The Organisation for Economic Cooperation and Development published its Economic Outlook on Wednesday, which warned that the COVID-19 pandemic is likely to cause a recession greater than any seen outside of wartime for the past 100 years.

Lockdowns and travel restrictions imposed to minimise the spread of coronavirus have resulted in a severe decline in business activity. Global supply chains have halted, and many unable to work have been left in dire financial straits. “The recovery will be slow and the crisis will have long-lasting effects,” the report predicted, and it will disproportionately affect “the most vulnerable people.”

Put simply: “Economic impacts are dire everywhere” – though the impact for some countries will be greater than most.

Of developed nations, the OECD predicted that the UK is likely to be hardest hit by the economic fallout of the pandemic, with an expected 11.5% drop in GDP. “As a service-based economy, the United Kingdom is heavily affected by the crisis,” the think-tank explained, noting that the country’s trade, tourism, real estate and hospitality sectors are the most likely to face damage.

The OECD also predicted a greater economic slump for the UK in the event of a second wave of “rapid contagion”, with a 14% potential fall in GDP.

South Korea is predicted to be the most resilient of nations mentioned, with an expected economic contraction of 1.2% -- and only 2.5% in the event of a second wave.

As a whole, the world economy faces an average estimated downturn of 6% in 2020, under the OECD’s forecasts.

Monday was a day of contrasts for the US economy, as stocks continued to bounce back even as the National Bureau of Economic research confirmed that economic growth hit a peak in February and has since been contracting.

As it emerged that the economic downturn began before lockdown measures were put in place in the US, but after China and other countries were severely struck by COVID-19, the Nasdaq was reaching an all-time high at 9,924.75 points, a bounce of 44% up from its March 23 low.

The S&P 500 also saw a gain of 1.2%, finally recouping all of its COVID-induced losses from earlier in the year. At the same time, the Dow Jones Industrial rose by 1.7%.

The markets’ optimism can be traced back to the Burea of Labor Statistics’ surprising announcement on Friday that unemployment in the US fell by 1.3% in May, hinting at a faster economic recovery than expected. Though the accuracy of these figures has since come under dispute, the positive sentiment has remained.

European stocks were not buoyed by America’s enthusiasm, with Tuesday morning seeing Germany’s DAX slide by 1%, accompanied by a dip of 0.6% from Britain’s FTSE 100 and 0.7% by France’s CAC 40.

Lee Wild, head of Equity Strategy, cautioned investors that “the full economic consequences of the pandemic are still to be felt.”

Richard Billington, Chief Technical Officer at Netcall, explores the changes that AI has brought to the business world,.

From the recommendations we receive on Amazon or Netflix to the AI-driven camera software used to improve the photos we take on our smartphones, AI forms parts of the popular services that are used multiple times a day. Even the map and Satnav applications we use rely on AI. Company chatbots are a more well-known use of AI, and can now be found on nearly every company website you visit. In fact, it’s been predicted that 80% of companies will be using chatbots this year.

However, consumers today are getting ever harder to please. The growing ramifications of the ‘Amazon Effect’ means that today’s customers expect instant gratification when liaising with companies – placing more pressure on business leaders to provide more, faster and better. Digital banks such as Monzo and Starling are continuing to build upon these expectations by enabling customers to open accounts in a matter of minutes. And that’s not all: companies are now under pressure to offer 24/7 customer service through a multitude of communications channels, including Twitter, Facebook messenger and other social media.

Furthermore, as millions of individuals are quarantined and isolated amid the current COVID-19 outbreak, never has there been more pressure on customer service teams to facilitate rapid and seamless responses to enquiries on a broad range of issues. In a time of crisis, a customer’s interaction with an organisation can leave a lasting impression, and potentially impact future trust and loyalty – another headache for CEOs, CIOs and CTOs.

Digital banks such as Monzo and Starling are continuing to build upon these expectations by enabling customers to open accounts in a matter of minutes.

