital buffer

Base rates further reduced to 0.1% on 19 March 2020

COVID Corporate Financing Facility (CCFF)

HMRC Time to Pay Scheme

Small business grantCoronavirus Business Interruption Loan Scheme (CBILS)

Business rates support

Statutory sick pay relief for SMEs

Grant for some retail, hospitality and leisure businesses

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Steps for Business – continuation of business operations

At all times bear in mind directors’ duties, obligations and liabilities.

Step 10

Directors should carefully consider whether the actions that they are taking are in the best interests of their stakeholders. We strongly recommend that they take practical steps to protect their business as follows:

Governance: Hold regular board meetings with the benefit of professional and legal advice to consider the company’s current financial position and the directors’ duties. Ensure comprehensive minutes are taken.

Consider viable alternatives: Directors should ensure they have considered all available options and carefully analyse their respective merits and cost.

Liquidity and creditors:• Prepare up to date cash flow statements, management accounts and projections, consider availability of existing

facilities and support from stakeholders and key customers• Consider whether outflow of cash to creditors can be managed/delayed. In particular speak to landlords, HMRC

and key suppliers.

Operations: Analyse the basis on which business can continue to operate. Are staff able to work remotely? Is workforce size sustainable?

Customers/suppliers: Trading partners are to be faced with their own challenges. Take into account the likely size of future orders and robustness of supply chain.

Seek professional advice: From your lawyers, your accountants and potentially from a licensed insolvency practitioner.

Plan: Directors will be best placed if they can present a clear plan as to how their business will weather the storm.

Experience demonstrates that a proactive and consensual approach, with early engagement, presents the best prospect of a successful resolution, protecting directors and preserving value for stakeholders. Clearly the current crisis presents enormous challenges, but the legal framework recognises that directors who strive to act with due care, and diligence should be protected from sanction and legal liability.

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Steps for Business – continuation of business operations

For regular updates on the impact of coronavirus COVID-19 on businesses, click here and for updates relating to Finance and Restructuring impacts arising from the Coronavirus pandemic and government response actions, please click here.

Please reach out to your usual contacts or any of the DLA Piper team.

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Steps for Business – continuation of business operations

Key contacts

Martin BartlamPartner, LondonT +44 20 7796 6309 [email protected]

Matthew ChristmasPartner, ManchesterT +44 161 235 4033matthew.Christmas @dlapiper.com

Peter SomekhRegional Managing Partner, DubaiT +971 4 438 [email protected]

Luciano MorelloPartner, RomeT +39 06 68 880 [email protected]

Colin WilsonPartner, LondonT +44 20 7796 [email protected]

Peter Gyorfi-TothPartner, BudapestT +36 1 510 [email protected]

Trevor ButcherPartner, DubaiT +971 4 438 6259 [email protected]

Johan MourauxPartner, BrusselsT +32 2 500 [email protected]

Xavier GuzmanPartner, LuxembourgT +352 26 29 04 2052 [email protected]

Matthias SchemuthPartner, Hong KongT +852 21 03 0880matthias.schemuth @dlapiper.com

Agostino PapaPartner, RomeT +39 06 68 880 [email protected]

Oskar WinklerPartner, ViennaT +43 1 531 78 1819 [email protected]

Torsten PokroppPartner, FrankfurtT +49 69 271 33 [email protected]

Onno BakkerPartner, SydneyT +61 2 9286 8260 [email protected]

Maud ManonPartner, ParisT +33 1 40 15 66 [email protected]

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Steps for Business – continuation of business operations

Key contacts

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