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The Covid-19 outbreak was declared by the World Health Organisation as a public health emergency of international concern on 30 January 2020. Large parts of the world have been put in lockdown situations with the aim of limiting the transmission of the virus through social distancing. Strategies towards containing Covid-19 have however varied considerably and while several countries have started to see confirmed cases and deaths fall following strict lockdown restrictions, the pandemic is currently accelerating in other parts of the world, particularly in the Americas. As of 30 June 2020, more than 10 million confirmed cases have been recorded and the number of deaths has exceeded a milestone of half a million. The pandemic has required very careful management under the advice of epidemiologists but challenges still remain, especially in ensuring that smaller clusters are swiftly contained so that they do not morph into bigger and uncontrollable infections. The pandemic has taken a heavy toll on the global economy with the IMF predicting the greatest decline of global GDP since the Great Depression of the 1930s. The survival of many businesses will continue to depend on the financial resources that they can access to get through the pandemic, support any continuing operations, and maintain their resilience in order to take advantage of the recovery.


Industries hit hard during the pandemic include hospitality, aviation, restaurants, health clubs, beauty providers, entertainment, the arts, among others. On the other hand, the healthcare, public administration, professional services and technology sectors have remained largely resilient.

Governments that have succeeded in bringing down the number of new Covid-19 cases have progressively started to reopen their economies. The process has not been straightforward as several safeguards are necessary so that infections do not flare up again. While essential services have by and large continued to operate, other sectors have only reopened progressively. Those critical to keeping domestic economies moving are recovering earlier and at the other end of the spectrum, sectors that attract large crowds and involve close contacts with other people, such as entertainment outlets, would be last to reopen. International tourism and aviation sectors would take longer to recover as long as the Covid-19 pandemic is not brought under strict control in the major markets and, most of all, domestically.

Several countries particularly in the Asia Pacific Rim that have been most successful in curbing the spread of Covid-19 are setting up travel bubbles to allow easy travel between those countries even while they remain cut off from the rest of the world. Some standardised protocols for mutual assurance of health standards would help towards the resumption of travel and tourism, allowing the inter-dependency of supply chains to resume, and boosting trade and investment ties.


An organisation’s ability to weather the pandemic will depend on its capacity to continue accessing adequate liquidity until business conditions returns to normal. Given the current impact of the Covid-19 pandemic, and as credit risks increase, there is a strong likelihood that business liquidity will be adversely impacted. Companies would need to consider a variety of resources available to them to maintain their cash flows.

A liquidity crisis can arise if the economic conditions linked to the pandemic make it difficult for businesses to meet short-term obligations such as repaying loans and paying employees, in which case a liquidity injection may need to be arranged. In more extreme situations, if the business fundamentals of the enterprise deteriorate further, the business may find itself unable to raise additional finance which may force it into insolvency. Directors may also be held to be personally liable for allowing the business to continue trading while insolvent.


Businesses are advised to conduct business stress tests under different scenarios and to understand their cash needs under different potential situations.

Knowing the state of the organisation’s finances is fundamental to decision-making and managing through the crisis. A significant amount of information on the health of the enterprise’s finances can be gained by an analysis of the financial statements through various financial ratios.

Businesses are advised to plan for best-case and worst-case scenarios about supply and demand conditions, forecast how those scenarios impact on cash flows, and develop lists of actions that would mitigate risks that arise in different scenarios.

To manage the risks to liquidity, companies would normally prepare rolling cash flow forecasts with scenarios mapped out for a range of trading conditions. Finance departments would look at the sources and uses of cash funds and actively manage their receivables and payables to ensure that payment obligations are met and low cash points are identified. Under rapidly evolving economic conditions, the cash flow model must be monitored and revised as circumstances change and credit risk evolves.


The organisation would need to demonstrate to providers of capital that the underlying business of the company is sound and that the finances of the enterprise are properly managed. Debt and equity capital may also play a vital role in providing longer term finance that may aid businesses in recovering from the crisis. Businesses would need to disclose to potential investors any risk factor that are considered material in making investment decisions.

Cash reserves
Businesses would need to examine their existing cash reserves as well as those assets readily convertible into cash, and consider how long they may withstand a poor economic environment.

In the current conditions with almost everyone affected by the crisis, businesses may be hard pressed to request customers to settle receivables quickly. Many customers are likely to stretch payables as far as possible and it may be a challenge to convince them to respect payment terms, let alone settle early. On the other hand, businesses may try to encourage payments at the point of purchase, and an up-front deposit requirement may be introduced for critical items required by customers.

