COVID-19 – identifying and managing risk

Posted on: March 25th, 2020

Across the past couple of weeks we have been advising businesses to revisit their disaster recovery plan in preparation for the coronavirus outbreak. The situation in the UK has progressed very quickly and with most of the country now being in lockdown, businesses are faced with having to implement their contingency plans rapidly, and consider the long term effects of a disrupted marketplace.

As all businesses are faced with a similar challenge, many will be working collaboratively to address the significant impacts of the pandemic, and you should consider what conversations you may need to have with your suppliers, contractors, partners and clients to ensure business continuity. It’s more important than ever for businesses to review their own position to be able to protect themselves.

We have outlined some of the key contractual and insurance factors you may want to consider below and provided examples of what steps can be taken to mitigate against them.

Understanding your contractual position in light of the COVID-19 interruptions

The interruptions due to Government decisions on public health grounds are raising a number of contractual issues. This is the case in relation to the provision and receipt of goods/services and an inability by either contracting party to perform under existing agreed contracts and/or a desire to change contractual arrangements for commercial reasons.

Your starting point should be to consider whether there is any “force majeure” clause which can apply and/or where there is any argument for frustration of contract. If you can identify these, consider whether you can rely on these arguments to achieve your desired commercial outcome.

Negotiating/agreeing contractual variations

In some cases, there is a clear commercial alternative available to both parties; in those situations, it may be possible for a potential renegotiation of terms and this will need to be properly recorded to fully protect your interests.

Many businesses are now having direct conversations about their concerns with existing arrangements and what further issues may arise. You should take advice on how best to approach these challenging conversations in order to protect the interests of your business and leverage an acceptable commercial outcome.

Business interruption insurance

It is of key importance, when considering an insurance claim or a potential contractual claim for disruption, to ensure that you retain any evidence available of the delay and/or cancellation.

If your business has been interrupted as a result of the coronavirus suspensions, check to see if you have appropriate business interruption insurance cover. We have assisted clients with reviewing contracts, identifying any ambiguity in the cover and advising on next steps, including whether clients can challenge their insurer’s decision.

Event of default/material adverse change

The current disruption could, and has in some cases, triggered a contractual ‘Event of Default’ and/or a ‘Material Adverse Change’. The effect of this will depend upon the terms of the contract, but common consequences include the right to terminate and/or a lender calling in a loan.

We are assisting clients with understanding their positions where such clauses do apply and with understanding the risks to them of the various expected further changes ahead.

For more information on identifying and managing risk to your business during the coronavirus pandemic, please contact a member of our Dispute Resolution team or fill in the enquiry form.