COVID-19, which has taken hold of the entire world, continues to be the leading topic on the country's agenda. It is clear that this deathly epidemic has and will likely continue to have significant consequences not only on individuals but on corporations as well. While sectors such as tourism and public and air transportation are affected by the epidemic to the greatest extent, we see that uncertainty reigns over the entire business world. During this period of uncertainty caused by COVID-19, which has been declared a pandemic by the World Health Organization, we are once again reminded of the importance of boards of directors who are capable of effective risk management. It is crucial to protect business continuity from being negatively affected by both the direct impacts of the coronavirus and the measures adopted because of it. In this context, we would like to bring to your attention certain matters that aim to minimize the impacts COVID-19 may have on companies and society in general.

1. COVID-19 Related Announcements from Authorities Should Be Monitored Closely

This epidemic disease, which has the ability to infect others even before its symptoms become noticeable, distinguishes itself from other diseases by how quickly it spreads. Consequently, the precautions and practices that are/need to be taken and implemented are constantly updated on a domestic and international level. Closely monitoring authorities' announcements on the disease is of the utmost importance for boards of directors so that they can remain well informed of the most up-to-date developments, perform risk assessments based on their own line of business, organization, and infrastructure in accordance with such developments, and take the necessary actions as soon as possible.

2. Necessary Precautions Should Be Taken at the Workplace

COVID-19, which spreads through respiratory droplets, gives rise to the need for certain changes to be made to workplaces. The following are the primary steps that must be taken during this period with respect to workplaces:

  • Managers in charge of employees must be sufficiently informed of the symptoms of COVID-19 in order to form risk groups.
  • Sufficient information should be provided to employees regarding the disease and sanitizers should be placed in locations that employees may easily access to enable them to disinfect their hands.
  • Business travel should be postponed to the extent possible and videoconference should be preferred.
  • In order to prevent the disease from spreading among employees, businesses should switch to the home office method where possible and must ensure that the company has the necessary infrastructure for home office to protect against the interruption of business continuity and data security risks. Companies who choose to adopt home office may consider establishing a database with a list of the contact numbers that have been notified for such purpose in order to promote healthy and effective communication between employees.
  • If the company does not switch to home office, the transportation routes used by employees must be reported and the necessary measures should be taken to ensure that such employees get to their workplace without using public transportation during rush hour.
  • Task sharing should be organized within the company with regard to following the announcements made by authorities as explained under the first section above and working through measures to be taken at the workplace throughout the time the disease remains in effect.
  • If companies are contemplating taking precautions such as measuring body temperature at the entrance of workplaces, detailed information should be obtained with respect to the risks that may arise from personal data protection regulations due to the processing of health data and companies should act accordingly.

3. Boards should pass Resolutions through Remote Meetings

It is vital that boards regularly meet and pass on the necessary resolutions throughout this process in order to maintain business continuity.

During the period in which COVID-19 continues to have its impact, boards may prefer electronic meetings rather than meeting in person to pass the required resolutions. Article 1527 of the Turkish Commercial Code allows this option for companies whose articles of association include a provision on electronic meetings. If the necessary infrastructure is in place, all actions taken by board members such as attending electronic board meetings, expressing their opinions during such meetings, and voting will have the same effect as if made during an in person meeting. Board members also have the option to sign resolutions via their secured electronic signature. In order to vote electronically, the company must have a website allocated for this purpose, the suitability of the electronic media tools must have been evidenced with a technical report, this report must be registered and announced, and the identities of the voters must be kept confidential.

Even though companies whose articles of association do not include a provision on electronic meetings are normally not allowed to convene board meetings electronically, following its announcement on March 20, 2020, the Ministry of Trade has paved the way for these companies to use this option with infrastructure support from the Central Securities Depository. Alternatively, board resolutions may be passed by way of circulating the draft resolution text in accordance with the procedure described under Article 390, paragraph 4 of the Turkish Commercial Code. As per the Ministry of Trade's announcement, upcoming meetings for general assembly of shareholders may be cancelled with a board of directors' resolution.

