Up Again: Governance

Q&A Governance

What are the key topics that boards should focus on to ensure proper discharge of their duties as directors, as their businesses return to work following a lockdown?

In any given situation, the board should always ensure that the company has adequate liquidity, is sufficiently funded and well organised. COVID-19 can be challenging for both the company’s financial situation and the organisation. Also, the supply chains may need to be carefully reviewed and it must be investigated if the company can benefit from one of the Governmental Programs.

If the company is financially challenged, the board should prepare a plan to ensure that the necessary liquidity is found via cost reduction, loans / credit facilities or capital increase. In the light of the uncertainty caused by the COVID-19 crisis, the board must monitor the financial performance of the company even more closely to be able to take necessary steps and make decisions in due course.

From an organisational point of view, the board should ensure that the company can operate and keep essential functions working also in the transition moving from “working from home” to “back to work”.

Similarly, the board should plan for various risk scenarios; i.e. is it prudent to have all employees back at work at once? How to handle a situation where the lockdown is ramped up again? And other questions arising to the company’s specific sector or business.

For some businesses, the COVID-19 may also present new business opportunities or possibilities for consolidation and growth. The board should thus ensure that the company is ready to cease such opportunities.

Should boards adopt particular governance practices in this context?

The COVID-19 crisis should not in itself cause the board to take any particular steps, but closer monitoring may be required. Further, if ongoing and regular financial and business reporting to the board is not part of the current governance set-up, the board should require such regular updates to ensure that the board is at the forefront of the development allowing the board to take necessary decisions in due course.

To what extent are boards being encouraged to take into account corporate purpose and values in the context of COVID-19 and a return to work?

It is always easier to follow company values and objects when everything develops as planned and the company is performing well. Many companies find themselves in challenging situations due to the COVID-19 crisis. Companies should be mindful that their response is in line with the values the company is seeking to promote, and should also as far as possible ensure that measures which are being taken are within the corporate purpose of the company.

In addition to ensuring that the company continues to operate within its corporate purpose and values, boards should implement routines within the company to ensure that the board is updated on the at all times valid guidelines, recommendations and regulations communicated by the Government with regard to both how the company can and should operate from a business point of view and towards its employees (working from home, routines in the office in connection with the employees returning to work etc.). Related to this it is also important that the board is mindful of the risks associated with the employees returning to work, and internal reviews to this effect should be carried out.

Your company is facing liquidity issues as a result of COVID-19: What are the repercussions for continuing to operate your company?

The board has an obligation to act if the company is facing liquidity issues. If the board does not act, there could be repercussions in the form of liability for damages and/or criminal liability.

Your company is facing liquidity issues as a result of COVID-19: Do you have to file for insolvency if your company cannot pay all its debts as they fall due?

To file for bankruptcy, two conditions has to be meet. The first condition is that the company is not able to meet its obligations as they fall due, and the failure to comply with its contractual obligations is not temporary. The second condition is that the total amount of the company´s assets and income is not enough to cover the company´s debt. If only one of this conditions are fulfilled, you do not have to file for insolvency.

Your company is facing liquidity issues as a result of COVID-19: Are there any steps that should be taken to minimise the risk of your actions as director being challenged?

The directors have to act according to the situation. The steps will be different depending on the company and the situation. In short, the directors have to take steps to solve the liquidity issues. Possible steps could among others be cutting costs, renegotiate the debt or investigate whether the company qualifies for the assistance packages issued by the government.

Your company is facing liquidity issues as a result of COVID-19: Will your company be wound up if you fail to make payments when due?