Up Again: Governance

What are the key topics that boards should focus on to ensure proper discharge of their duties as directors, as their businesses return to work following a lockdown?

In any given situation, the board should always ensure that the company has adequate liquidity, is sufficiently funded and well organised. COVID-19 can be challenging for both the company’s financial situation and the organisation. Also, the supply chains may need to be carefully reviewed and it must be investigated if the company can benefit from one of the Governmental Programs.

If the company is financially challenged, the board should prepare a plan to ensure that the necessary liquidity is found via cost reduction, loans / credit facilities or capital increase. In the light of the uncertainty caused by the COVID-19 crisis, the board must monitor the financial performance of the company even more closely to be able to take necessary steps and make decisions in due course.

From an organisational point of view, the board should ensure that the company can operate and keep essential functions working also in the transition moving from “working from home” to “back to work”.

Similarly, the board should plan for various risk scenarios; i.e. is it prudent to have all employees back at work at once? How to handle a situation where the lockdown is ramped up again? And other questions arising to the company’s specific sector or business.

For some businesses, the COVID-19 crisis may also present new business opportunities or possibilities for consolidation and growth. The board should thus ensure that the company is ready to seize such opportunities.

Furthermore, if the company has chosen to postpone its annual general meeting for adoption of the annual report for 2019 due to the COVID-19 crisis, then the board should monitor any development and amendment to the temporary regulation put in place to ensure compliance and duly filing of the annual report for 2019.

Should boards adopt particular governance practices in this context?

The COVID-19 crisis should not in itself cause the board to take any particular steps, but closer monitoring may be required. Further, if ongoing and regular financial and business reporting to the board is not part of the current governance set-up, the board should require such regular updates to ensure that the board is at the forefront of the development allowing the board to take necessary decisions in due course.

Many listed companies have suspended their forecast for 2020 due to the COVID-19 crisis. As society and markets open again, the board should consider if, and if so, when it is ready to communicate new forecasts for the financial year 2020.

To what extent are boards being encouraged to take into account corporate purpose and values in the context of COVID-19 and a return to work?

It is always easier to follow company values and objects when everything develops as planned and the company is performing well. Many companies find themselves in challenging situations due to the COVID-19 crisis. Companies should be mindful that their response is in line with the values the company is seeking to promote.

Your company is facing liquidity issues as a result of COVID-19: a. What are the repercussions for continuing to operate your company?

If revenue has fallen by more than 30 %, the company should consider applying for the various government relief packages mentioned in the answer regarding legislative changes under Government Relief and Tax.

It will be essential for the management to monitor the financial situation of the company to secure the company’s capital resources and cash flow.

Your company is facing liquidity issues as a result of COVID-19: b. Do you have to file for insolvency if your company cannot pay all its debts as they fall due?

The main condition of filing for bankruptcy is that the company is not able to meet its obligations as they fall due.

However, the company does not have to file for bankruptcy if there are alternatives to a bankruptcy.

As an alternative, the management may consider to:

Reach out for the creditors having a claim to ask for postponement of payment
Reach out for all the company’s creditors to seek a composition (Da. akkordordning) with all the creditors

File for restructuring instead of bankruptcy.

Your company is facing liquidity issues as a result of COVID-19: c. Are there any steps that should be taken to minimise the risk of your actions as director being challenged?

It is crucial for the management to secure the company’s capital resources and cash flow. The management must secure that the financial point of no return is not reached/exceeded. If the financial point of no return is reached, the management will have to consider filing for bankruptcy.

The management should investigate if the various government assistance packages could help the company survive the financial difficulties brought on by the COVID-19 pandemic.

Your company is facing liquidity issues as a result of COVID-19: d. Will your company be wound up if you fail to make payments when due?

The company will not automatically be wound up if the company fails to make payments when due. However, a creditor having a claim against the company may file a petition for bankruptcy against the company.