Advice for traders - corona time

The corona pandemic and its impact on the Norwegian economy and business can have major consequences for businesses. Ultimately, it could lead to more bankruptcy petitions if the business has liquidity problems as a result of loss of income. This applies, for example, to the tourism industry and hairdressing businesses. Below is some advice on how your business can survive the corona pandemic.  

Costs and liquidity  

As many companies will experience major revenue losses as a result of, among other things, a lack of new orders and downtime, it will be particularly important for the business to reduce costs as much as possible. All possible cost-cutting measures should be considered. Since a large part of a company's costs are linked to the obligation to pay wages, the company should consider laying off employees if there is a legitimate reason for doing so. Furthermore, renegotiation or termination of existing contracts should be considered. Can certain projects be postponed? Negotiations with creditors with a view to entering into repayment agreements are also an important measure that should be considered. 

It must be expected that every business will have to make cost cuts. As previously mentioned, one of the recommended cost cuts would be to renegotiate existing contracts. The company's customers will probably ask to renegotiate their contracts in order to reduce their own costs. Remember that there should always be a specific assessment of whether a contract should be renegotiated, as there is a balance between renegotiating the terms of the contracts to secure some revenue and demanding fulfilment of the agreement. It may therefore be wise to consider the situation one more time. 

All measures that can secure liquidity should be considered as soon as possible. Follow-up and collection of outstanding receivables are important measures here. Furthermore, it may be a good idea to ensure that the company receives payment when entering into new contracts, for example through guarantees or advances.  

Realistic overview of the situation  

A company's revenue base may seem very secure at the present time. However, this certainty will not help if the company's customers are severely affected by the situation, with the result that they are unable to pay for the company's service or product. As a result, the business should try to get a realistic overview of the situation and assume that the worst will happen to the business. In this way, the business will have a realistic overview of what future income and expenses it is guaranteed to have. 

Negotiations with the organisation's bankers 

Communication with the company's bank is recommended, for example to look at the company's access to repayment holidays on its loans. In any communication with the bank, it's a good idea not to be too firm and harsh, as this can lead to the bank having less faith in the business. During the dialogue with the company's bankers, it is particularly important that the bankers are given specific information about the company's situation, what measures the company intends to take, and whether there is any possibility for the company to get out of its problems. The company's representatives should be as certain as possible of their own assessments, as this can have a major impact on the bank connection's assessments. Openness with the bank may make the bank more willing to provide loans, renegotiate agreements and the like with the business.  

Assessment of the government's packages of measures for businesses 

One of the most important measures the government has taken to help businesses is the possibility of emergency credit through state loan guarantees to banks. The loan guarantees are intended to help small and medium-sized businesses that the banks believe can become profitable. Any business that believes it may have liquidity problems should therefore prepare an application for an emergency loan, so that it is ready if it is needed at a later date. Businesses should also keep an eye on any new packages of measures that may be introduced by the government, and consider whether the business could benefit from these.  

Supply of capital 

Every business should consider whether the company's liquidity can be secured through the injection of new paid-in equity. If this is not possible, consideration should be given to whether the shareholders or creditors will provide loans to the business. Alternatively, the banks can increase the company's credit lines so that the company has a supply of capital. 

Preparation of a strategy and survival plan 

The organisation's management will be responsible for preparing a plan for how the business will get through the pandemic. The plan should be as detailed and comprehensive as possible. When preparing the plan, it is particularly important to consider the overall interests of the creditors and not the interests of the owners, as it is the creditors who are the losing party if the business does not survive. In addition to paying particular attention to the interests of creditors, the plan should contain a concrete description of the measures the company will take to ensure that the interests of the authorities, creditors and employees are safeguarded.  

The plan should also include assessments of the difficulties that may arise for the organisation and the measures to be implemented to overcome these difficulties. As the situation changes daily, the plan should allow for changes and reversals.  

The implementation of the plan may involve demanding negotiations with all parties involved. However, the organisation should stick to the plan and continuously assess whether the plan should be revised as the situation changes. Be aware that the plan must always be assessed against, among other things, possible board responsibilities, the company's obligations under labour law and public law, and the duty of loyalty. 

Board responsibility in brief 

Anyone who sits on the board of a limited company has assumed responsibility and may be personally liable for damages in the event of major errors. Board liability also means that board members are ultimately subject to criminal liability. As a result, it is important that board members are aware of their responsibilities. Among other things, it is particularly important that the company has adequate equity and liquidity, and that the board takes action if this is not the case.  

During the coronavirus pandemic, many organisations will experience liquidity problems, as large parts or all of their revenue base will be lost. In the event of any liquidity problems, it is important that the board of directors endeavours to control the situation and maintain an overview of liquidity. Furthermore, the board must take various measures in an attempt to improve the situation. As the situation can change on a daily basis, it is important to be aware that the proposed measures may need to be changed. The board must therefore continuously assess necessary measures to improve the company's finances. To ensure verifiability in the aftermath of the situation, the board's discussions and measures should be documented in written board minutes. The written minutes will be able to document that the board has attempted all reasonable measures to improve the organisation's finances.