AI-enabled systems are increasingly being viewed as the perfect solution for optimising customer service – as it’s extremely beneficial in allowing companies to provide agents that are ‘always on’, as well as hyper-tailored experiences for customers. However, some businesses are yet to harness these technologies – along with their benefits.

The barrier businesses must overcome

For many business leaders, a lack of the right skills in the right place has hampered their ability to implement AI across their company’s customer service function. According to an IBM institute of Business Value study, 120 million workers in the world’s twelve largest economies will need to retrain as a result of AI and intelligent automation.

Other business leaders may face budgetary constraints and can find themselves put off by the significant investment often required when integrating AI systems in their existing IT infrastructure. Misunderstanding surrounding AI can also mean that some CEOs are understandably concerned that the solution they are putting into place may end up being not quite right for their needs. Therefore, concerns over wasted time, money, and other resources often result in a rejection of adopting new technology. However, these concerns will be outweighed by the repercussion stemming from an inability to unlock the true value of this technology – and potentially fall behind in today’s fast-paced market.

Unlocking the benefits of AI

Smaller businesses tend to fall short of the IT foundation and personnel needed to remain up to date with the latest technological advancements in enhancing customer service. But it will ultimately be these investments that enable business leaders to contend with customer demands and flourish in an ever-evolving landscape. Adopting these low-code solutions will enable resource-poor teams to quickly test specific features or workflows without the need for specialised technical skill – enabling employees to innovate and implement significant change, without relying heavily on the IT department.

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Low-code is helping companies surpass shortages within multiple digital skills, including AI, by removing the need for highly-trained developers who have traditionally been relied upon to bring new applications to the forefront. In fact, in a recent analyst report, Forrester predicts that savvy application design & development (AD&D) leaders will no longer try and reinvent the wheel and instead will now source algorithms and insight from their platform vendor or its ecosystem. Implementation consultants will now be able to differentiate themselves using AI-driven templates, add-ons and accelerators – particularly industry-specific ones.

With low-code software solutions, everyday business users are able to ensure automated and AI-driven solutions are up and running quickly and easily. Due to the lack of complex coding, the process of integrating AI is instantly simplified, and easily accessible by a range of workers across a variety of business sectors, regardless of size. The ability to test applications before implementation ensures business leaders are able to explore the capabilities of AI without investing valuable time and effort. As a result, they will be empowered to unlock a wave of new possibilities for AI development across a range of functions.

By breaking down walls between IT and other departments within organisations, low-code technology can be utilised to help bring teams together to work collaboratively on applications that rapidly improve processes, by harnessing the knowledge of customer facing wider-business teams. And as COVID-19 continues to cause ramifications for businesses across the globe, business leaders must respond with agility to keep up with increasingly complex customer demands. Speed of implementation and the technology that can help organisations get there is therefore essential when it comes to staying afloat and competitive. And, where many workforces are currently struggling from unprecedented circumstances, the adoption of AI processes through low-code applications can help minimise workloads and free up workers– enabling them to focus on more strategic tasks within the organisation, by automating some of the more mundane processes.

In a webcast to employees on Monday, BP chief executive Bernard Looney announced that 10,000 jobs will be cut due to the effect of COVID-19 on oil prices.

“The oil price has plunged well below the level we need to turn a profit. We are spending much, much more than we make,” he said.

Looney said that BP’s senior roles would “bear the biggest impacts”, with a new company structure seeing the number of senior-level jobs halved and group leaders cut by a third. “The majority of people affected will be in office-based jobs. We are protecting the frontline of the company and, as always, prioritising safe and reliable operations,” he continued.

This new round of layoffs, most of which will be resolved by the end of the year, marks the end of BP’s three-month redundancy freeze that has commenced since March.

In addition to reducing BP’s capital expenditure by $3 billion and operating expenditure by $2.5 billion in 2020, Looney also suggested that the company will soon be refocusing its efforts to transition away from fossil fuels, and that the COVID-19 pandemic may accelerate the process.

