Important Covid19 Legal Updates May 2020
As we are now well into our second month of adjusting to the pandemic, please see below our observations of the main challenges and legal changes and a list of the key considerations for businesses over the next few months as we move into the next stage of transition out of lockdown.
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It is clear that the coronavirus pandemic has had a significant impact on the employment sector, with very real and immediate considerations for employers, employees and anyone else in a working context. PDT’s Employment team has seen a surge in related activity, particularly regarding (1) managing vulnerable employees and others with particular considerations (2) introducing changes from temporary reductions of hours or pay to, where unavoidable, dismissals (3) furlough and related documentation including furlough agreements and (4) getting to grips with the can and can’t do’s of the Job Retention Scheme.
In addition, it is vital for employers to break down, assess and understand their needs and objectives in the short and medium to long term. This is as we move from lockdown, into a “post-lockdown transition period” and looking forward to the next 6 – 12 months. We continue to work with clients in this wider context to review their options and implement next steps to best protect their business, and workforce, in both the immediate and longer term.
Recent employment-related changes have come thick and fast: and this can make it challenging for employers to keep up to date. So, here are the key things you need to know:
Generally, many matters relating to the current lockdown restrictions are covered by the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020. It came into force on 26 March 2020 and will expire after 6 months.
Employers have existing duties to ensure the health, safety and welfare of their employees. In the current climate, you must pay particular attention to employees who are classed as vulnerable or shielding, pregnant, undertaking higher risk roles and/or raising specific health and safety concerns.
The scheme provides employers with the ability to furlough employees and reclaim certain wage costs. It currently operates until the end of June 2020. Furlough must be confirmed to employees in writing and we recommend using a furlough agreement (or similar). Government guidance, which all employers should read, is regularly updated and can be found here: https://bit.ly/2WoRUnR
SSP provisions, relating to coronavirus, have been temporarily changed in relation to (1) who can claim SSP because they have symptoms, are self-isolating or shielding (2) claiming SSP from day 1, instead of day 4, of absence and (3) a provision for certain employers to reclaim up to 2 weeks’ SSP per employee. For more information: https://bit.ly/2xwhwqq
Employees will be entitled to carry over up to four weeks of statutory holiday entitlement into the next two holiday years, if it was not reasonably practicable for them to take their holiday as a result of the effects of coronavirus.
Our commercial team continues to support clients with their day-to-day legal requirements during lockdown. We have seen businesses which have been able to operate during lockdown focusing on familiar commercial and operational issues and the story is very much one of legal continuity in the face of operational change and challenges. Terms of sale and supply need to be negotiated and documented, and disputes arising from commercial agreements assessed and dealt with according to the terms agreed between the parties.
COVID-19 has of course created a number of new and urgent needs for those businesses, and our team has seen a rise in referrals to our other departments, such as our employment team, who are assisting our clients to implement furlough for parts of their workforce, and our property department for assistance in dealing with leasehold property issues. Many clients are trying to avoid permanent structural changes to their businesses and are hoping to be able to resume activity once “lockdown” is eased, and thus the focus is on maximising continuity.
Of course, COVID-19 has clearly caused substantial supply chain difficulties for many businesses, as well as a consequential need for clients to rapidly reconfigure the administrative side of the business. Many of our clients have therefore been reviewing their obligations to customers, as well as their rights under agreements with their suppliers and with providers of products and services used in the “back office”, to determine what contractual rights and obligations they have when performance is interrupted, delayed or prevented by the pandemic.
We have seen a substantial number of enquiries regarding “force majeure” clauses in contracts, which can relieve one or more of the parties to a contract of their obligations on a temporary basis where performance is interrupted by factors beyond their control. These clauses are used infrequently and so have not traditionally been a focus of negotiations for lawyers or their clients or for commentary from the courts. A result of this lack of focus is that parties to a contract often have very different views on what these clauses actually do and their views may not actually correspond to the exact wording of the contract each has signed. For these reasons, we are recommending that clients who are either experiencing disruption or anticipating it in future should get out copies of their agreements with suppliers and customers and review them with us to understand whether, and to what extent, parties can avoid their obligations as a result of the pandemic. Read our article on force majeure clauses and what to do if your business is likely to be affected by the pandemic.
