As boards of directors across the globe grapple with the rapidly evolving coronavirus (COVID-19) pandemic, there are numerous questions to address that go beyond the ordinary. The risks that each company faces will obviously vary. Below is a quick checklist of issues to discuss with management. The endnotes list links to WilmerHale resources that further explore these topics.
- Federal, State and Local Government Actions. Understand the impact on the company's operations of the myriad of governmental responses to COVID-19, such as restrictions on public gatherings and travel and emergency work-from-home and "shelter-in-place" requirements. Regulatory actions are evolving rapidly and unevenly, and new or expanded restraints on commerce are likely.1
- Risk Oversight and Support. Stay apprised of company efforts to address and mitigate risks arising from COVID-19. The board should receive updates on trends and uncertainties from management, covering both geographic and functional areas, as applicable.
- Annual Shareholder Meetings. Consider whether to hold a virtual meeting or move the date or location of a regularly scheduled in-person meeting. Many boards are considering or have already decided to host their annual meetings of shareholders online.2
- Employment Law Impacts. Confirm that management is staying apprised of ongoing legislative and regulatory developments concerning COVID-19 that are shaping labor and employment rules, and understand the impacts of such developments on the company.3
- Liquidity and Financing. Understand short- and long-term cash demands and financing needs. With management, decide on drawdowns of existing facilities and/or raising additional capital.4
- Financing Agreements. Understand any critical financing agreements and key provisions of concern (e.g., debt ratio covenants, events of default and scheduled payments) to assess the potential for and impact of the company's noncompliance with such provisions that may result from potential decreases in financial performance measures. Stay apprised of risks of future noncompliance with financial covenants, which may merit a request for covenant relief or alternative financing.
- Dividends and Other Cash Obligations. Reconsider the company's upcoming, significant cash transfers, such as dividend programs, which should be reviewed with legal counsel, particularly if the company is facing liquidity concerns. In Delaware, as in many states, dividends may only be paid to the extent there are funds lawfully available for the payment, and directors may face personal liability for dividends paid in violation of this standard. Other proposed transfers or sales may also merit heightened scrutiny and legal and financing advice to ensure compliance with applicable state and federal fraudulent conveyance laws.
- Contract Terms. Understand actual or likely breaches, rights and remedies under material supplier and customer contracts in the event COVID-19 affects the company's or counterparties' ability to perform contractual obligations.5
- Defensive Strategies. Evaluate defensive strategies and available takeover defenses. The market decline will leave some companies more vulnerable to strategic buyers with available cash or those who may seek to accumulate significant equity positions at a discount.
- Cybersecurity. Understand the steps being taken to protect operations and enhance security as work shifts to a more dispersed environment. Networks may be taxed and subject to increased vulnerabilities.
- Legislative and Regulatory Relief. Monitor relevant regulatory actions. Identify sources of regulatory relief.6 Participate, as appropriate, in discussions regarding economic stimulus packages and other legislative changes.
1. See our Client Alerts: " COVID-19: New Jersey Governor Phil Murphy Orders Employers to Reduce On-Site Staff and Closes Nonessential Retail Stores"; " Governor Cuomo Expands Emergency Work-From-Home Requirements for New York Employers"; and " COVID-19: United States, Canada and Mexico Announce Temporary Border Closures."
2. See our Client Alert: " Conducting Your Annual Meeting During a Health Pandemic."
3. See our Client Alerts: " The Families First Coronavirus Response Act: What Employers Need to Know"; " COVID-19: Employment Law FAQs for March 18, 2020"; and " New OSHA Coronavirus Guidance for Employers: What You Need to Know."
4. See our Client Alerts: " Federal Reserve Announces Commercial Paper Funding Facility" and " Federal Reserve Announces Primary Dealer Credit Facility."
5. See our Client Alert: " Revisiting Force Majeure and Dispute Resolution Clauses in Light of the Recent Outbreak of the Coronavirus."
6. See our Client Alerts: " Coronavirus (COVID-19): FINRA Issues Related Guidance and Regulatory Relief"; " Coronavirus (COVID-19): CFTC and NFA Issue Relief and Guidance"; and " Coronavirus (COVID-19): SEC Offers Conditional Relief."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.