We are experiencing a global health crisis i.e. the Coronavirus (COVID-19) that is inevitably in the nub of causing a profound impact on the inter alia economy. Although in such a time of cataclysm, the foremost aim for the Founders of institutes is to focus on the health and safety of their respective selves, their families, employees and customers.
It is also essential for the Founders to focus on the uncertain impact on their business during this phase. The impact may force the Founders to make difficult decisions, which must be handled strategically for the present time, followed by at least the current year.
In such a scenario, we have clubbed certain exercises that may help the Founders as part of the economy to deal with the present global crisis (of Coronavirus COVID19). Along with the following aspects, at all times, it is encouraged that the Founders stay aligned through honest, frequent and consistent communication.
Health and Safety
It is every employer’s duty to provide a safe and hygienic working environment to ensure infection prevention. There are no specific rules shared by the Indian Government on what is meant by this duty of care. However, there exist special laws like the Factories Act, 1948, wherein:
- It is pertinent for the employers to take proactive measures according to daily updated risk assessments. These include, inter alia, authorizing all employees to work from home, given the present mandatory provision by the Government. The employer should ensure that the employees have the required IT infrastructure to work safely from home, especially regarding data protection regulations.
- Should the institute be a part of the exceptions list (of the essential services), in addition to the provisions of the Epidemic Disease Act, 1897, install safety precautions such as maintaining the distance between employees, disinfecting and cleaning the workplace regularly, providing masks, keeping temperature checks at the office premises, working in shifts and only keeping essential staff available are some relevant practices.
It is important to keep in view that fundraising during this phase will take a longer period as opposed to earlier times. Hence, patience is key.
- Given the uncertainty in the present scenario, the aim must be long term. The business plan may have reasonable growth as opposed to a ‘growth at all costs’.
- Multiple ongoing deals may have been shelved or put on hold in view of the “force majeure” clause i.e. unforeseen circumstances or doctrine of frustration under section 56 of the Indian Contract Act, 1872, leading to fear among entrepreneurs whose companies do not have a long runway.
- In order to steady the fundraising, Founders may consider contacting their existing investors followed by reaching out to third-party investors who have been aware of the business over the years.
When it comes to restructuring, money is king, as due to the current crisis, businesses consider it to be the best to survive.
- The Founders must put into consideration the various aspects of restructuring, including but not limited to Mergers, De-Mergers and Reverse Mergers, Capital Reorganization, Tax Efficient Structure.
- Minimize outgoings and maximize available cash, whether by government stimulus or otherwise.
- It is not necessary for the finance options previously available to continue. Undertake scenario planning to better understand how much cash will be required and for how long. Use this opportunity to actively engage with the finance partners to ensure that enough cash is available Think about your entire ecosystem and supply chain, to maximize working capital.
Working capital is the oil to run day-to-day operations in a business. In the present state of the world, it is of utmost importance that the Founders opt for options that help in saving working capital.
For individuals repaying loans, the Reserve Bank of India (RBI) has offered relief measures to assist in financial strain. Per the circular RBI/2019-2018/186 & Statement on Developmental and Regulatory Policies dated March 27, 2020, RBI has permitted banks and financial institutions to provide a moratorium up to 3 months for all payments due between March 1, 2020 and May 30th 2020.
- However, assistance on repayment of loans may not be enough for businesses. Hence, the Founders must keep a tab on the inflow and outflow of cash and make the most on savings.
- Rather than awaiting the deadline to pass, it can be helpful to follow up with the clients on the invoices to ascertain the payment being done on time. The Founders are encouraged to aim at the bigger clients at first.
- Extension on the payments to be made to suppliers. A long-term relationship with the supplier may be helpful in such a scenario.
- With an aim for persistence in growth, the Founders can consider cutting on cost as much as possible.
- Lay-offs, which has been defined under section 2 (kkk) of the Industrial Disputes Act, 1947. “It means the failure, refusal or inability of an employer on account of the shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery or natural calamity or for any other unconnected reason to give employment to a workman whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched.”
- Reduced Salary- This must be mutually agreed between both the parties.
U – Shaped Recovery
Given the drastic change in the economy due to COVID-19, it may be a long journey for the Founders to bring their business to normal grounds. In such a situation, aiming for a U shape recovery is better than a V shape recovery.
- A recession dies eventually and so will the coronavirus recession. However, given the uncertainty in the regrowth of the economy, it is important that Founders spot gaps and infirmity that need to be addressed. This can extend up to inter alia finances and brandin.
