World War C
17 April 2020
When the war against Covid-19 is over, how will businesses emerge from the trenches?
During the Great War of the early 20th century, when the effectiveness of modern weapons met the unsuspecting, woefully ill prepared and hurriedly assembled mass armies of both the allied and axis powers, the casualties were enormous and lasting. Businesses should take note.
Generals and other long-serving professional soldiers lead the war campaign based upon the strategies, tactics and operations they had employed (mostly successfully) throughout their aged and mainly colonial military careers. However, the field manual for developing technological, scientific and mechanical warfare had not yet been written, and the price for this experience would be tens of thousands of lives lost daily in battles waged over muddy and featureless land and often for the capture or loss of a few hundred yards of that hellish terrain.
Of the new and terrible arsenal (tanks, warplanes, machine guns, artillery and mortar bombs), the most feared weapon was the silent and largely unseen killer known as poison gas. This grim reaper came in many forms. Chlorine, mustard, bromine and phosgene were all used, most prolifically by the German army, and they were wholly indiscriminate. If you breathed in the gas you were killed, blinded or choked regardless of the colour of your uniform, rank, battalion or position of command on the map.
There is something primeval in our fear of such silent, unseen and seemingly indiscriminate harm. Most ancient cultures have beliefs or stories of gods bringing forth disease and plagues, no doubt attributed to gods because of their indiscriminate and often hidden nature, at least during incubation period. But even in these days of scientific enlightenment, when the causes, cycles and vaccine development treatments against the germs and viruses that bring disease are well understood, the primeval fear is still there – and justifiably so. Despite our great scientific and technological advances, there is, at some level, a widespread recognition that we still can be surprised by nature and that, perhaps, we are a little too smug, self-confident and reactionary in our outlook to potential disasters. Take global warming and climate change, for example. All the signs are there, but don’t worry, we can allow the worst to happen because somebody is sure to come along to clean it all up afterwards. Mary Poppins, perhaps, while clicking her fingers and singing ‘a spoonful of sugar’.
The silent, hidden and unseen Covid-19 virus is now fully upon us, being largely indiscriminate in general symptom spread but targeting the older and more vulnerable groups in terms of mortality outcome. Naturally, and by force of government, we are in lockdown - all huddled in our war trenches waiting for the ‘poison gas’ to disperse. But while we are trying hard to stay safe as individuals, and the medical heroes are going over the top to tackle the enemy at the frontline, many entrenched businesses and income streams are being mortally threatened, some more than others. In terms of the sanctity of life, and in terms of long-term cost, international and domestic lockdown is very much the lesser of two evils, but there will still be a hefty economic cost despite ‘doing the right thing’. Ironically, the lockdown restrictions that are in place to protect lives are the very same silent and indiscriminate killers to businesses – every bit as real and deadly as the virus is to the human body. UK High Street fashion brands Oasis and Warehouse are among the latest to be placed into Administration.
Several of the countries that have been hit hardest by the virus are now seeing slight indication of deceleration in both the daily spread and mortality numbers, including Italy, Spain, the UK and even New York – a state hit as hard as any country. China is now lifting restrictions in some regions (including the controversial re-opening of the wet markets in Wuhan) and Spain is slightly relaxing certain measures. This is not yet a sign of pending victory in the war against Covid-19, but more an encouraging sign that the newly drafted field manual strategy is having some effect on slowing down the blitzkrieg that was previously rampant. Of course, other countries are still experiencing acceleration of reported cases, such as Russia, but the benefit of the knowledge gained from, and collective assistance to be provided by, countries hit earlier may help to ‘flatten the curve’ of these other nations.
Like most wars, the timeline of the campaign against the Covid-19 virus cannot be accurately gauged. There is certainly confidence that we will overcome and defeat the scourge but that it will likely take a considerable amount of time. With no vaccine yet available, the possibility of a second wave of infection is high, particularly if effective restrictions are relaxed too much or too early. But be that as it may, the glimmer of hope is also there, and so it’s possible to liken the situation as it stands to that of November 1942 wartime Britain when Prime Minister, Winston Churchill, famously said:
Now this is not the end. It is not even the beginning of the end.
But it is, perhaps, the end of the beginning.
When the virus is finally defeated, or at least in heavy retreat, which business sectors will emerge from the trenches relatively healthy, which will be weak and in need of assistance, and which will be dead or beyond help? The answer very much depends upon what Personal Protective Equipment (PPE) is presently being provided, as well as what casualty ‘field hospital’ preparations are currently being made, to assist businesses that are suffering more for each day in hiding. It also depends upon what businesses are doing to look out for themselves.
World War C is being fought in both the trenches and on the frontline so the call to action to help is urgently needed for both. However, when the war on the frontline has subsided, it is likely that the war in the trenches will continue to require a longer-term effort. World War C will prove to be World War C(ovid-19) morphing into World War C(ommerce), the latter, like the poison gas of the Great War, continuing to kill, weaken and incapacitate businesses for much longer than the fighting lasted.
International economic forecasting is predicting slumps, depressions and dire financial statistics on levels barely experienced in nations’ histories. The International Monetary Fund (IMF) expects global productivity to decline 3% in 2020, with the UK expecting to see a 6.5% decline. In the US, the financial effect will be at least on par with the Great Depression, and in the UK, it is anticipated that it will be the worst economic shock in 300 years, with unemployment reaching 10% should the lockdown continue for three months. In the short-term the UK’s Office of Budget Responsibility is predicting massive GDP shrinkage of 35% for the second quarter of 2020, with a rebound expected later in the year… fingers crossed.
Large and effective measures will be required if PPE is to be appropriately supplied. New boots might help to reduce trench-foot, but gas masks are the priority. To prevent it from becoming a casualty, the US Government has approved the provision of a gas mask to the US airline industry, in the form of a $25 billion handout. In terms of both prevention and addressing current casualty levels, some governments are subsidising businesses and employees. The UK has just announced a £330 billion Coronavirus Support Package, aimed at medium-to-large firms.
Global field hospital preparations, in terms of structure and future planning for mass-business casualties, may include government tax-breaks or filing and payment extension measures, along with further government loans and subsidies. The G20 countries have recently agreed to inject $5 trillion into their economies. But while certain financial tools may be there to assist, each patient will require a personal treatment plan, and many will not survive.
In the UK and other related territories, such as here in the Cayman Islands, insolvency accountants and insolvency lawyers will be prominent among the ‘medical’ staff aiding businesses in the casualty field hospital. The insolvency profession recognises that the current situation will likely lead to the largest single insolvency event ever and it is currently preparing for the onslaught. In the UK this includes the formulation of practical consent measures to work alongside existing business management in the rescue of corporations, under existing insolvency law. Here in the Cayman Islands, amendments are being proposed in relation to the existing Part V insolvency provisions of the Companies Law, with similar focus on aiding company rescue.
As for the businesses presently crouched underground, they should not wait to emerge before seeking treatment, nor should they wait for others to spot their financial symptoms. In order to minimise harm, or at least increase their chance of long-term survival, businesses must be alert and pro-active in seeking assistance. Insolvency ‘medical’ staff are available now and expect that symptoms may worsen in the weeks and months to come. In such times, it’s imperative to recognise that ignorance, denial and/or procrastination can also be a serious risk to business health.
When the mass of businesses requiring aid do eventually emerge from the trenches, patient numbers will likely threaten to overwhelm the system, and it might then prove more difficult to obtain the assistance needed.
BDO invites enquiries regarding resources and other ways our firm can provide assistance with such matters to Russell Smith (RSmith@bdo.ky) or Declan Magennis (DMagennis@bdo.ky).