| The spread of covid-19 continues and has a significant impact on both business and society. We have previously commented on the scope for companies to invoke force majeure where the performance to be carried out has been affected by the crisis. A number of additional consequences within the broader business law spectrum are now also visible. In this information letter, we highlight how to manage the conclusion of upcoming agreements. We also provide some detail on other implications of the pandemic in various legal areas and industries. |
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Agreements concluded during the ongoing pandemic
A central requirement for the application of force majeure is often that the event must have been unforeseeable.[1] As a result, for upcoming agreements, inability to perform due to covid-19 will not typically constitute force majeure. Instead, the pandemic and its consequences may be dealt with through other provisions in the agreement, such as terms that allow for adjustment of delivery times and prices, as well as limitations of liability.
Public procurement
We have seen many examples among our clients of the huge impact the pandemic can have on ongoing procurements, as well as the fulfilment of concluded public contracts. Both public authorities and suppliers are affected. Such procurements are often of critical importance to society, meaning that service provision must continue despite the prevailing conditions. Therefore, we are currently helping our clients to identify what scope there may be within procurement legislation to manage the challenging and unpredictable situations arising from the pandemic.
One example is to ensure that necessary procurements, for example in the health care sector, can be done swiftly and efficiently without time-consuming formalities. It may also be the case that a concluded public contract must be amended. One reason for this can be a dramatic increase in requirements for the contract goods (as is the case with, for example, materials and equipment in the health care sector).
On the flipside, there may also be a radical decrease in need (for example, for goods and services supplied to closed schools). It is important to ensure that such amendments to the agreements do not involve unauthorised state aid (which may later be reclaimed). Further information on state aid may be found in this article published by Mannheimer Swartling.
Due to the change in circumstances, ongoing public procurements may also need to be amended or cancelled. Suppliers who have already submitted tenders in a procurement process may wish to withdraw their tenders. The legal framework for public procurement does cater for this kind of eventuality.
Financial issues
The spread of Covid-19 had relatively immediate effects on the possibility for companies to obtain financing. Other than for the largest companies, access to financing through the bond markets is currently very limited. This also applies to short-term financing through the capital markets (commercial papers).
The effect of this is that many companies utilise their bank financing and/or put new liquidity facilities in place. In order to support the banks’ continued lending to the business sector, the Swedish Central Bank has made available SEK 500 billion through zero interest loans. The loans are subject to specific terms to ensure that the funds are lent onwards to companies. Currently, it is unclear to what extent the banks will use this credit.
Another central financing aspect at present is that many companies will have difficulties meeting the terms of their credits, e.g. with respect to financial covenants. Therefore, there already exists a great need for negotiating temporary exceptions to such terms (waivers). In a number of cases, the possibility to terminate the credit in advance must also be considered by both the borrowers and the lenders.
An example of that is the issue of material adverse changes to the business, which in many cases is an event of default under financial agreements. Another effect of the current market situation is that the value of various assets decreases. This may have a direct effect on financings that are based on such valuations (Margin Loans, LTV, Borrowing Base, etc.).
Unlike the financial crisis of 2008/2009, the current situation is not centred on the banking sector. Nevertheless, it may very well be that the banking sector, and the banks’ possibilities to finance themselves, are affected by this situation. In such a case, questions are likely to arise about whether market rates correctly reflect the banks' cost of funding. A subsequent question will be whether the provisions under the financing documentation that are intended to address this (Market Disruption) should be applied.
Processing of personal data
In order to establish necessary safeguards, companies in some cases have to process personal data in a manner not previously necessary. Under the Data Protection Regulation, information regarding health is considered to be sensitive personal data, which sets high standards for how it must be handled. In addition, under the current circumstances, it is important that individuals’ right to protection of their personal data is respected. Therefore, the collection of personal data should be limited to what is necessary to achieve the specific purpose of the processing. According to the Swedish Data Protection Authority, the following circumstances are important to keep in mind:- information about someone being infected with the virus is considered personal data on health;
- information about an employee having returned from a risk area is not considered personal data on health;
- information about someone being in quarantine is not considered personal data on health, unless it also contains information about the cause; and
- information about someone being in quarantine in accordance with the Swedish Communicable Diseases Act is likely considered personal data on health.
Labour law issues
The large spread of the virus also gives rise to many difficult labour law issues for employers. Is it possible for employers to prevent employees from private trips to different risk areas, or attending large social events outside of working hours? Can an employer collectively lower wages to meet the financial challenge of the pandemic? What right does an employee have to take time off from work, in order not to risk infecting a family member at higher risk of severe illness? Mannheimer Swartling has answered six frequently asked labour law question in this newsletter.
Construction sector
The firm’s construction group is currently handling a large number of questions arising from the pandemic on, for example, hindrances and claims for additional costs. Particularly critical aspects include access to foreign labour, certain deliveries of material and problems relating to absence due to sickness. It is already clear that the pandemic risks having significant consequences for the construction sector.
The risk of rationing
In times of crisis in the country, the Government can bring rationing legislation into force. This may limit a company’s scope to sell certain goods. As a result, it may also limit the company’s access to goods that are necessary for its business.
In summary
The prevailing situation has implications that extend to many legal areas. Mannheimer Swartling’s specially established Covid-19 task force deals with issues in all areas of business law. The task force advises on, inter alia, interpretation of agreements, drafting regulations on the prevailing situation, topics concerning competitors’ cooperation, employers’ obligations and opportunities regarding e.g. work environment, working hours and processing of employees’ personal data, the possibility of insurance compensation, rental relief and state aid, as well as insolvency and finance questions. Furthermore, the task force advises on strategic and tactical issues in all legal areas.
If you have questions or want to discuss any of these issues, you can always reach out to your existing contacts at the firm. Alternatively, you can contact one of the partners below who are all members of our specific covid-19 taskforce.
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| [1] However, this is not always the case as contractual provisions can be designed differently and the criterion of unforeseeability is sometimes omitted. |
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