COVID-19 AND ITS EFFECTS FROM A CORPORATE PERSPECTIVE

Although there are many unknowns about the effects that coronavirus can have, the world’s business. Companies have begun painting a bleak picture of broken supply chains, disrupted manufacturing, closed stores. Our intention, however, is to look at how a company can be kept alive despite this global health crisis.

From a corporate perspective; What are coronavirus effects on business?

It is necessary to differentiate between companies that are being set up and those that are already established, as the remedies to be implemented may vary.

On the one hand, companies that were in the process of being set up during the coronavirus outbreak and the declaration of the State of Alert in Spain may be affected in different ways.

The General Directorate of Legal Security and Public Faith, a body under the Ministry of Justice, responsible for managing and organizing the functions of the Registries and Notaries, has issued a resolution giving instructions on how the Registrars and Notaries should act in order to face this health crisis. But, how does this affect companies?

  • In case the deed of incorporation of the company had not been signed yet: most of the notaries’ offices are still open, but it will be the notaries themselves who will determine whether or not it is possible to keep the arranged appointments, depending on the urgency of the procedure. Therefore, the signing of the company’s deed of incorporation could be paralyzed until the whole alarm period has passed, since the notaries will not sign this documents telematically.

 

    • What can you do? In the event that your country is not affected by such restrictive measures as those found in Spain, one option would be to contact the Spanish embassy/consulate in your country to try to sign the deed of incorporation there, in order to avoid delays in the process.

 

  • In case the company had already been incorporated and was pending registration in the Commercial Registry: the deadlines for its registration have been extended by 15 more working days from the date of the resolution (12th March 2020); this means that all those presentation entries that were in force last Thursday can be still registered until approximately mid-April. 

 

    • What can you do? Nothing, but waiting. This is an administrative deadline that cannot be altered and that, in any case, sets a maximum time limit that could always be lower.

Regarding the procedures with banks and public administrations, you have to take into account that many administrations -such as the Tax Agency- have closed their doors in order to comply with the containment and quarantine measures established by the Spanish Government. However, the banks are trying to maintain their normal activity and are facilitating the processing of formalities telematically, in all that is possible for them (i.e. online banking).

On the other hand, there are the companies that were already in operation at the time the crisis emerged and that are going to have to take decisions to avoid the serious impact that it may have.

Firstly, it will be necessary to prepare a due diligence to evaluate all the possibilities that exist to mitigate the damage of business due to coronavirus:

  • To create a contingency plan to analyse whether business continuity and compliance with obligations can be guaranteed, and study the effects that decision-making will have in this regard

 

  • To study the possible impact on the income and solvency of the company, which could lead to a delay in the payment of debts. Last Sunday the Spanish Government adopted a series of economic measures with the aim of alleviating the effect of coronavirus on companies by making certain taxes more flexible and deferring payment, or by creating a specific line of financing to meet the liquidity needs of companies and self-employed workers in the tourism sector. It is necessary to be attentive in case more measures are approved that give coverage, not only to the tourism sector, but in general to all the small companies and self-employed workers. Otherwise, banks would have to offer financing plans.

 

  • To review the insurance policies taken out to determine the coverage and exclusions, both at the level of business interruption and at the level of workers’ health.

Once the situation has been analysed

It should be borne in mind that any decision relating to the management and representation of the company will be taken by the company’s administrative body (the Director/s). And it is very important to take into account the provisions of the Spanish Corporations Law in this regard: Director(s) must “take the necessary measures for the good management and control of the company”; acting otherwise could lead them to be liable to the company and to the shareholders for the damage they cause, provided that fraud or negligence has been involved.

Finally, in the event that the impact of coronavirus crisis is so devastating that it completely prevents the continuity of any business activity.

Before proceeding to the dissolution of the company, it would be possible to make some of the following structural modifications:

  • Transformation into any other type of company, 

 

  • Merger with another company by means of the transfer of its assets and the consequent allotment of shares to the shareholders of the companies that are being wound up.

 

  • Total or partial division of the company, involving the transfer by universal succession of its assets; or the segregation of one or more parts of the company’s assets each of which forms an economic unit, 

 

  • Global transfer of assets and liabilities that allows to transfer of all its assets by universal succession to one or more members or third parties, in exchange for a consideration that cannot consist of shares or membership fees of the transferee.

 

In any case, duly note that your experts at LEXIDY LAW BOUTIQUE will remain available to advise and guide you towards the solution that will undoubtedly be the most protective of your interests.

 

How can Lexidy help me?

At Lexidy we can clarify any doubt you may have regarding the scenario to apply for government aid for companies created by the COVID-19. Get in touch with us and see what we can do for you.