Up Again: Industrials

How do I ensure business continuity and avoid interruption to my business?

COVID-19 restrictions have forced many businesses to deal with new challenges regarding business continuity and to address business interruption. Typical challenges include:

  • Whether (and if so how) to keep offices/plants open, or reopen in compliance with government guidance.
  • Setting up employees for home working or making adjustments to shift/working patters to ensure the health and wellbeing of employees and accommodate childcare or other responsibilities.
  • Furloughing staff or undertaking redundancies/layoffs or similar reductions in the workforce. Our global employment team have:
  • Changes to logistics, such as switching from just in time to ahead of time, or changing the mode of transportation.
  • Dealing with financial losses or business interruption due to insolvency of customers or suppliers in the supply chain. This podcast by our Restructuring team features a discussion on the challenges and opportunities businesses should be aware of as they try to meet their contractual and financial obligations while preserving cash.
  • Raising new debt or restructuring existing debt and the related tax considerations.
  • Identifying government measures available to the business during any temporary shutdown or to assist with insolvency risks. For a summary of the various COVID-19 government measures in different jurisdictions, please see our COVID-19: The governmental response microsite, which provides an insight into the issues likely to affect businesses and the key measures taken by governments across more than 50 countries, including financial support and business protection, employment, and access to justice.

Disruption in my supply chain continues. Is there anything I can do to minimise this?

  • The COVID-19 pandemic continues to have an adverse worldwide impact on the ability of businesses to manage their supply chains. This has raised several issues regarding existing contractual arrangements and focused attention on the terms of future arrangements. The types of issues businesses are facing include:
  • Whether contracts include force majeure provisions and whether such provisions will allow a period of relief in performance. These issues are addressed in:
  • What early warning signs of customer or supplier distress should businesses be looking out for, and what additional information might be required in order to identify these signs as early as possible. For example, some contracts might require the provision of financial information to other parties at regular intervals.
  • When to engage with an appointed insolvency practitioner in the event that a customer or supplier enters a formal insolvency procedure, and the options to try and minimise the impact of such insolvency – for example, by using step-in rights or acquiring the relevant assets of the failed business.

The pandemic has underscored the value of multi-sourcing to diversify the supply chain and allow manufacturers to source products, parts or components from countries able to continue production (either because they are at different stages of the pandemic or because they are subject to fewer restrictions for other reasons).

By contrast, single-supplier dependency is likely to increase supply chain risk if there are spikes in COVID-19 infection rates (due to globalised supply chains, this risk may exist even if spikes are only on a localised level in certain jurisdictions).

Preventing dependency on single suppliers is also likely to be particularly important as we move through the new normal and governments start to withdraw their COVID-19 support mechanisms. This withdrawal of support will inevitably lead to certain suppliers suffering distress, and perhaps eventually failing or entering into an insolvency procedure.

Businesses who are customers of and reliant on such a failed (or failing) supplier, and who do not have the flexibility of switching to another supplier or suppliers quickly and without significant disruption to the remaining supply chain, are likely to suffer their own difficulties.

To help minimise supply chain disruption, it is advisable that businesses remain close to their supply chain and understand its current status and the measures taken by the various links in the chain, so that they can take appropriate action early.

Are there any steps that I can take to address liquidity issues due to loss of revenue and income?

As the financial impact caused by COVID-19 continues to put pressure on businesses' liquidity, many will want to understand how they can navigate their business through the current market stresses in spite of reduced income and increased cashflow pressure .

For a summary of the various COVID-19 government measures in different jurisdictions, please see our COVID-19: The governmental response microsite.

Our Finance, Projects and Restructuring team have also prepared a briefing on the proposed amendments to the Capital Requirements Regulation (EU) 575/013 in response to the COVID-19 pandemic. These amendments are designed to maximise the capacity of credit institutions to lend and to absorb losses related to COVID-19.

For jurisdiction-specific updates to insolvency laws in response to COVID-19, please also refer to our Up Again pages.

Now that we have a better understanding of the impact of the closure of, or restricted access to, our plants and other facilities, what can I do to reduce the financial damage from a real estate perspective?