Where clients are paying for goods and services which have become “surplus to requirements” as a result of changes in the marketplace or changes in how businesses are working, we’re recommending that contracts and terms of supply are reviewed to see what leverage clients have to terminate or to extract concessions and additional value.
There is evidently a strong political desire to ease the current “lockdown”, with an announcement trailed by government seemingly before any actual planning has taken place. Businesses are therefore starting to consider how they will emerge from lockdown, including how they will obtain working capital, bring staff back into work, obtain new orders and deal with arrears and unpaid debts as support measures are withdrawn. We would encourage clients who have not done so to consider these issues and start discussions with financiers, suppliers, employees and trade creditors. Where the one-time costs of the lockdown threaten otherwise viable businesses, directors should get professional advice from a licensed insolvency practitioner as early as possible. In particular, a company voluntary arrangement may be an option for businesses to reduce and rescheduled many of the one-time costs resulting from the lockdown. PDT are able to provide advice and refer our clients to experienced and capable practitioners.
There has undoubtedly been a sudden stop to the transactional M&A work. The team has closed a few deals that were already well advanced, and which were not put on hold, but there are very few new deals being discussed at present. Instead we are having more conversations with clients regarding housekeeping matters with many clients seeing the down time as an opportunity to improve their internal organisation.
We have seen our clients’ focus turning to tidying up their existing documentation, drawing up documents that need to be put in place and general company ‘housekeeping’. You may want to consider some housekeeping exercises, which we will be happy to assist with, for example updating, amending or creating shareholder agreements, Articles of Association, company registers.
We have also been having conversations with a number of entities that are looking at the opportunities that this pandemic may bring in particular with the opportunity to acquire businesses at reduced valuations that can then be consolidated into a larger organisation to take advantage of increased buying power and economies of scale. As we come out of this lockdown we are hopeful that there could be a rapid upturn in the M&A activity that we are seeing.
As well as our corporate team, our insolvency team have seen the implication of the pandemic on signing documents. A short-term change has relieved this pressure from the introduction of the Temporary Insolvency Practice Direction, which was specifically brought in to allow statutory declarations via video link, which has never been done before.
The Practice Direction also makes it clear, parties are still free to issue Winding Up and Bankruptcy Petitions in accordance with the Insolvency Act 1986 (IA 1986), but the manner in which hearings have been listed has been amended to allow for them to be heard remotely to comply with social distancing and lockdown measures.
This solution is set to expire on 1 October 2020, but it will be interesting to see whether this will be extended as a long-term implication of the pandemic. It is a modern way of thinking so it will be interesting to see if this will be applied to all documents in the future from a long-term perspective.
We expect that if uncertainty continues in the medium and long term and government support begins to be withdrawn, many businesses will be forced to make painful structural changes which have been temporarily put on hold. Furlough arrangements may become redundancies and pressures on cash as government support is withdrawn and normal debt-collection regimes become fully available again may force viable businesses to restructure within the protection of a formal insolvency proceeding such as an Administration, or to manage the immediate crisis caused by the epidemic by measures such as a company voluntary arrangement.
Our company-commercial and insolvency teams expect to be fully engaged in helping clients reconfigure their businesses and protect directors and shareholders during what will surely be a difficult process of transition.
As the pandemic has developed, the government has made a number of statements relating to the further support for companies and their directors, which, if enacted, could include:
The Dispute Resolution team has been approaching the crisis business as usual. For the most part, this has been down to the Court’s swiftly adapting new technology to ensure that justice can continue to be administered. The team has already successfully organised and participated in remote hearings, which have involved the parties to the dispute, their legal representatives and of course the judges, all sitting in separate locations around the country. Our Debt Recovery team also remains extremely busy.