“To me, the broader economic picture and our own financial position just reaffirm the need to reinvent BP,” he said. “While the external environment is driving us to move faster — and perhaps go deeper at this stage than we originally intended — the direction of travel remains the same.”

Since his appointment to CEO in February, Looney has already pledged to transform BP into a carbon-neutral company by 2050.

The Department of Labor’s jobs report was released on Friday and, in a piece of unexpectedly positive news for the US economy, showed that 2.5 million American jobs were created in the month of May, reducing the nation’s unemployment rate to 13.3% – down from 14.7% in April.

The news came as a surprise to many economists, who had estimated an unemployment rate of 19-20% and 8 million lost jobs.

“To add more than two and a half million jobs is, quite frankly, a stunning result,” said Robert Alster, head of investment services at Close Brothers Asset Management. “These figures have quite simply caught everyone off guard.”

The figures’ release saw a positive effect on stocks worldwide. In Europe, the FTSE 100 roseby 1.8%, the DAX by 2.7%, and the CAC 40 by 3%.

American stocks naturally saw a boost of their own, with the S&P 500 rising by 2.34%, the DOW by 2.9% and NASDAQ by 1.4%.

The Department of Labor’s new figures seem to indicate that the US economy is bottoming out, though the recovery is likely to drag on for some time yet. Jay Shambaugh, an economist from the Brookings Institution, commented, “a 13.3% unemployment rate is higher than any point in the Great Recession. It represents massive joblessness and economic pain. You need a lot of months of gains around this level to get back to the kind of jobs totals we used to have.”

Not only will it make you more efficient once life returns to normal, but it will also help to save you money which can be used to reinvest in staff and other areas of your business. These are some of the reasons why COVID-19 is the perfect opportunity to reorganise your finances and the ways in which you can do so. 

Work with specialist accountants

When dealing with finances, specialists can offer targeted advice that offers greater results. But particularly during these uncertain times, gaining professional advice and guidance is key, so now is a great time to work with accountants or financial specialists who really understand the nuances of your industry. 

“Once you have your plan in place, you need to make sure that it is financially viable, to make sure that you are realising a profit,” says OS Accounting, a chartered accountancy firm that specialises in working with SMEs. “Any banking or financing house will expect to see realistic and well-considered financial budgets and forecasts and translating an idea into facts and figures needs experience."

Make it easier for customers to pay

No sale is complete without your customers paying you for your service or product. But with an increased need for contactless payments in light of the pandemic, it’s vital that businesses adopt and embrace cash-free payment options. 

From PayPal to Amazon Pay and Apple Pay, there are various options to choose from that will make it easier for your customers to pay you to keep your business taking an income. 

With an increased need for contactless payments in light of the pandemic, it’s vital that businesses adopt and embrace cash-free payment options. 

Go digital

It’s much easier to keep track of all of your financial documents if the business is digitised. While lockdown forces us all to adopt more downtime, there’s time to make the switch to a more digital way of working. 

Not only does it make accessing these documents easier when working remotely, but it also provides a safer form of storage as leaving hard copies in filing cabinets makes it easy for data to be stolen. There are many online tools and software options that will help you digitise your business, particularly where finances are concerned. However, make sure that all of your documents are backed up with a cloud-based service so that you can be sure they are secure. 

Do the things you’ve been putting off

Now is the time to make use of more time and do the things you’ve intended to do for months but haven’t had the time. Use the lockdown to take stock of how your business is operating and make the necessary changes – this might include separating personal and business finances more efficiently by opening a separate bank account or tracking and auditing your expenses.

Whatever financial tasks that have been sitting on your to-do list for a while can now be ticked off to make the best use of your downtime. 

Have regular finance meetings

COVID-19 offers a chance for a fresh start in numerous ways, but particularly where processes and systems are concerned, so get into new habits that will help streamline your business processes for the future. One way to do this is to hold regular weekly finance meetings so you can regularly keep track of income, outgoings and expenses. 

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Money is tight for some SMEs and may be fluctuating more than usual during the pandemic, so it’s a great time to gain an understanding of where your money is going. By having this knowledge, you’ll be able to avoid the liabilities that can bring many businesses down in order to keep it running productively and profitably. 