4. Financial Planning of the Company should be reevaluated

The economic recession, which will be felt more and more with the increasing effect of COVID-19, may particularly cause material disruptions to supply chains and may result in a shortfall in expected cash flow. Thus, companies should revisit their budgets for the year 2020 that they prepared before the outbreak and set targets in line with the epidemic conditions. During this process, the first steps to be taken in terms of financial issues are as follows:

  • Since projected cash flow will be uncertain while COVID-19 maintains its effect, sizeable investment projects that may aggravate the liabilities of companies should be postponed and companies should shift their focus to short-term goals. During this process, the primary goal of companies should be to maintain their existing performance with a more conservative approach.
  • When meeting their financial needs, companies should prefer shareholder loans to indebtedness to banks or other third parties.
  • Company assets should be re-categorized based on liquidity and assets that may be quickly liquidated in case of an urgent need for liquidity should be determined.
  • Profit making companies should keep these profits in their reserve accounts instead of distributing profits to shareholders and should use these amounts to pay off company debt, if necessary.
  • For as long as the epidemic maintains its effects, a fast reporting network should be established and the cash flow of the company should be monitored through these reports on a regular (preferably weekly) basis.

Another issue worth keeping in mind is the specific obligations imposed on boards of directors under Article 376 of the Turkish Commercial Code if it is realized from the financial tables of the company that its financial standing is at risk. Accordingly:

  • If it is determined from the latest annual balance sheet of the company that at least half of the sum of the share capital and legal reserves of the company have been eaten away as a result of losses incurred, the board should promptly invite the shareholders to a general assembly meeting and present to the general assembly the remedial measures it deems fit.
  • If it is determined that at least two thirds of the sum of the share capital and legal reserves of the company have been eaten away as a result of losses incurred, the board should promptly invite the shareholders to a general assembly meeting. The shareholders may decide to be content with one third of the share capital or to top up the share capital.
  • If the general assembly of shareholders fails to act, the company is automatically dissolved. If it is suspected that the assets of the company are not sufficient to cover its liabilities (borca batiklik), an interim balance sheet of company assets should be prepared based on business continuity and probable sales prices. If it is determined based on this interim balance sheet that the assets will not be sufficient to cover liabilities, a bankruptcy filing must be made before the commercial court of the place where the headquarters of the company is located.

5. Supply Chain Management should be reorganized

Since the most harmful effects of the epidemic occur on the supply chains of companies as mentioned above, the amount of stock should be arranged diligently and alternative sources should be explored in order to overcome the distortion effects on supply chains taking into account various scenarios.

6. Legal Advice should be obtained for Non-Performance of Obligations

It is possible that companies may have difficulties performing their contractual obligations due to the negative effects of COVID-19. What really matters here is whether the epidemic constitutes a force majeure event, hardship, or impossibility of performance. Considering its sphere of influence, conditions it causes, and measures taken to prevent it, COVID-19 might be deemed as falling under the scope of one these institutions. It is advisable to obtain legal advice from legal experts for consequences of breach of existing or future contractual obligations. Furthermore, companies should make sure that the prospective contracts they will enter into include a specific clause dealing with the fate of obligations in case of an epidemic.

  • Possible Liabilities of Members Board of Directors Due to Failure to Take Necessary Measures

Our abovementioned offered measures to be implemented during the course of the epidemic are the reflections of board members' duty of care against the company provided in Article 369 of the Turkish Commercial Code. Accordingly, members of boards of directors are under the obligation to fulfill their duties with the care of a prudent manager and consider the interest of the company. Breach of such duties would cause a decrease in a company's assets and would indirectly cause loss for the shareholders and creditors of the company.

If the abovementioned measures are not taken, members of boards of directors may be held liable for the losses of the shareholders and creditors of the company. In such a case, the company and shareholders may claim the company's losses, whereas creditors may claim their own losses.

It should also be considered that failure to take measures in the workplace may constitute a rightful cause for employees to terminate employment since such measures can be interpreted as falling within the scope of the duty of an employer to protect its workers.