Corporate & Securities Considerations For Companies Impacted By COVID-19
As the Coronavirus (COVID-19) outbreak spreads and the human toll surges, the business world faces profound and unprecedented challenges. Although the ultimate economic impact of COVID-19 remains largely uncertain, companies across all industries can take action now to protect their businesses and minimize damage. The attorneys at Moritt Hock & Hamroff LLP can help. In this article, we provide insight into some of the impacts that the Coronavirus will likely have on the corporate and securities communities, and tips for preserving businesses amid the crisis.
Mergers and Acquisitions
- Expect a shift toward deferred consideration payments and post-closing working capital adjustments, as buyers will likely push to structure the consideration payable under the purchase agreement as contingent upon the performance of the business post-closing.
- Anticipate increased seller diligence on the financial viability of purchasers, as well as increased demands for credit enhancement such as guaranties, due to increased credit risk and difficulties obtaining third party financing.
- Expect certain provisions of purchase agreements, such as representations and material adverse change clauses, to be increasingly negotiated to include references to COVID-19.
- Pay attention to drop-dead dates, as certain pre-closing conditions, such as obtaining government approvals or third-party consents, may be more difficult to satisfy in the current environment.
- Use a virtual data room to help reduce delays in due diligence. Limit the need for face-to face meetings and facility visits, or conduct these activities via telephone or video conference.
- Understand the recently enacted SEC order granting relief and assistance to public companies affected by the coronavirus.
- Evaluate whether it is necessary for the company to make disclosures regarding the impact of COVID-19 on the business.
- Confirm that the company has policies in place to guard against insider trading and disclosure violations in light of the current environment.
- Evaluate whether prior forward-looking disclosures in filings or earnings releases should be updated.
- Consider holding virtual annual and special meetings, to the extent appropriate and permitted by applicable law.
- Consider establishing a functioning board of directors or board of advisors to strengthen the company’s leadership and seek out opportunities.
- Consider establishing one or more board committees to oversee and implement risk management strategies for the company.
- Establish and maintain business continuity and contingency plans, simulate financial and operational impacts of the pandemic, and explore alternate supply chains.
- Create a communications strategy that targets customers, investors and suppliers in an effort to keep accurate information flowing.
- Review compensation models and incentive plans, including productivity-based compensation models, and consider whether adjustments are needed in light of the current economy.
- Pay close attention to force majeure clauses in contracts, especially limitations on the performance excused (e.g., whether there is a carve-out for confidentiality obligations or payment).
- Take all steps necessary to protect your business in the event that a contract dispute arises.
- Review all relevant insurance policy; in particular, business interruption insurance to determine whether the business can assert claims against it policies.
The attorneys at Moritt Hock & Hamroff LLP are closely monitoring the pandemic and can help companies effectively respond to the challenges presented by COVID-19.