Final thoughts

Businesses across a host of industries have found themselves in unchartered territory since the COVID-19 pandemic began, but it has hit SMEs harder in many cases. By making use of this time to reorganise the financial aspects of your business, you can hit the ground running once life returns to normal and ensure that your business continues to turn a profit throughout.

Those operating in the mortgage and specialist finance industry have felt the squeeze in recent weeks and many bridging lenders have had to turn down any new business during the coronavirus lockdown.

With over 50 bridging lenders and hundreds of intermediaries, the industry has seen very slow growth with hundreds of staff put on furlough and limited funding due to no construction work, surveys or auctions taking place.

However, with restrictions easing, the thousands of households and property developers that use bridging finance each year will start to purchase properties again and getting their businesses back on track.

Bridging finance is often seen as an alternative to traditional mortgages, allowing those to avoid traditional property chains and access funds in a matter of weeks, rather than months.

“It has been a testing time for the bridging industry,” explains Dan Kettle of Octagon Capital, a bridging loans broker based in Moorgate.

“Our products are often used as a quick way to buy properties and avoid mortgage chains, but the lockdown has meant that almost all deals were put on hold and we could not acquire any new business.”

“However, with restrictions easing, we are in a good position to resume funding again. Many people and investors will be excited to start building and buying property again and with mortgage lending even tighter than before, we could see positive growth and a good Q4.”

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During the 10-week lockdown period, bridging providers were in suspense over whether they could offer mortgage holidays to their customers and what the terms they could offer to customers.

Bridging finance is often used for a maximum of 24 months, but with so many construction jobs halted, this increased the chance of deals expiring and challenges for customers in terms of repossession or refinancing.

Nicholas Wallwork of the Property Forum explained: “The vast majority of building sites have come to a standstill. As a consequence, those working against tight bridging loan finance repayment dates will struggle. The property/project, if work does not restart very soon, would likely be worth nowhere near their target value. As a consequence, they would not be able to raise as much traditional finance as expected which would usually be used to pay off the bridging loan. Indeed, when you also factor in the potential reduction in property prices on the whole there could be a huge shortfall.”

However, with restrictions easing and the Prime Minister looking to open all non-essential retail by 15 June, there is more confidence in the specialist finance and bridging industry and many will be delighted to hear this news.

Following a Thursday meeting of its Governing Council to determine monetary policy decisions, the European Central Bank has announced that it will enlarge its emergency bond-buying programme by €600 billion in a further effort to help European economies weather the damage caused by the COVID-19 pandemic.

“The envelope for the pandemic emergency purchase programme (PEPP) will be increased by €600 billion to a total of €1,350 billion,” the ECB wrote in its statement on the meeting.

“In response to the pandemic-related downward revision to inflation over the projection horizon, the PEPP expansion will further ease the general monetary policy stance, supporting funding conditions in the real economy, especially for businesses and households.”

In further measures, the ECB declared that purchases under the programme will continue until the end of June 2021 at the earliest. Interest rates remain unchanged.

The scale of the move has taken investors by surprise. Ulas Akincilar, INFINOX’s head of trading, described the move as ECB chief Christine Lagarde “firing the Euro bazooka”.

Despite the new stimulus measures, the stock surge that followed had little momentum, and most indexes returned to normalcy ahead of US markets opening on Thursday. The FTSE 100 and DAX were each down by 0.6%, and the CAC 40 by 0.3%.

The tapering down of different initiatives will spark fresh concerns within many organisations, raising questions of whether they will be able to stand on their own two feet again.

The furlough scheme is at the heart of this subject. That is because it has been the most widely-used of all the financial support schemes available – around 8.4 million workers are having 80% of their salaries paid for by the Government at present (up to £2,500 a month). But at the end of May, the Chancellor Rishi Sunak confirmed that the furlough scheme is to end on 31 October 2020, and it will undergo some changes before then.

