Directors’ considerations amidst geopolitical unrest

Introduction

In the current unprecedented geopolitical unrest, companies’ directors face new challenges. Barely out of a two-year struggle with a pandemic, companies with business operations or personnel in Eastern Europe are faced with disruption, conflict, the greatest and unrecoverable loss of all that unfolds, being that of human life.

In this article, we highlight the growing considerations of company directors having business operations, directly or indirectly in Eastern Europe. We separate the considerations applicable to regulated companies, while the ones we list under private companies apply in both cases.

  • Regulated companies and reporting obligations

Some of the primary considerations of directors of regulated companies include:

  • Business continuity: Announcement to their clients or stakeholders clarifying the ways in which business continuity will be achieved in the months to follow;
  • AML and Risk Manuals: Update internal client acceptance policies, risk manuals, addressing the latest issued sanctions, and record the possible disruptions to businesses and how these disruptions may affect cash-flow;
  • Risk Factor Disclosures: Prepare relevant risk factor disclosures to regulators addressing the way in which the political unrest is expected to impact the company’s business;
  • Evaluation of the Board: Given the ever-evolving global sanctions list, it may be worthwhile to consider whether the composition of the Board of Directors requires to be updated;
  • Shareholding structures: A review of a company’s articles of association may be required to evaluate whether the current geopolitical situation coupled with the list of sanctions triggers any provisions that can trigger a change in a company’s shareholding structure.

Private companies with headquarters and personnel in Cyprus and presence in Eastern Europe

Having headquarters in Cyprus may serve as a solution to businesses with global operations including in the affected areas in Eastern Europe. In light of the current flight restrictions and the immense flow of refugees it is likely that settling into new locations and positions will be achieved over considerable time. A few points directors may note include:

  • Employee continuity: Imperative to safeguard the payment of salaries and other resources available to employees of companies whose cashflow/income depends on sanctioned institutions or ones based in the areas affected by war;
  • New rules for refugees’ acceptance in EU: There are new EU rules regarding the admission into EU of refugees which will enable them to move towards safety and where possible, continue their employment remotely;
  • Financial obligations: issues like debt repayment or access to capital are crucial in conditions of severe currency fluctuations and restrictions applied to the payment in certain currencies. Directors should receive immediately advice on how to navigate financial obligations with various financial institutions;
  • Contractual obligations: List existing contractual obligations and specify the ones that can no longer be met. Have their legal team review the contracts for clauses which identify next steps;
  • Insurance policies: Evaluate the applicability of insurance coverage including for specific language that excludes conflict or war;
  • Cybersecurity: Evaluate existing protective software for potential leaks or ‘holes’ that could render data vulnerable to a potential attack;
  • Investment protection: Evaluate the existing legal documentation, or arrangements in place that could serve in protecting investments;
  • Directors may also be required to consider:
    • Letting staff go;
    • Reducing salaries;
    • Reducing employee benefits;
    • Ceasing operations;
    • Closing down businesses or business sectors;
    • Defaulting on loan repayments;
    • Defaulting on rental payments;

A few steps which directors may be required to take to keep abreast of these unparalleled conditions, include:

  • Be informed of the latest sanctions list;
  • Be aware of the latest government decisions and announcements;
  • Be aware of commodities prices with particular focus on the fluctuating oil prices as the shift in demand and supply is estimated to have considerable effect in all key business sectors;
  • Take professional advice on how to structure or re-structure investments;
  • Refer to company’s latest financial position and apply the most severe scenarios for a projection of actions the following months may require;
  • Consider that companies are separate entities -ringfence assets and obligations where appropriate to avoid blending assets or liabilities that may be affected;
  • Take professional advice on the management of contractual obligations;
  • Evaluate possibilities of payments via fintech payment institutions;

In conclusion:

Company directors all over the world are once more called upon to navigate through extremely turbulent times, and once more, the humanitarian considerations of the present geopolitical unrest, take centre stage. It may be difficult to prudently estimate the casualties of the present situation, however, it is important for all involved that solutions are sought that help businesses continue and the employment of persons receives the least possible disruption. Legal, accounting and other business professionals can offer a secure network that updates, offers alternatives and assists in achieving business continuity, investment protection and above all protection of the human capital affected irreversibly by this unfolding situation.

For more information on the ways in which we can assist and advise directors facing these new challenges, feel free to reach out to Stella Koukounis or Chara Paraskeva at [email protected]

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