Social distancing measures have had varying impacts on the ability of plants and other facilities to continue operating during the pandemic. Though highly automated plants and other facilities may have had little need to consider closures or restricting access, for labour-intensive manufacturing operations the choice may have been between restricting access and shutting down operations completely.

Please see our Up Again pages for jurisdiction-specific advice on:

  • the availability of rent suspension measures or stay of course actions (including eviction) or government support initiatives, such as a furloughed building grant scheme;
  • specific tax reliefs on payment or collection of rent instalments;
  • relief from the performance of real estate-related contractual obligations;
  • relief from loan repayments or enforcement of loans secured against properties; and
  • any specific obligations, liabilities or duties of conduct imposed on landlords, tenants or visitors regarding:
    • • use or reuse and decontamination of premises;
      • care, cleaning and maintenance of the exclusive and common areas;
      • reporting requirements or measures in case of identified infections; and
      • health and safety issues – for example, recommissioning water systems to avoid viruses, installation of plexiglass screens, and moving desks to comply with distancing remodulation of fire prevention strategies (entrance/exit routes).

My employees are either working from home or on furlough. How can I prepare for a return to work and the new normal?

With government restrictions around the world being eased to allow more employees to return to work, businesses face the challenge of implementing a plan to try and ensure employees' health and safety. Typical challenges include:

  • social distancing in the workplace and what this means for production capacity;
  • infection prevention, which might include the provision of masks and other protective equipment (including shields), putting in place health checks (such as temperature screening and / or virus testing) or using tracing apps;
  • employees who do not want to return to work because they are classed as high-risk or because they are unable (e.g. due to child care or other responsibilities) or unprepared to return to the workplace; and
  • questions around alternatives to business travel and commuting by public transport.

Our global employment team have explored some of the key return-to-work issues (including the above) for employers looking to safely re-opening their workplaces in this 90-minute recorded webinar, which is available to listen to on demand. Their article on the top issues for global employers to address now in return to work plans may also be of interest.

For jurisdiction-specific questions on employment issues related to COVID-19, please see our Up Again pages.

How do I manage the increased risks relating to cybersecurity and data protection as a result of my employees working remotely?

With the rollout of remote-working solutions in response to lockdowns quickly imposed by so many governments across the world, many businesses face the potential risk of data protection breaches as a result of data that previously might only have been accessible on site. For cybersecurity considerations regarding remote workforces, please see here.

Data protection law is primarily concerned with the security and protection of personal data. It is under this legislation that we primarily see business risk arise. For example in Europe, Article 32 GDPR sets out that organisations processing personal data must “implement appropriate technical and organisational measures to ensure a level of security appropriate to the risk.”

The following are examples of some common measures being adopted by organisations that will give rise to processing of personal data and (in many cases) information about an individual's state of health, which is subject to additional regulation as “special category personal data” under GDPR:

  • dealing with members of the workforce who are suffering from COVID-19, who may be at risk, or who may have vulnerable family members
  • tracing people who have been in contact with someone who has tested positive for COVID-19, or may otherwise be at high risk
  • requesting staff to complete questionnaires asking about potential exposure to the virus, or underlying health conditions or vulnerabilities that may present enhanced risks
  • carrying out temperature checks on entry to sites
  • sharing information with public health authorities

Further details on the above examples and the lawful conditions for processing data in accordance with GDPR are available here. Also, for our top tips on reducing the risk of non-compliance in Europe, please see here, and for a summary of the US Financial Industry Regulatory Authority Information Notice providing suggested measures to strengthen cybersecurity controls, please see here.

Businesses are also encouraged to frequently remind their employees about the basics of cyber hygiene, which often includes:

  • reporting suspicious emails to the IT or other appropriate department, and checking emails to make sure that the sender's email really is a proper company email address;
  • for emails sent to a personal account, examining the full email header and paying close attention to the language in the body of the email to ascertain whether it could be a phishing attempt;
  • not sharing personal or financial information via email unless it is sent to a verified recipient through secure email;
  • being aware of social engineering (e.g. a phone call or email from someone purporting to represent the government or technical support);
  • backing up your data;
  • using strong passwords and changing them frequently; and
  • using trusted sources for information.