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06 April 2020
On 11 March 2020 COVID-19 was declared a pandemic by the World Health Organisation, two days following the first confirmed COVID-19 case in Cyprus. Between then and 13 March 2020 – when the first protective measures were announced by the Cypriot government – little could foretell the avalanche of decisions, measures, countermeasures and statements that would follow in an effort to balance salvaging lives with salvaging livelihoods.
Directors are not doctors or nurses and will not be called to decide who lives and who dies from a life expectancy position – which is what doctors and nurses may be called to do if hospitals exceed capacity. However, directors run state hospitals, private clinics, companies and businesses that will be affected by the government's decisions regarding COVID-19 and will be called on to decide the life or death of the businesses that they run. As such, they may have to consider:
This article examines directors' duties in the face of a crisis from a corporate law perspective.
Directors' duties remain the same during a crisis such as the COVID-19 pandemic – namely, they retain the burden of acting with due care and skill in the best interests of the company, as enshrined in case law. However, there are competing interests to consider, the priority of which will determine directors' strategy in steering a company through a crisis. Competing interests include:
Trading companies – especially those required by government decisions to cease operations – will primarily be concerned with their:
Directors' primary consideration should be to have access to information – first about external factors that may affect the company and second about internal factors that may affect the company's response to the external factors.
At the risk of oversimplifying directors' exercise of care and skill as provided by the Companies Law (Cap 113) and case law, the following are practical steps that could assist directors in exercising their duties:
In formulating a strategy during a crisis and beyond, directors should keep in mind their fundamental duty to act in the best interests of the company and its shareholders as a whole. The Companies Law (Cap 113) does not provide a codified list of directors' duties – these are enshrined in decided case law. This by itself renders it even more necessary to seek professional advice when decisions involving the future of a business and its stakeholders are reached. The risk of personal liability is perhaps the best motive for keeping a legal and an accounting adviser close by. The fact is that unprecedented times such as the present can quickly turn a thriving business into an insolvent one.
In reaching and applying their decisions during a crisis, directors should:
In uncertain times, directors must continue discharging their fiduciary duties with care and skill. The law makes no distinction, and stakeholders' interests allow little if any room for error. Directors are not alone; they should utilise the expertise of their advisers, document the reasoning of their decisions and act in good faith in light of all of the considerations.
For further information on this topic please contact Stella Koukounis at Solsidus Law by telephone (+357 22 007700) or email (email@example.com). The Solsidus Law website can be accessed at www.solsiduslaw.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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