The spread of COVID-19, and the nature of government responses, has created unprecedented challenges to industry. Production interruptions and stoppages across the world have been widespread and the financial stress to global supply chains is significant. Many companies will not be able to survive in the short-term or recover when the crisis subsides.
When a company announces a distressed situation; this is in most cases, the result of an extensive impact involving important economic, legal, tax and accounting decisions; bankruptcy, excessive debt and regulatory constraints. A restructuring exercise can turn into a fairly high-profile event, and it is crucial to the future of the company that the end-to-end process is managed with great sensitivity, confidentiality and efficiency.
Alongside the obvious risks to human health, we are also seeing serious disruption-related impacts on organisations that are arising from travel and opening restrictions, event cancellations, workforce issues, supply chain disruptions, financial and market volatility and cash flow problems.
Those who have studied or trained with us will be familiar with the principles, tools and techniques of risk management, business continuity and crisis response that can be deployed to help organisations prepare and respond to situations like this. Hopefully organisations will have business continuity plans, and these will form the basis of a response, but it is quite likely that they did not foresee a situation as widespread, complex and long lasting as we appear to be facing. And we will also see how well theoretical plans work when faced with real life situations.
Every organisation will have its own sectoral and individual context. Organisations must also respond in a proportionate manner. But based on advice from some of our senior members, here is our checklist of what organisations should be thinking about:
New ways of working. New responsibilities. New management ideas. In order to thrive in an uncertain environment it is essential to manage the day to day running of the pandemic response. This needs to be staffed by a cross section of the business to take into account impact and response throughout the different business functions. It’s got to have IT experts, people who can build websites, telecommunications experts - comms will be the currency of keeping a large business operational in the next six to nine months. Some options below:
Risk response
- Review key objectives and priorities in the light of current information
- Balance 'business as usual' against new demands and changing priorities
- Ensure you have undertaken risk assessment(s) in respect to the impact of COVID19 on your key objectives and prepare and implement response plans
- Stress test various scenarios
- Assess whether you have sufficient expertise available, in risk management, supply chain risk management, subject matter and communications
- Check your insurance coverages and talk to your broker
- Be alert to other risks materialising e.g. cyber attacks
- Be aware of possible opportunities and opportunities for research and learning e.g. improving processes
Cashflow and liquidity
- Use scenario analysis to examine and stress test liquidity and prepare response plans
- Be aware of any government assistance e.g. from the tax authorities
Crisis management
- Establish an incident management team. Decide what authority it has. What if the members become ill?
- Ask all departments to review and refresh their continuity plans as necessary
- Consider any value statements your organisation may have that should guide your response and communications
Communications
- Monitor official advice, beware fake news
- Map out who your internal and external key stakeholders are and have a plan for how and how often you will communicate with them
- Think about how you will keep the message consistent, while understanding that policies may have to change rapidly
- Keep your staff informed without being alarmist
- Ensure leadership teams are briefed and kept up to date
- Review public announcements (website etc) regularly
Looking after your people
- Conduct and regularly review risk assessments to ensure a safe place of work for employees and contractors
- Follow government health and travel advice
- Ensure good hygiene practice and appropriate personal protective equipment where necessary
- Ensure you know about staff that are at higher risk because of pre-existing health conditions and take action accordingly
- Make and implement plans to reduce travel and facilitate working from home where possible
- Give employees clear guidance on when they should attend work and when they should stay away
- Review travel advice on a regular basis
- Risk assess meetings and events
- Review impact of incentive elements of remuneration packages
Supply chain issues
- Confirm business continuity plans of key suppliers
- Ensure you have thoroughly mapped your supply chain
- Take this further and look at your wider extended enterprise
- Talk to your suppliers and to your customers to look at options and alternatives
- Understand how your contracts work, especially force majeure provisions
- Ensure that you maintain safety and traceability standards if alternative suppliers are used
- Ensure you have appropriate legal advice
Regulatory, competition law and reporting considerations
- Ensure any home working arrangements maintain standards of data protection and IT security (e.g. beware Alexa or Siri listening into your videoconference)
- Consider anti-trust implications if you think about collaboration with other businesses to maintain supplies
- Be aware that action may be taken by competition authorities in respect of pricing and unnecessary stockpiling
- Consider any impact on company AGMs and whether an online meeting is an option
- Consider how the impact of COVID19 will be reported in compliance with corporate governance codes, e.g. when reporting on principal risks and uncertainties
Adan's experience:
Adan's team of professionals have substantial experience in financial restructuring and executing the sales of distressed assets to maximize recoveries for investors
and creditors. We evaluate a full range of considerations including market conditions, liquidity needs, and legal and regulatory issues to identify the most efficient transaction solution.
Early lessons of COVID-19 can aid in a better understanding the global effect of the virus, including the impact on both businesses and employees. From handling employee safety to dealing with office or factory closings, our experts can guide clients in best practices during the crisis through our resilience consulting services.
We frequently draw upon the expertise of our restructuring and insolvency colleagues and their experience of advising on investing in companies in distressed situations, purchasing assets and businesses out of companies in distressed situations and restructuring companies near and in insolvency. We provide expert support throughout the entire lifecycle, delivered by local and global teams. This enables us to help banks create liquidity and unlock capital for reinvestment in other value adding lending activity benefitting the firm more broadly.
Our broad client base includes debtors, secured and unsecured creditors (including financial institutions, mezzanine investors, insurance companies, bondholders and landlords), creditor committees, special opportunity/situation investors, directors/officers and insolvency practitioners. Through working with these clients our team of professionals have gained valuable insights into the approaches of key stakeholders across the capital structure, and have developed and delivered innovative and practical solutions such as:
Our experienced team build robust, transparent financial models covering all circumstances and across a wide range of sectors. Our approach is to start with a clear understanding of the situation and design a bespoke model using proven methodologies and techniques. The advantages of our models include creating outputs and usability that are designed specifically for the user, as well as providing the flexibility of assumptions to perform sensitivity analysis.
Our experts partner with clients on corporate planning, providing perspective not only on immediate value and impact, but on long-term implications. We work closely with management and other advisers to leverage and complement their knowledge and ensure maximum impact, and actively support implementation and skill building.
