The Potential Impact of Covid-19 – Safeguard Your Business

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By Bouwer van Niekerk & Parveen Munga

The spread of Covid-19 has undeniably impacted virtually every aspect of our daily lives, both personally and professionally. If the examples of Europe and China are anything to go by, far more extreme measures may yet be implemented to contain the spread of the virus. The current measures and those yet to be implemented will undoubtedly inevitably have consequences for businesses. Preparation, at the very least for the foreseeable effects of the Covid-19 outbreak, may prevent your business from becoming one of the casualties of this pandemic. Hope for the best, but prepare for the worst. Safeguard your business by considering the following.

Will your business become financially distressed?

A decline in the demand for certain goods and services is a certain consequence of isolation and social distancing. Certain sectors (e.g. hospitality, travel and transport) will be heavily affected in the coming months, but few are likely to be spared over the long term in an economy suffering job losses and contraction.

Is your business likely to become financially distressed? In terms of the Chapter 6 of Companies Act of 2008, a company is financially distressed if it appears to be –

(i) reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months; or

(ii) reasonably likely that the company will become insolvent within the immediately ensuing six months. In such circumstances, a company may be placed under supervision and proceed with business rescue. The aim of business rescue proceedings is to rehabilitate a financially distressed company by restructuring its affairs to maximise the likelihood of the company continuing in existence, and safeguard it against immediate claims by its creditors.

How will the outbreak affect your employees?

The Minister of Employment and Labour recently announced that measures are being put in place to ensure that contain the spread of the virus and its effect on businesses, such as short term UIF benefits in circumstances where businesses need to close down.

Businesses need to be prepared to take measures to ensure the health and safety of their employees and the public at large. This includes enforcing strict hygiene policies, preparedness for temporary closures and certainty of policy as it pertains to leave, should their employees be infected or suspected of being infected with the virus and need to quarantine or self-isolate.

A slow-down in business may alter your business’s staffing requirements, and decrease its capacity to retain employees. The restructuring of your business may also result in the redundancy of certain posts. You may be faced with difficult and limited choices, including the possibility of retrenchments. You need to be informed of your options, rights and obligations.

Contractual obligations and Covid-19

Your business, or a contracting party with your business, may be unable to fulfil its obligations in terms of a contract that has been caused by the outbreak of the pandemic. It is important to be informed of your options in terms of the relevant contract in order to enforce your rights in terms thereof, safeguard yourself if you cannot perform and to ensure you meet your obligations as far as it is reasonably possible to do so.

Covid-19 is disruptive: its full repercussions are uncertain and beyond your direct control. In light of this, contracts may need to be renegotiated or carried out in accordance with their vis major clauses.

Alternative dispute resolution

The Judge President of the Gauteng Division of the High Court has issued a directive restricting access to the High Courts in light of Covid-19. Though this will not impact a party’s right to have its dispute adjudicated by a court, the courts will not be able to function optimally in the foreseeable future, and there may be a delay in hearing matters.

Parties are encouraged to consider alternative dispute resolution; this includes mediation and arbitration. Alternative dispute resolution has the benefits of expert consideration of the most appropriate recourse as well as expediency in finalising proceedings.

We are ready to assist you

At Smit Sewgoolam Incorporated, our knowledgeable professionals are suitably placed to advise you on the optimal solutions your business requires. We have experienced specialists in the areas of Restructuring, Business Rescue and Insolvency Practice, Labour and Employment, Corporate and Commercial Law and Litigation and Alternative Dispute Resolution.

Know your options. The business that will thrive is the one that is most responsive to change.

Find out more at

Van Niekerk is a director and Munga a junior associate in our Business Rescue and Insolvency Practice, Labour and Employment and Litigation and Alternative Dispute Resolution departments.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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