COVID-19 issues and considerations

The global COVID-19 pandemic continues to dominate news headlines and all of our thoughts. Each day sees new measures and new challenges in an evolving situation which is truly unprecedented in modern times.

At Long & Humphrey, we have implemented our business continuity plan and put in place measures to enable us to continue to provide first rate service to our clients, whilst protecting the health and safety of our staff, our clients and our Island.

Of course, the current situation is creating issues for our clients, but we have been impressed by the resilience they have shown and their commitment to their staff, their customers and the services they provide.

We have received a wide variety of enquiries from clients, but some of the most common have been in relation to contracts, and in particular what happens if they can’t be performed, employment issues and the impact of COVID-19 on the normal activities of companies.

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Contracts

The most important point here is to read your contract carefully. Often people enter into contracts without reading or understanding all of the terms fully, but in times of difficulty such as we are all currently experiencing those often-overlooked clauses can be crucial. Some general principles are discussed below, but their application will always be subject to the particular terms and circumstances of the contract in question, so it is essential to consider them holistically. Depending on the contract terms and the circumstances, a defaulting party may be able to reduce or exclude its liability for breaching the contract by relying upon a force majeure clause or claiming that the contract has been frustrated.

Force Majeure

A force majeure clause is a contractual clause whereby the contracting parties agree that the contract may be varied or suspended in agreed exceptional circumstances. If a contract contains such a clause, and the COVID-19 pandemic constitutes a force majeure for its purposes (which will very much depend upon the terms in which it is drafted and the particular circumstances of the contract), it may be of great assistance to a party which is unable to perform its obligations.

In order to rely upon a force majeure clause, a party will need to demonstrate:

a) that the COVID-19 pandemic falls within its scope;

b) that the pandemic affected performance of the contract in the way specified in the clause (e.g. ‘prevented’ or, less strictly, ‘delayed’);

c) that it has taken reasonable steps to mitigate the effect of the pandemic; and

d) that the pandemic actually was the reason that the contract was not performed (if you wouldn’t have been able to perform regardless of the pandemic, you will not be able to rely on the clause).

If those criteria are met, the force majeure clause will typically provide that the contract (or parts of it) will be suspended whilst the force majeure circumstances continue, and that the non-performing party will not be liable to the other parties during the suspension. The clause may even provide that the contract can be terminated by either party upon the occurrence of a force majeure event.

Frustration

Frustration is interpreted strictly by the Courts, so will only apply in specific circumstances. If an event occurs that is beyond the control of the parties, the contract may be frustrated, meaning the contract is brought to an end and both parties are released with immediate effect from their obligations under the contact.

Whether a contract is frustrated as a result of COVID-19 will depend upon its terms and whether, as a result of the pandemic:

a) it is illegal or impossible to perform the contract; or

b) the contract has become something completely different to what was intended by the parties when it was entered into.

Parties likely to be in breach should think about any measures they can introduce to reduce that likelihood, for example agreeing an amendment to the terms of the contract. Those who expect that the other party may breach their contract need to plan to mitigate any losses that may arise, perhaps by making alternative arrangements. Parties should consider what compromise can be reached to enable the contract to continue.

Employment

The Isle of Man Government has introduced emergency legislation which provides assistance to employers and employees affected by the COVID-19 pandemic. These support measures have been well publicised and we would encourage businesses and individuals to investigate their eligibility and seek appropriate assistance.

Emergency legislation has also been passed to clarify that, when determining entitlement to incapacity benefit, self-isolating and being in quarantine will both constitute incapacity.

Where an employee is self-isolating in accordance with Government guidelines, they will be entitled to incapacity benefit and may also be entitled to contractual sick pay, though this will of course depend upon the terms of their contract. If the employee is able to work from home, it may be appropriate for them to do so, in which case they should continue to be paid in the normal way.

An employee who is not ill and is not required to self-isolate in accordance with Government guidelines should report for work as normal (which may include working from home). An employee who is not willing to work will not usually be entitled to be paid, but possible discrimination claims could arise where the employee is in a Government prescribed high-risk group, so caution should be exercised.

Due to the scale of disruption arising from the COVID-19 situation and the pressures it is placing on businesses, it is likely that employers will want to make changes to working arrangements, for example by reducing hours, reducing pay, granting unpaid leave or making redundancies. The extent to which each of these steps can be taken will depend upon the specific circumstances and the terms of employment of the employee in question. We would encourage a collaborative and open-minded approach. The assistance provided by the Government may influence your decisions, as many other factors such as the requirements of the business and an employee’s need for additional time off in order to care for dependants.

