Solvency: one of the highest priority is to address the short- and long-term financial sustainability of the company. This will require a careful assessment of projected cash flow solvency as well as balance sheet solvency. Directors must ensure that they have up-to-date management information on which to base their decisions, together with a firm grasp on how the company’s markets and prospects are likely to be affected by the crisis. Uncertainty over the timetable for exit from lockdown rules, and the speed of economic recovery, means that directors should plan for a variety of different scenarios, and develop alternative plans that can be implemented as necessary, particularly if the worst case outcomes seem likely. Directors of companies threatened with insolvency should (i) seek specialist advice, both legal and financial, (ii) ensure that all directors and key stakeholders are kept informed and onside, and (iii) keep a clear record of their decision-making, and the materials available to them to review. Where the company is part of a wider group, the directors must keep in mind that they owe their duties to the company itself and not to the wider group or the parent company.
Risk: even if the company’s solvency is not in question, directors are likely to be faced with a number of difficult decisions as they develop their strategy for the company. For example, the need to ensure safe working conditions for staff will often conflict with purely commercial objectives. Consumer-facing companies will also have to manage new reputational issues as public expectations of those companies shift as a result of the crisis, and ensure their communication strategy is adequately prioritised. Directors need to find a way to balance these competing considerations, in the long-term interest of the company.
Logistics: directors should address the logistical challenges which international lockdown rules and social distancing create. Existing operations including supply and distribution chains, and internal processes such as accounting, reporting and HR management, might be disrupted. During the crisis, it may be difficult for directors to hold meetings in the normal way. There is no restriction under PRC law on holding virtual meetings (although the company’s constitutional documents should be checked). Methods of communication with shareholders should be reviewed, and consideration given to any upcoming shareholder meetings, or any required shareholder authorisations. Many shareholder authorisations may be obtained by written resolutions, and communications to shareholders can be sent electronically (subject to any prohibitions in the company’s constitutional documents). However, shareholder or Board resolutions to be submitted to PRC authorities must be in written form and actually be signed.