Businesses may consider renegotiating supply arrangements to reduce prices, the size of orders, and extend payment terms. However, due to the crisis, suppliers may instead be likely to request an acceleration of payments. It may become necessary to prioritize critical suppliers over non-critical suppliers when making cash flow decisions.

Strict controls would need to be placed on procurements and it may be necessary to consider postponing delivery of items that are not needed at the moment. Orders for items in high demand and whose supplies are more subject to disruption may need to be increased.

Spending priorities
Spending priorities would need to be established based on what would provide the business with the greatest level of resilience. Typically, payroll comes first, thereafter key suppliers, and then on to secondary vendors and lenders. With increased work carried out remotely, it is necessary to spend adequately on technology. Discretionary spending not essential in a crisis situation may need to be cut while capital investment may be postponed wherever possible.

Organising borrowing facilities
Businesses may consider renegotiating credit facilities with lenders to obtain extension of repayments, cheaper interest rates and new loan offerings. Companies which are part of a group of companies may arrange for short-term intercompany borrowings. SMEs may consider the availability of shareholders’ or directors’ loans. It is also worth investigating government-backed loan programmes as a potential source of finance.

Non-traditional revenue streams
Alternate revenue streams may be considered which would at least temporarily replace traditional revenue by using existing revenue-generating assets differently. Examples include clothing manufacturers producing face masks, distilleries turning their expertise to making hand sanitisers, fitness centres and gyms renting out their equipment, restaurants and caterers making pre-packaged meals, bars converting into collection points for groceries, and hotels targeting domestic market segments. Entertainment, health, religious, educational and other service providers have been able to boost their market reach by providing their services to customers via the internet.

Payment to shareholders
Directors may consider reducing or postponing payment of dividends to shareholders. Any previous decision made to return accumulated cash to shareholders by way of a buy-back of the company’s own shares may need to be cancelled or postponed.

Rights issue of shares
A rights issue is an invitation to existing shareholders to purchase additional new shares in the company in proportion to the size of their existing shareholding. If the shareholders exercise their rights, there would not be a dilution of their holding. The discount to the current share price would need to be sufficiently attractive to attract shareholders’ interest. And if the rights issue is not fully underwritten, the rights issue may not raise all the capital needed.

Share offer to external investors
External investors may be able to provide a financial injection through the purchase of shares in the company. However, any new share issue to external investors may be subject to existing shareholders’ pre-emption rights. The company may need to seek waivers of pre-emption from the existing shareholders before issuing those new shares. The particular circumstances of the company would need to be fully explained, and the support of major shareholders sought. Companies may request a specific disapplication of pre-emptive rights outside of normal thresholds on a temporary basis. It should however be noted that external investors buying part of the business would reduce control over the business. Additionally, the issuance of shares particularly during a crisis may not lead to the best price being obtained for those shares.

Debentures are advantageous for companies since they carry lower interest rates and longer repayment dates as compared to other types of loan and debt instruments. The issue of debentures would not result in dilution of control since debenture holders do not possess voting rights. Deep discount debentures may be issued to delay cash outflows. Those debentures, issued at a large discount to the nominal value, carry a low coupon rate and are redeemable at par or at a premium, the return to investors being mostly capital gain rather than interest.


Employers are encouraged to take a longer-term view and make every effort to support their employees during this difficult period. Employers would need to rely on those employees to serve loyally and help their businesses survive the crisis and it therefore unwise to dismiss employees at the first sign of trouble. Companies would also need to be in a very good position to recover when the crisis subsides.

Initiatives that change terms of employment must be consulted and agreed with staff and other appropriate governmental entities before decisions to implement are made. Employees intending to terminate employees would need to ensure that the process is fair, comply with domestic employment laws, and budget for any appropriate redundancy compensation. As the crisis evolves, many countries would also be expected to restrict immigration and non-citizens may find it increasingly difficult to have their work permits renewed. Employers would look into opportunities of imposing hiring freezes, reducing contract labour, and restricting discretionary spending to avoid layoffs.

Without help, many companies big and small may go out of business. Governments all over the world have been spending large sums to support their economy and take care of their people. Employers are strongly advised to engage with policy makers and make use of the various facilities that governments are making available to support employee remuneration such as salary subsidies.