There are two key questions, then, that business leaders must address. Firstly, what do they need to know about the upcoming reforms to the furlough scheme? Secondly, what can they do if the curtailing of this initiative is likely to cause significant financial distress? Nic Redfern, Finance Director at KnowYourMoney.co.uk, offers his thoughts to Finance Monthly.

What are the changes to the furlough scheme?

Currently, it is estimated that the Government has spent £15 billion so far in covering the salaries of furloughed staff. By the end of the scheme, that figure is likely to reach £80 billion – that is £10 billion for each month the scheme was running.

While the Office for Budget Responsibility is set to publish more detailed costings in the coming days, what these approximated figures show us is that there are billions of pounds that is still yet to be paid for the initial four months of the furlough scheme.

This chimes with the findings of a recent study that KnowYourMoney.co.uk conducted among over 900 UK businesses. We found that as of April almost half (48%) of British companies had furloughed staff – this figure will likely be even higher now – but of those, 71% were still awaiting funds to be transferred to them from the Government.

Currently, it is estimated that the Government has spent £15 billion so far in covering the salaries of furloughed staff.

The Government must prioritise getting up to date with furlough payments to employers; businesses with many members of staff on furlough will not only be feeling the strain if they are not being reimbursed for their salaries, but they will also struggle to understand the real financial health of the business when some supports are yet to be issued.

Employers must do all they can to clearly track how much of their expenditure on salaries is likely to come back into the business. But they can only do so if they understand how the scheme is due to change in the months ahead.

Here are the key changes that were announced by the Chancellor on 29 May: from Wednesday 1 July, businesses using the Government's furlough scheme will be able to bring furloughed employees back part-time; from August, employers will have to pay national insurance and pension contributions; and from September, while employees on furlough will continue to get 80% of their salary, the proportion that the state pays will be reduced each month (government will only pay 70% in September and 60% in October).

The part-time furlough option may interest some employers. Let’s take a simplified example: a member of staff who earns £2,000 per month and works 40 hours a week, but has been furloughed and their employer is not topping up their salary beyond the 80% offered by the Government. If said member of staff returns part-time and work 20 hours per week throughout July, they will now receive 50% of their monthly salary from their employer as normal (£1,000). Meanwhile, the remaining 50% will be paid via the furlough scheme (80% of it – so £800). That means they employee will now earn £1,800 per month, which is higher than the amount they would be paid if they were furloughed full-time (£1,600).

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This solution could suit both employers and employees. Not only can it bolster the workforce and aid the transition back into work for some people who have been furloughed for many weeks, but financially it would ensure the part-time employees are better off. Plus, the business does not need to suddenly jump back to paying all of their salaries.

What are the alternatives?

For some businesses, though, they might not be in a position to bring furloughed staff back, even on a part-time basis. Yet they will need to do so once November arrives. So, what can they do to put themselves in a stronger financial position as they prepare to pay all of the employees’ full salaries again?

The important thing to remember is that there remain many options available for businesses requiring financial support.

For one, the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce-Back Loans initiatives are both still operational. Elsewhere, the Government is providing a Small Business Grant Fund (SBGF) to businesses that already receive Small Business Rates Relief (SBRR) or Rural Rates Relief (RRR).

Furthermore, it is worth remembering that any VAT payments due between 20 March and 30 June 2020 can be deferred to a later date. Also, any Income Tax Self-Assessment payments that are due by 31 July 2020 can be deferred until 31 January 2021.

The viability of these options will very much depend on each business’ circumstances. But importantly, if the tapering down – and eventual ending – of the furlough scheme is causing financial concerns within your organisation, remember that there are other forms of support in place.

This figure marks the Bounce Back programme as easily the most popular form of COVID-19 support offered to SMEs by the UK government, more than doubling the combined total lent under HMT’s two other support programmes.

Launched last month following complaints that the government’s coronavirus business interruption loans (CBILS) were being issued too slowly, the Bounce Back loans application process features only minimal background checks against money laundering and fraud in order to ensure a faster process. Unlike CBILs, which are only 80% guaranteed by the state, Bounce Back loans are backed 100%.

