Globally the COVID-19 pandemic is wreaking havoc in many ways. These include loss of life, reduced economic activity and pressure on the health delivery system. On the business front local production and trade are constrained, imports especially from South Africa and China, our source markets, are disrupted. Many countries, including Zimbabwe are have invoked travel bans and lockdowns in an attempt to arrest the spread of the virus. I submit that there is merit in the measures.
Possible contractual violations
The COVID 19 pandemic may result in some legal risks emanating from the non-fulfilment of contractual obligations. These violations may come in many ways, including but not limited to the following:
- Customer orders not delivered on time. This may include the supply of goods or provision of services. Services may include projects such as construction. No doubt the reduced economic activity through for example a travel ban or lockdown may increase lead time in some instances. This has to be factored in some of the timelines agreed in contracts.
- Cancellation of orders and recall of deposit paid. Owing to many reasons such as delayed delivery, practical impossibility, some customers will cancel orders. If they had paid they will ask for refunds. I am aware of some functions, including sports events, that have been cancelled. I feel sorry for my fellow golfers.
- Rent default. Tenants may fail to pay for the properties they lease. This could be due to lack of financial resources occasioned by the reduced economic activity. Tenants who rely on imports for resale or as production inputs or spares for machinery may also be affected by measures taken in their source markets such as South Africa or China.
- Default in servicing loans. Borrowers who include businesses or individuals may struggle to pay their loan instalments.
- Labour issues. Companies may fail to pay their labour force on time. This is particularly so for businesses that may be thin on working capital. Should the situation persist even large business may be affected too. Labour is very sensitive as employees look up their employers for the financial means they need to take care of their families. In order to preserve working capital some businesses may even consider termination, starting with contract staff. Globally some big corporates such as Boeing had already started addressing staffing levels.
- Default in school fees. Some parents may also struggle to pay schools fees if their employment or business earnings are affected significantly.
- Many other situations. There could be many more situations such as failure to pay for medical aid, insurance, funeral assurance, etc.
Advice on the way forward
Organisations and individuals are advised to be proactive by finding financial and legal solutions to their challenges. Such solutions may include the following:
- Renegotiating delivery dates for customer orders, projects, etc. There are reasonable grounds to seek such reviews.
- Where cancellation is inevitable and refunds are consequence thereof a business should make adequate provision or even propose repayment terms.
- Negotiate payment plans for rentals or even a rent review if possible. It is not prudent to ignore rental obligations as that may result in ejectment eventually.
- In the case of loans the borrower and financial institution can agree on some moratorium or grace period.
- Where a company is thin on working capital there could be merit in borrowing from banks to the extent that such a loan can be repaid.
- Labour has to be engaged to be on the same page as to the effects of the pandemic on business and its stakeholders, now and into the future. Mitigatory measures have to be explained, where possible to get buy-in from labour. Such measures may include delayed payments of salaries of benefits, reduction or removal of certain benefits, staggered re-engagement of staff or even termination and payment of terminal benefits. Employers are advised to be as practical as possible and where possible or necessary consult human resources consultants and labour practitioners.
- As regards fees, school especially private schools may have to consider payment plans or setting fees at affordable and sustainable levels.
- However, businesses and individuals should remain alive to the fact that some stakeholders will take legal action in the event of default or violation of contractual provisions. Depending on your situation you may want to plan for such legal risk with your legal practitioners.
Godknows Hofisi is a legal practitioner, chartered accountant and business rescue practitioner. He is a consultant in deal structuring and tax. He writes in his personal capacity and can be contacted on +263 772 246 900 or gohofisi@gmail.com