With many businesses facing challenges due to the crisis, governments around the world have been taking far-reaching actions aimed at supporting business cash flow and ensuring access to credit and liquidity. Governments have been offering an unprecedented combination of relief and stimulus programs including:

• Wage subsidy schemes covering most of the workforce
• Cash benefits for businesses and individuals
• Reduced social security contributions
• Tax reliefs
• Tax payment deferrals with penalties and interest charges waived
• Accelerated and enhanced tax refunds
• Imposing a temporary moratorium on debt recovery
• Guaranteeing loans with no collateral required
• Debt capital secured on company assets
• Cash in exchange for equity shares

Business organisations are advised to closely monitor the relief measures and policies introduced by government authorities and to get their enterprises prepared to fully utilise the benefits to which they are entitled.


Businesses are advised to think about the bigger picture and understand the pandemic’s evolving impact, not only in the context of their organisation specifically, but also in the broader economic, social and political environment. Decisions made to address the short-term needs of the organization should not come at the expense of the organization’s relationships with its employees and partners. The goodwill and reputation of the business need to be preserved. Thus, the health and safety of employees and their families, customers, suppliers and the community in which the business operates must be the first priority which should be emphasized and communicated both internally within the organization as well as outside to other stakeholders. Enterprises are advised to pay attention to public opinion and proactively engage with internal and external parties. Businesses, especially the large ones, should fulfil their social responsibilities during those difficult times, pay attention to their public image, and incorporate sustainable and long-term development objectives into their business strategy.


When addressing their priorities, businesses are advised to re-examine their business models and policies at a strategic level, and look at new opportunities that arise from the current situation.

New market segments

Even in a crisis, certain products or services are in high demand. Businesses may explore new ways of serving client segments and economic sectors that have been more resilient in the crisis, such as the health care supply chain, those in the food supply chain, technology providers, streaming services, cleaning companies, and anyone supporting remote work.

E-commerce and e-payment methods

Customers are changing their behaviour and have been spending more online and settling their purchases by e-payment methods. Businesses are advised to research appropriate online platforms to sell their products. Technology companies may consider promoting their own services to other economic sectors.

Methods of product delivery

Businesses are advised to investigate the best methods of delivering their products or services to customers consistent with minimising unnecessary contacts. The best method of delivery would depend on the business and on the nature of the product. Suppliers of many services may consider digital solutions to the delivery of services while for physical products, options may include the use of courier delivery services or partnering with other local businesses to make use of their distribution channels.

Operational efficiency

Businesses emerging from the other side of the Covid-19 crisis will discover that the world may have changed significantly. In particular, the large-scale shift to remote working has become a permanent feature in an increasing number of organisations around the world, putting pressure on businesses to accelerate their digital transformation process and use of technological tools in order to operate more efficiently. As a result of the pandemic, customers who previously expected face-to-face contact with suppliers of goods and services are now increasingly inclined to conduct their businesses using virtual means. Those new ways of working can significantly boost organisational productivity, reduce the costs of travel and accommodation in order to meet clients, and by being very cost-effective, may assist organisations in better controlling costs during the recovery phase.

Cultural and societal shifts

The Covid-19 pandemic may well accelerate cultural and societal shifts that were already perceptible prior to the crisis. The Covid-19 emergency has revealed vulnerabilities in numerous countries of the world, including health care deficiencies, social divisions and the digital divide. Cultural shifts shape human behaviour, form our expectations both as consumers and employees, and impact all types of industries across societies. A revived appreciation of life and the essence of life, greater authenticity and solidarity, sustainability and the call for a new human-at-the-centre approach to public policy may well shape the business environment and societal expectation on the role of business organisations for years to come. Successful businesses would seek to understand those emerging trends in order to differentiate themselves and improve consumer relevance.


As the Covid-19 health crisis evolves, business survival will depend on the financial resources that are accessible to support continuing operations, and effective cash flow management would be an important part of the equation. The pandemic has highlighted the importance of close cooperation between various stakeholders in order to survive the crisis. The Covid-19 emergency has forced organisations to operate differently and many of the changes are likely to become irreversible. The epidemic exposes the weaknesses of existing operations and confirms the importance of digital transformation in making businesses more resilient. Business organisations are advised to maintain a holistic approach when addressing the challenges brought about by the pandemic, and improve the agility of their business models in order to be in a better position to take advantage of the recovery.

DTOS provides valuable insights and value-added services to businesses and individuals with regard to their evolving present and future needs. Should you have any query in relation to the topic covered and require any assistance, please do not hesitate to contact us. We shall be pleased to assist you.

Fred Yeung Sik Yuen CPA FCCA CGMA MBA

30 June 2020

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