These Legal Aspects Needs to be Considered by Company Directors in Making Decisions Facing the New Normal during Covid-19

Covid-19 has characteristics and aspects that are very different from the challenges that have been faced by the Directors of the Company before. Put simply, it can be said that current conditions have never been faced by any industry, even globally.

Covid-19 will test the new skills of Directors from all business sectors, all business scales from local to global, small to large scale businesses. This New Normal condition will occur with an uncertain period. For most companies, this will present a series of difficult problems and unimaginable serious risks. Therefore, the company must immediately adapt and continue to move to find solutions.

How can the directors cope with the current situation that triggers high pressures and threats to business continuity? Start with the basics: keep calm, always be alert, help one another, get information, get advice, be wise, and decide things decisively.

One of the most important basics in a company crisis situation is the need to communicate quickly on the basis of coordination with company stakeholders and to be able to make decisions when the information is unknown and cannot be known.

In these circumstances, directors must conduct core oversight and risk management responsibilities to ensure that the company’s operational management can observe all angles to assess short-term and long-term risks, as well as opportunities to take appropriate actions to ensure business continuity and activate contingency plans and communicate appropriately.

Actually these things are the tasks of the operational management. However, by asking the right questions related to management and testing the underlying assumptions, the Board of Directors can function well to ensure that the company makes wise and fact-based decisions in responding to the crisis and the Directors function as a calm harbor in the midst of a crisis storm.

At the right time, the board of directors must hear from the operational management team about how to overcome the COVID-19 crisis and its effects, both short and long term. Although there are significant variations and differences based on industry and company, there are still some basic questions that should be asked by the Directors to the operational management team. The questions are as follows.

Financial Impact

1. What are the current short-term and long-term financial impacts on company business that can be ascertained at the moment?
2. What things can be predicted and can influence the impact?
3. What is the assessment of the source of capital and cash flow position?
4. Is the current balance sheet robust enough to deal with crisis conditions?
5. Which payments must be renegotiated?
6. Should you consider whether it is appropriate to think about the possibility of withdrawing or delaying declared dividends, or suspending or reducing dividends, to maintain cash positions?
7. If the company has vulnerability from a capital resource and liquidity perspective, what is the company’s plan to deal with it?
8. Conversely, if the company has a strong position, should the company consider expanding the market expansion program?
9. Is it an appropriate use of capital, between competing uses and considerations, in the current conditions?

If business conditions are not good, in order to maintain the company’s cash flow to remain positive, negotiations on payment of obligations are important to be arranged based on priority scale. You can postpone investment plans and prioritizing payments for the sustainability of production so that the products are then absorbed by the market which will bring in revenue..

Review your business contracts, pay attention to force majeure clauses and other subjects that can be the basis for renegotiating these contracts in order to prevent default.

Employment and Working Facilities

1. What is the status of workforce and work facilities?
2. Are there any employees who report that they have taken the Covid-19 test and tested positive? Will the work facility be closed or partially operational?
3. Is the company considering Termination of Employment or paid leave?
4. What are the short-term and long-term financial consequences?
5. Are there teams that work remotely and on company work sites?
6. What has been done to ensure connectivity with employees?
7. Are there solutions to infrastructure constraints that might occur, such as IT capabilities or video conferencing?
8. Is there any arrangements been considered or need consideration to provide IT infrastructure support for employees working remotely or temporary changes related to work hours and other labor policies?

Re-evaluate your company’s organizational structure and adjust it to your needs. Is it necessary to adjust or delay the decision to award compensation or bonuses to ensure the compensation program is in line with current conditions?

What policies need to be applied for contract employees? If it is not too urgent, then the status of contract employees or apprentices which will expire can be considered to be discontinued.

And, not to forget, how the company can perform monitoring and measurement so that employees continue to work productively even from home.

Customer

1. What impact arises in connection with the company’s relationship with customers?
2. Can the company’s contractual obligations to the customer continue to be carried out and fulfilled? How does the company handle force majeure issues across all lines?
3. Has the company communicated with customers how the company responded to the Covid-19 crisis and how the company will strive to continue serving customer needs?
4. What are the most significant impact affecting customers?
5. How can the company stay involved with customers?
6. Are there things that the company has done or can do to help customers through this crisis?

Immediately review all business contracts with your customers. If your customer is in a difficult situation, then you can offer a change in payment schedule, renegotiate prices that don’t hurt you but can save your customers. This is important because your company will be remembered by customers as a caring company in difficult times.

Supply Chain

1. What are the impacts on the company’s supply chain?
2. Can the company help suppliers through this crisis, or does it become an unmanageable conflict?
3. Does the company face shortages or price increases?
4. Does the company have other alternatives?
5. Does the company need the supplier, and can it halt or reduce supplier commitment?
6. Should the company re-evaluate supply chain construction to reduce risk in the future?

If your cash flow is not good, then you must carefully consider which necessities must be met first at this time, which of course has an impact on your company’s income. Evaluation of the supply chain will greatly help you to manage cash flow. On the other hand, to maintain positive cash flow, make prepayments or repayments after your company has delivered products/services to your customers. And avoid backwards payments that can take months, because that will burden your cash flow.

Shareholders

1. Should it be considered to postpone the General Meeting of Shareholders (GMS) for the next period of dividend distribution?
2. Does the company still have good and planned communication with investors before giving further profits?
3. What is the company’s strategy for communicating with investors and analyzing what the company knows, what the company does and what the company does not know about?

The right approach supported by financial data and company sales forecasts will be very helpful in convincing shareholders to delay dividend distribution and discuss Business Continuity Plan.

Cyber Security

1. Recognizing that disruptions caused by COVID-19 to businesses can lead to vulnerability to crime, what steps has the company taken to ensure the safety of company facilities with remote work methods?
2. What steps should companies take/have taken to support cyber security protocols, including training for employees who work remotely?
3. How does the company coordinate the security and storage of confidential information with employees and manage company internal documents that are handled and used by employees?
4. Does the company need outside experts to help with this task?

Government Incentives

1. Are there government incentive programs (such as taxes) that can potentially be obtained by companies and what form of assistance is provided?
2. How does the company follow the development of applicable legal regulations in this regard?

Take immediate action to obtain incentives provided by the government to reduce the burden on companies. Consult immediately if there are regulations that are difficult to understand in their implementation.

Oversight and Readiness

1. Are there proposals or methods of dealing with vulnerabilities currently occurring?
2. Does the company have advisors and contingency plans if this happens?
3. Does the company have a stock monitoring program to keep it running, and is the inventory on standby?
4. Does the company have a “backup” that can be activated quickly if circumstances require it?

In times of crisis, you must prepare several backup plans with the consideration that this situation is not normal. Therefore, there must be various possible scenarios that must be ready to be confronted.

Conclusion

The duties of the Board of Directors in the current Covid-19 pandemic crisis must still be in accordance with applicable regulations as stated in the Limited Liability Company Law and the Company’s Articles of Association. Directors must make wise decisions based on facts and the best interests of the company and shareholders. The things mentioned above must be protected in accordance with applicable business valuation rules.

 

Author: Bimo Prasetio/Andi Akhirah Khairunnisa

If your company needs legal assistance to make the right decision, please contact us via ask@bplawyers.co.id or 082112341235.