Remote Working

A large number of employers have now initiated their remote working policy. If you are allowing employees to work from home but do not have a formal policy, you should consider putting one in place. Employers must allow remote working to all employees where remote working is possible, or risk a claim for discrimination. If equipment is required to allow employees to carry out remote working, the employer may have to reimburse each employee for their remote working expenses to allow all employees to work remotely on an equal footing.

Cyber security and data protection

Many offices will already have a secure system by which employees can remotely access their work computer, however if you do not already have this, we would recommend this as an essential component of ensuring remote working is GDPR compliant. In addition, employers should also ensure that employees have password protected internet connections. Employees should be reminded to maintain their obligation in relation to reporting any data breaches to the data officer. You may also wish to consider creating a file removal log to ensure the location of physical files being removed from the office are known at all times.

Staff communications

Where possible, social distancing should be adhered to at all times. Utilising video calling on platforms such as Whatsapp, Zoom or Skype will enable businesses to conduct their day-to-day activities in as normal a way as possible whilst preventing the spreading of COVID-19. Caution is advised, however. Concerns have been raised concerning the security of certain platforms, so care should be taken to ensure that any discussions of sensitive information take place in a secure environment.

Health and safety in the workplace

Where remote working is not possible, different considerations apply. To adhere to social distancing and to prevent the spread of COVID-19, health and safety in the workplace is of utmost importance. Individuals in the workplace must be separated by a minimum of two metres at all times; regular hand washing should be facilitated and encouraged, as well as emphasising the importance of practising hygiene etiquette (e.g. sneezing and coughing into a single use tissue) and providing hand sanitizer and cleaning supplies to ensure that all work surfaces are wiped down regularly. The importance of advising employers of any developing symptoms should also be stressed to employees.

Company administration

In spite of the current situation, the statutory and regulatory obligations of companies remain. In addition, companies must make appropriate provision to enable their day to day operations to continue in as close to a normal fashion as possible.

Board meetings

Many companies will already hold virtual board meetings, where one or more directors attend via telephone or video conferencing facility. Such meetings are generally permitted under a company’s articles of association, but if your articles do not contain such a provision you may be able to rely on the statutory position.

The Companies Act 2006 expressly provides (as section 106(2)) that “(2) A director shall be deemed to be present at a meeting of directors if — (a) such director participates by telephone or other electronic means; and (b) all directors participating in the meeting are able to communicate with each other”.

The Companies Act 1931 does not contain such a provision, so it will be necessary to refer to the articles of association of the company in order to determine how to proceed, but many articles bestow broad powers on the directors as to how to govern their proceedings.

General meetings

In most cases, it will be possible to propose resolutions to shareholders in the form of a written resolution, although care should be taken as this may result in a greater percentage of votes being required in order for the resolution to be passed.

If a company is required to hold an AGM (companies registered under the Companies Act 2006 are not, and many of those registered under the Companies Acts 1931-2004 have elected to dispense with the requirement to hold an AGM), it may be possible to delay the meeting until COVID-19 restrictions have been eased or lifted, but that will of course depend upon the length of the delay and when the company’s last AGM was held.

If permitted by the Company’s articles of association, it may be possible for general meetings to be held virtually.

Filings

Filing obligations remain and deadlines will, unless expressly stated, be enforced. Many agencies, such as the tax authorities, have announced concessions, but in some cases these are only available to companies who apply for them.

The Isle of Man Companies Registry is accepting documents electronically and has extended many filing deadlines, but its public counter is closed, so if you are unable to file electronically extra time should be factored in to allow for documents to be sent by post.

Signatures

In most situations, it should be possible for documents to be signed during the restrictions imposed to combat COVID-19, whether by utilising social distancing, by way of counterpart clause, or by use of electronic signatures (which is expressly provided for under Isle of Man law, including emergency measures introduced as a result of COVID-19).

The information in this note is correct as at 14 April 2020, but, due to the rapidly developing nature of many of the issues caused by COVID-19, some of the information is likely to change. The information in this note is provided for the purposes of general assistance and information only and is not intended to be, and should not be taken as, legal advice. You should not rely upon anything contained in this note without seeking advice as to what is appropriate in your specific circumstances. We accept no liability for any reliance placed on the information in this note.

SAY HI!

If you have any questions or queries regarding any of the issues or considerations raised above, we are available to help. In accordance with the Government guidelines, we are practicing social distancing but are always available for a telephone chat or a virtual coffee to help support your business.

Please get in touch if we can assist in any way.

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