Of course, the impact of the pandemic on the economy has forced the government to make temporary legislative changes, which have had an impact on how we advise our clients as to how to proceed with their claims, and how they are likely to be handled by the Courts.
One of the finest examples of how the Courts have adapted is in Re Blackfriars Ltd  EWHC 845 (Ch) (6 April 2020), whereby a Deputy District Judge refused to grant the claimant an adjournment of a five week trial due to take place in June 2020, worth approximately £250,000,000 and involving up to 13 expert witnesses, and instead ordered the parties to explore technical solutions so that the hearing might proceed.
With the ‘high street’ already facing significant challenges, the closure of many business premises as a result of the government imposed lockdown could not have come at a worse time. Welcome news to commercial tenants, and those funding them, was the implementation of Practice Direction 51Z, which came in to effect from the 27 March 2020. From that date, for a period of 90 days, all possession proceedings have been stayed (although this Practice Direction was amended on 18 April 2020 so that some applications, and proceedings against certain trespassers, were excluded from the stay).
Landlords should be aware that they may still issue possession proceedings, but should be advised those proceedings, as with most other possession proceeding, will be stayed until the 30 June 2020.
The Government and lenders have responded in various ways to deal with issues such as non-payment of rent, repossessions and the need for further debt.
While property exchanges and completions and real estate finance deals are not directly prohibited by the Government’s lockdown measures, parties are facing obvious challenges because of the social distancing requirements. Parties are unable to physically move-in or move out of premises. Property valuers, inspectors and surveyors are not regarded as key workers and so cannot conduct site visits. Lenders are busy managing their existing portfolios, making it difficult for borrowers to obtain mortgage offers. Lenders are also understandably cautious about valuations, meaning drawdown delays are inevitable. The Land Registry and local authorities are inundated. If property transactions haven’t been aborted because of the pandemic, processes have nevertheless slowed down.
The biggest changes we are seeing in the real estate market is related to tenants not being able to pay rent and how to deal with concessions which suit both tenants and landlords. There are two aspects to this, the first being how do existing relationships continue and the second is how do landlord’s tie potential new tenants in as soon as possible.
Commercial landlords may not terminate a lease due to non-payment of rent / service charges until 30 June 2020. This moratorium may be extended by the Government.
Landlords should be aware that despite the statutory restrictions on forfeiture imposed by Coronavirus Act 2020 (CVA 2020), they still have the ability to pursue other actions, including:
As the Government continues to seek to protect UK business operations during the ongoing pandemic, commercial landlords are now temporarily banned from issuing statutory demands and winding up petitions against tenants unable to pay rent due to the impact of the Covid-19 crisis. It is important to note the restriction does not prevent winding up petitions being made across the board, but simply that these will not be possible where a tenant’s inability to pay is a direct result of the current Covid-19 crisis.
The Government are temporarily allowing pubs and restaurants to be used for the sale of takeaway food, without having to obtain planning permission. Establishments do not need prior approval, but should inform the local planning authority when the new use began and when it will end. However, legal advice should be taken before relying on this Government measure, because an existing planning condition may prevent takeaway use. Additionally, tenants may be prohibited by their landlords from changing or amending the use of the premises. Any permission granted by landlords will need to be properly documented.
For developers and housebuilders there is uncertainty as to the long term impacts of the pandemic on the industry. Short term there is a call for immediate relief in the following areas:
These practical issues will alleviate some of the short term pressure. As soon as there is any further information we will provide the relevant update.
The Land Registry have announced that they will accept deeds that have been signed in pen and witnessed in person (but not witnessed via video call). Each party must send an email to their conveyancer with the final agreed version of the document and a scanned or photographed copy of the signed signature page.
The Government have agreed to advance £300,000,000 of funding into Community Pharmacy. A word of warning for existing and prospective pharmacy owners – the advance is almost certainly going to be clawed back at some future point from later payments due to contractors.
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