Is your business heading for hibernation? What you need to do now

How The World Health Organisation (WHO) declared Coronavirus (COVID-19) a pandemic on 11 March and as a country we are, according to Prime Minister Morrison, battling two enemies.

Morrison warns us that COVID-19 will affect both the health and economy of our nation and we can expect the impact to take lives and livelihoods.

As the government seeks to hibernate businesses by introducing a range of economic measures to cushion the blow there are legal and commercial issues you may want to consider now in order to prepare your franchise.

Employees

  • Many franchises are already having to make hard decisions in respect to staffing needs, including reducing employee hours, reducing wages, standing down employees and redundancies.
  • Make sure that you are following the correct processes, be vigilant and understand your legal obligations. There’s no one size fits all approach so obtain specific advice on your circumstance before implementing change.
  • Communication is key, keep the communications lines open and encourage employees to ask questions and share their concerns. Take steps to avoid fear in your workplace.

Leasing

  • Request a rent concession/discount or abatement. Have the conversation now. Asking for a 50% reduction for a 2 to 3-month period is not unreasonable.
  • You may have reporting obligations regarding infectious disease, or you may be required to comply with directions given by government authorities.
  • Most leases require tenants to operate their businesses from the premises during normal trading hours so investigate what impact a state sanctioned lockdown will have on your obligations
  • If your landlord forces you to shut your store you may have legal rights to compensation.
  • Now is an opportunity to renegotiate your lease; new terms may be beneficial to both parties

Directors duties and insolvency

  • Directors of companies will be exposed in the event of a company being placed in external administration.
  • The Government has recently announced temporary changes to insolvency laws.
  • The proposed changes will give businesses time to assess their solvency, implement restructuring plans and take advantage of the safe harbor provisions.

Debt recovery

  • If you have outstanding debts owing you should consider taking formal recovery actions to obtain payment.
  • Cash flow is important to survival and collecting debts as never been more important to assist with liquidity.

Contractual arrangements

  • Establish whether any of your written contracts you have with suppliers, customers, landlords, distributors, independent contractors, service providers etc. include mechanisms that can provide you with relief.
  • Force majeure clauses are designed to give relief where parties are affected by unforeseeable or unavoidable events. These clauses will allow parties to delay, suspend or avoid performance of contractual obligations.
  • A material adverse change (MAC) clause will allow parties to terminate an agreement in the event of a material change to the business, operation or financial state of a company.

This is uncharted territory for all businesses and the landscape is constantly changing. The Government is announcing a range of assistance options and franchisees need to understand how they can use these initiatives to navigate these uncertain times. 

Just like we are all taking steps to safeguard the health of our friends and family, now is the time to obtain professional advice to future-proof your franchise.