- The aim is to also keep a steady check on the working capital.
- Restructure business plans, looking at a longer recovery period as opposed to a short one. This is also in view of the huge reliance of the Indian markets on other countries. Hence, for the economy to recover, the other countries too need to recover.
The Founders are encouraged to be honest, frequent and have consistent communication with the employees of the business.
The Founders must ensure the safety and health of the employees. Working from home, as now imposed by the Indian Government may have negative effects to it as well. The Founders must ensure that work from home is not taken advantage of i.e. at the cost of mental or physical health of any kind.
Moreover, should the employee get infected with the Coronavirus (for instance in the present crisis) during the course of employment i.e. it arose out of employment, the Employers will be obligated to pay compensation. Per the Employee Compensation Act 1923, the Employer must compensate for any injury or death arising out of the employment. However, such payment of compensation entirety depends on the circumstances, nature of the work and injury. As such, each case is different and must be assessed individually.
During this time, engaging with a colleague seems impossible in light of the social distancing obligations. Thus, it is even more important now to engage employers in active communication.
Communication through webinars, conference calls (audio) and/or conference calls (video), on a regular basis, can be the first step.
The teams must stay in contact and communicate as much as possible by staying up to date with the required information or inter alia web challenges. It is of utmost importance that the organization works as a team in this period of isolation, in order to keep the strength of the business alive.
It is important to consider the staff in order to run a business. A few aspects that the Founders are encouraged to consider are discussed here.
- Paid/Unpaid Leaves: Under the current situation of a lockdown, the employees are unable to be present at work. Hence, paid or unpaid leaves cannot be ascertained. Many businesses have adopted the option of ‘work from home’. Although, should the employee be unwell due to the virus, a sickness paid leave may be granted for a reasonable amount of time. In the case of a lengthy sickness, the option of unpaid leaves may be opted. However, as per certain provisions under the Employees’ State Insurance Act, 1948, longer duration of taking sick leave is possible.
- Many Founders have opted for Lay-off or Decreased payments.
- Retrenchment/Termination: The formalities involved will have to be adhered to. However, many government recommendations are anti either option. Hence, this should be the last nut.
- Transparency and communication is key.
- The Founders must consider keeping a balance between the business actions and the employees, considering the issue at hand.
Business Continuity Plan
A Business Continuity Plan (BCP) ascertains any unplanned scenarios that may disrupt the business and the steps required to recover. A BCP is a lifecycle with the following major steps that must be followed efficiently:
Analysis – Solution Design – Implementation – Testing and Acceptance à Maintenance.
Strategic Relationships/ Mergers & Acquisitions (M&A)
While the Ministry of Finance, India has announced that COVID-19 could be treated as a “natural calamity” for contracting parties having force majeure provisions and having reference to acts like natural calamity, it is important to understand the provisions in view of M&A. In addition to Section 56 of the Indian Contract Act, 1872, discussed in this article, per the provisions of Section 32 of the Act, “the contract can be treated void if the underlying event of such contract become impossible to achieve”.
The seller of the company must assure that all the remedies are adhered to before the conclusion of the transaction. The seller must have enough cash to be able to take care of the liabilities at hand and keep the business in a runnable situation, to avoid the purchaser to be triggered.
Both the parties much spend extended time to draft the provisions of the transaction agreement, keeping in view the scenarios arising out of the global health outbreak.
In light of the current lockdown and the “work from home” policy, there has been a significant increase in the number of cyber-attacks, globally. For example, per the WHO website, hackers and cyber scammers are taking advantage of the coronavirus disease (COVID-19) pandemic by sending fraudulent e-mails and WhatsApp messages that attempt to trick a person into clicking on malicious links or opening attachments. Such similar hacks are a threat to the economy.
As such, the Indian Government has collaborated with the Data Security Council of India (DSCI) to establish a National Center of Excellence that will increase innovation in Indian cyber security. However, until such time, it is advisable for the Founders to indulge in third party assistance for data protection and avoid cyber-attacks.
In sum, during the present crisis, Founders need to keep focus and indulge in business management more efficiently than before. It is important to take into consideration that the end to this pandemic is uncertain. As such, a long-term business plan (<12 months) must be in sight.
For detailed information, please contact Ahlawat & Associates.
Uday S. Ahlawat, Partner – email@example.com