September Edition 2020

55 Any breaches and consequences thereto should be identified and addressed as early in the process as possible, so that the responsibility of any ongoing obligations or future potential liability can be appropriately allocatedbetween the parties. In particular, forcemajeure,material adverse change and nonperformance provisions in material contracts should be analyzed in light of the pandemic and the target’s ability to continue to fulfill its obligations under such contracts. Financials and Solvency - As usual, prospective buyers should work with their financial advisers to conduct comprehensive financial due diligence on a target, with an increased focus on determining whether a target is solvent or potentially approaching insolvency. The insolvency of a target could require its board of directors to take certain actions to minimize liabilities or focus on certain matters in connection with discharging their fiduciary duties. Supply Chain - Many businesses have and will continue to face issues or delays in obtaining resources due to disruptions in their supply chains. The target and its suppliers may have been affected by factory closures, limited staffing and other limitations on the target’s ability to serve its customers, which could force the target to seek alternative supply sources that are more difficult or expensive to secure. Risk Management Protocols - Specific attention to the target’s business continuity plan and crisis management procedures is strongly advised. It is important tounderstand the target’s strategy innavigating thisperiodof financial uncertainty, and assess its ability to succeed and operate moving forward. Employment - The pandemic has prompted a series of employment law reforms that have manifested in both temporary and permanent accommodations for employees (e.g., extension of paid sick leave). Given that employment laws have been rapidly evolving to address new issues, all businesses will need to adapt accordingly and prospective buyers should carefully evaluate a target’s ongoing compliance with applicable laws with respect to privacy policies, safety and health procedures for employees, layoffs or furlough arrangements and remote-working arrangements. Insurance Policies - Insurance contracts should also be a critical focus in any due diligence investigation. Prospective buyers should be sure to conduct a comprehensive review of the target’s insurance coverage in order to flag any recourse or flaws, particularly with respect to health and disability coverage for employees. Prospective buyers should also carefully review the target’s unemployment insurance policies and assess whether any reductions in the target’s workforce could lead to additional financial obligations in connection with its unemployment insurance (e.g., a spike in unemployment claims could cause employer premiums to dramatically increase).