Covid-19 Impact on Businesses – a Family Lawyer’s Perspective
20th April 2020
Prior to the recent unprecedented Covid-19 emergency, I purchased a book called The Daily Stoic1, in part to influence my mediation and family law practice. It has become more apt as the impact of the current global pandemic ramps up in the UK
The book sets out daily meditations on perseverance and one entry resonated. It coincided, swiftly after the work from home edict, with the day the schools closed - which as a parent to three school aged children was a sombre day: March 20th Ready and at Home interprets a quote from one of the major figures of Stoicism, Seneca:
“We’d be crazy to want to face difficulty in life. But we’d be equally crazy to pretend that it isn’t going to happen. Which is why when it knocks on our door…let’s make sure we’re prepared to answer. Not the way we are when a surprise visitor comes late at night, but the way we are when we’re waiting for an important guest: dressed, in the right head space, ready to go.”
The business I work in has impressed in terms of the ability to adapt and face this crisis – in a matter of days we have pretty successfully manoeuvred ourselves from an office based law firm to a home based virtual law firm, not without commercial and personal impact of course, but it is a flying start.
Of course not every business operates in a sphere capable of enabling the bulk of employees to work from home; not every business will have the IT capabilities or resource. And however great any business is, some business owners will be unable to navigate the pressures, through absolutely no fault of their own.
Covid-19 & Crisis Management
Working capital and liquidity have never been under such scrutiny, regardless of the Government’s welcome support packages. Supply chains are disrupted, workforce availability reduced through illness, business demand reduced or obliterated for an unknown period – and these are just a few examples of the day to day disruption faced by businesses everywhere, all having to be managed within the context of collective societal stress and anxiety. Some people and some businesses will face ruin.
I am not an expert on crisis management of a business, but I am pretty sure most family lawyers are readying themselves for queries from business owners about the impact of the C19 economic downturn on their own financial divorce settlements – recent or anticipated, whether than be because they have, for example retained the business whilst their spouse has retained, say the house or cash assets– an outcome that at the time of settlement seemed fair enough but now looks soon to be weighed against the business owner; or whether they have been paying an amount of maintenance for their spouse, which is looking simply unaffordable moving forwards, given the anticipated reduction in their dividend income and/or immediate reduction in drawings.
Much debate is now taking place amongst family lawyers as to whether Covid-19 and the ensuing financial impact will be an event sufficient to invalidate the capital element of divorce settlements reached over the last few months. Only in a very narrowly drawn set of circumstances can deals done at court be rewritten – to do this you have to satisfy what we know as “The Barder test”.
The Barder Test
In short this principle essentially enables agreements to be set aside if there are new events, within a relatively short time of the order, which invalidate the basis or fundamental assumption upon which the order was made. Many cases have considered what does or does not constitute a Barder event, none more relevant in the context of an economic downturn that a case called Myerson. That was an appeal by the Husband to set aside an order, following the 2008 banking crisis and subsequent recession. The original order had provided for a 57%/43% split of assets in husband’s favour of which his share was predominantly formed of shares. Husband relied on Barder principles saying that because of the collapse of the share markets – at a level unforeseen and unforeseeable due to a global economic crisis - the net result was now an unfair 86%/14% in the Wife’s favour. By the time of the hearing, just a year after the original order, his shares had reduced by 90% in value. He did not succeed. Case law to date would suggest that price fluctuations in the housing market, shares or business values will not be viewed as unforeseen or unforeseeable – however dramatic.
Phrases such as “Cash is King” and “risk laden business assets” ring true for many family lawyers because of this jurisprudence but the result is indeed a perceived injustice for many at times such as those we now find ourselves in. Brave indeed - though understood by many I am sure - will be the individual who seeks to test the law in the face of the current pandemic.
Ongoing SpousAL Maintenance
Less controversially if you are a business owner already paying a figure in maintenance to a former spouse that simply is not going to be affordable in the short to medium term due to a material change in circumstances (such as Covid 19 related reduction in income) then the likelihood is that you can vary downwards the sums that you pay. Maintenance is always variable – both upwards and downwards – which is why for so many, if it can be afforded, a clean break is always preferred and indeed in every case the court must consider a termination of spousal maintenance with a transition to independence as soon as it is just and reasonable – provided the payee would be able to adjust without undue hardship to the ending of payments. A degree of (not undue) hardship in making the transition to independence is acceptable.
There will be many family businesses where plans and energy have been positively focused on future growth, strategy, succession, or sale - now the shift is to business continuity and crisis management. And for some, in the midst of all of that, there will have to be a focus too on the impact of how what is left – whether to a greater or lesser extent - is shared fairly.
1 The Daily Stoic, Ryan Holiday and Stephen Hanselman
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