Many businesses, in particular small and medium-sized enterprises with limited cash at hand or cash flow prospects, have suffered from the restrictions imposed due to the COVID-19 outbreak, leading to a generalised liquidity crisis, attributable to a reduction in economic activity combined with a drop in consumer demand.

From a purely financial perspective, financial advisors and audit firms generally agree that businesses should take the following three measures in order to limit the impact of the COVID-19 crisis: (a) assess the financial situation and identify the risks, (b) take action with regard to immediate and potential short-term risks, and (c) improve resiliency and set up a mitigation plan.

In addition to economic aspects, directors should also think about their legal duties and potential liability, bearing in mind that any lawful measures taken to remedy the company’s liquidity shortage will be a step towards fulfilling their legal duties and mitigating their potential liability as directors.

In this article, Romain Sabatier and David Al Mari provide an overview of the duties and the potential liability of the directors of a company faced with a liquidity shortage.

Source: Revue Pratique de Droit des Affaires, Legitech – July 2020

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