Coronavirus’ impact on New Zealand business

The number of infections and fatalities arising from the novel coronavirus (COVID-19) continues to increase, and the virus has now arrived upon our shores in New Zealand. Its rapid infection rate has resulted in a shutdown of factories throughout China, congestion at ports, the quarantine of more than 50 million people, and travel restrictions to over 70 countries to combat the spread. This is impacting upon New Zealand business in many ways, and raises key questions around what your business can do to protect itself from this and other similar events in the future.

As a result of the spread of COVID-19, many Chinese factories have either closed or are operating at reduced volumes. This has also resulted in major logistical disruptions. Staff shortages at sea and air ports mean operational delays and at times it has been estimated ports are running at only 15% capacity. A shortage of drivers means refrigerated container movements are disrupted and a shortage of power plugs in port means containers being temporarily plugged into power onboard docked vessels.  Some containers are potentially being re-routed back to their port of origin. People here and overseas are in isolation and quarantine, meaning they cannot attend work for lengthy periods.

Obviously the safety and wellbeing of your people will be a key priority, but if you are finding that the spread of Covid-19 is affecting your business more broadly, then consider the following:

• If you are unable to satisfy your contractual obligations to third parties (either due to supply issues, delivery issues, staffing concerns or otherwise) you should carefully review the force majeure clauses in your contracts. This may allow you to suspend your obligations without liability for the period that you are prevented from performing them for reasons outside of your control. The triggers for such clauses are carefully drafted and there are often prescribed parameters in these provisions regarding notice requirements, so ensure you look at these as soon as possible. Going forward, it is an important reminder to ensure well drafted force majeure clauses are included in your contracts so that they can be applied when the need arises.
• You may wish to check in with key suppliers to assess any exposure in their supply chain. Early notice of potential issues will put your business in a better position to weather these risks.
• If your business is largely dependent on manufacture out of a single jurisdiction or customers in single jurisdiction, then it might be time to consider the broader benefits of diversification and contingency planning. Businesses that are disproportionately reliant upon dealings with China have been more significantly affected. Now is a good time to look at your 2020 business plan and consider where and how you might offer products and/or services that are not too heavily reliant on a single market.
• If you are struggling with the impact of the virus upon your business, we note that some banks in New Zealand are offering relief by way of temporary overdraft facility, suspension of principal loan payments, and deferred payment on business credit cards so it is worth consulting your financier to see what help they may be able to provide. You may also wish to review your insurance policies and speak to your broker to confirm whether any of your policies respond (albeit this may be unlikely).
• If you are having issues arise with employees being unwell, in isolation or unable to travel to where they are required to perform their duties, then see our previous comments here.
• This is also an opportunity to reach out to your suppliers, strengthen your trust, show empathy and work together to find solutions. While there is a cloud of uncertainty at this moment, foreign businesses and your relationship with them will flourish through connection and support.

Coronavirus is having an impact upon our economy, with a particular impact in the tourism, forestry and seafood sectors as well as manufactured imported goods. Commentators were predicting a short, sharp jolt to the economy, but this is (and will be) dependent upon the virus becoming more contained and the ultimate scale of the disruptions. The effects could be felt for a longer time. Similar to other large scale disasters (such as significant earthquakes, floods and storms), how your business copes will depend on how well you have planned and prepared for the unknown.

For any questions on how to secure your business in future or help interpreting any agreements or force majeure clauses, contact the Lane Neave business law team.

Business Law team

Gerard Dale, Claire Evans, Graeme Crombie, Evelyn Jones, Anna Ryan, Joelle Grace,  Peter Orpin, Ellen Sewell, Matt Tolan, Carlo Wan, Kristina Sutherland, Jacob Nutt, Whitney Moore, Alex Stone, Ben Cooper

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