Log in
Updated few hours ago

Covid-19: How businesses can survive

Shops closed along Kyaggwe road during the total lockdwon due to Covid-19

Shops closed along Kyaggwe road during the total lockdwon due to Covid-19

Uganda has so far had comparatively fewer and manageable cases of Covid-19 with no deaths reported at the time of writing.

However, other countries, particularly developed economies in Europe and the USA, have large numbers of cases with many deaths and remain subject to lockdown measures. Vaccines and treatments are under development but are not likely to be available before 2021 at the earliest.

At this point, a deep global recession seems inevitable. Uganda’s own lockdown may have played a critical role in minimising the spread of the virus here so far, but it has also had an impact on everyday life and economic activity. It is unclear how quickly global economic activity will recover.

In this environment, Ugandan businesses need to recalibrate their strategies to prepare for a new reality which may include tougher access to capital, reduced domestic demand for goods and services and lower levels of cross-border trade.

It’s a grim picture and only those businesses which respond robustly will be able to survive. Here are some ideas for businesses to survive.

THE BOARD

For any incorporated business, the key body responsible for decision-making is the board of directors. The board may delegate day-to-day operational management to executives, some (or all) of whom may themselves be members of the board, but this does not dilute the board’s ultimate collective responsibility to shareholders and other stakeholders including employees, customers, suppliers, regulators and the tax authorities.

Faced with this responsibility in a time of significant business uncertainty, the board should consider the ability of the business to continue to trade, solvency and compliance with financial covenants, health and safety of employees, information technology (IT) capacity and data security issues and insurance coverage as well as the notification obligations.

In addition, it is important that there are clear lines of responsibility and reporting to ensure that key business risks (particularly those with a financial implication) are being identified and addressed by the board on a timely basis. This may mean more frequent board meetings and taking input from external advisers where necessary to address key issues, including particularly the risk of insolvency.  

MANAGING EMPLOYEE RELATIONS

Employment law aspects have become a critical preoccupation. The businesses have legal as well as moral responsibilities to keep employees and their families safe from the risk of infection by use of social distancing and protective clothing.

There may also be the risk of disruption if large numbers of employees are absent due to the virus. If a business is experiencing financial pressure because of reduced demand, it will need to look closely at all its costs. For many businesses, staff wages will be one of the largest components.

Making staff redundant is a significant step and should be done in compliance with contractual and labour law obligations to ensure that the business does not open itself up to legal challenges that may be expensive to defend. It is also advisable to consider reputational risks: businesses which mishandle redundancy programmes can lose credibility with remaining employees and other stakeholders.

Other options could be explored such as the possibility of unpaid leave, particularly in the case of employees who may be critical to rebuilding the business once the crisis begins to recede.

FORCE MAJEURE

In addition to employees, businesses will have critical contractual relationships with suppliers and customers. The disruption brought by the pandemic may significantly impact the ability to fulfill contracts, for example if production facilities are closed due to lockdown rules it may be impossible to meet obligations to customers or utilise supplies of raw materials.

In such cases, companies may be entitled to invoke force majeure provisions in contracts. The term force majeure implies the existence of unforeseen circumstances, outside the parties’ control, which make it practically impossible to fulfill the terms of the contract. A business may also be entitled in some circumstances to claim for lost profits against business interruption insurance, though many policies exclude circumstances such as pandemics.

MANAGING TAX

Tax is a major cost for businesses and many countries have introduced schemes to enable taxpayers facing serious cash constraints because of falling demand to defer tax payment obligations. Though Uganda has tax proposals that aim to defer the payment of tax for businesses affected by the pandemic, they are not far reaching enough.

This notwithstanding the existing tax legislation in Uganda includes some provisions that businesses may take advantage of. Where businesses face cash flow problems, the Uganda Revenue Authority (URA) has discretion to grant an extension of the deadline for payment of any tax though this does not necessarily waive the potential interest accruing from the late payment of taxes.

A business is entitled to income tax relief for an unpaid debt provided that the related revenue was included in income and steps have been taken to recover the amount due. Output VAT in respect of goods or services which have been supplied but not paid for wholly or in part may be repaid to a taxpayer but only after the elapse of two years, provided that appropriate steps have been taken to enforce settlement.

The URA has also committed to expedite tax refund applications to the extent taxpayers furnish the tax body timely with all the required supporting documentation.

We must be prepared, however, for significant dislocation of normal business and tax compliance activity which will potentially last for many months after the health crisis has subsided as businesses struggle to recover from the economic impact.  

The author is a managing partner at Cristal Advocates.

Comments

0 #1 Jama 2020-07-13 14:15
This could be another opportunity to beef offshore accounts.
Report to administrator

Comments are now closed for this entry