However, the light restrictions of the scheme have come under criticism by some as insufficient to prevent loans from going bad. Senior bankers interviewed by the Financial Times estimated that between 40% and 50% of those receiving the loans may default on the debt.

As these loans are entirely guaranteed by the state, a surge of defaults would mean UK taxpayers footing the bill.

Stephen Jones, head of UK Finance and former CFO of Santander, said: “It’s important to remember that any lending provided under government-backed schemes is a debt not a grant, and so firms should carefully consider their ability to repay before applying.”

Tuesday’s figures also revealed that 700,000 out of the 870,000 applicants to the Bounce Back scheme have been granted loans. A further 45,000 businesses have borrowed a cumulative £8.9 billion under the CBIL scheme, and 191 companies have borrowed a cumulative £1.1bn under the coronavirus large business interruption loan scheme.

Over the past few months, the pandemic has accelerated the transition to a fully digital world. We are seeing more e-commerce and online offerings to help us socially distance. From ordering groceries online to signing up for online gym classes and communicating with friends and family, our digital presence has increased significantly. Unfortunately, this growing digital presence leads to a rise in cyber-attacks, too, and more specifically, fraud. Joe Bloemendaal, Head of Strategy at Mitek, explains further below.

Fraud cases were predicted to be on the rise even before the mass lockdown. According to Juniper Research, online payment fraud for businesses in e-commerce, banking services, money transfer and airline ticketing were suspected to lose over $200 billion to online payment fraud between 2020 and 2024. The recent growth in digital services and accounts, and advanced technology like AI, is further driving the frequency of these fraudulent activities.

With easy access to an abundance of consumer data, advanced computational power and tools, it is becoming easier for cyber-criminals to completely take over legitimate accounts. So, how can we stay protected against these attacks? The first step is to understand what these cyber-criminals are after and this is often easy to overlook. Social media allows people to stay connected, but it also exposes a large amount of personal information, making people’s digital identity readily accessible to hackers. At every corner, hackers are lurking behind the screen trying to trick banks by stealing people’s details in order to access their hard-earned savings or turning to other methods of phishing scams.

Thankfully, with the help of unique identifiers and usage-patterns, it is possible to verify the digital identity and verify a user – making sure that they are who they claim to be when participating in any online or digital interaction. For financial services institutions to stop fraud in its track, they need to begin with understanding how to protect this digital identity.

But first, what is a digital identity?

A digital identity can be defined as “a body of information about an individual or organisation that exists online.” But the reality is that not many understand what really makes up a digital identity, and so cannot protect it. Is it our social media profile? Our credit score or history? Is it contained within a biometric passport?

A digital identity can be defined as “a body of information about an individual or organisation that exists online.”

This confusion means many are also concerned about the level of access a digital identity exposes to potential fraudsters. Once a hacker has our personal details, how much of ‘us’ can they really access? In the US, we found that 76% of consumers are extremely or very concerned about the possibility of having their personal information stolen online when using digital identities; but 60% feel powerless to protect their identity in the digital world.

This is mainly because many trust in their old methods and devices for security control – passwords, security questions, and digital signatures. But as modern security techniques evolve, these methods are no longer able to protect us on their own.

More advanced and secure methods of identity verification mirror modern social media habits. Most of us are familiar with taking selfies. Now, technology can match that selfie to an ID document such as a driving licence, turning a social behaviour into a verifiable form of digital identification. A simple, secure process enables people to gain access to a variety of e-commerce and digital banking services, without a long and friction filled ‘in-person’ process.

Even in the case of a compromised photo ID or stolen wallet, we can re-verify our digital credentials once we have our paperwork back in order – and restore a digital profile to full health.

But this doesn’t address the question of who is responsible for our digital identity – who will protect the long-term health and protection of our digital ‘twin’?

Historically, governments have proven to be poor custodians of their citizens’ data, given the loss of 25 million tax records, including payroll information, in the not-so-distant past. Some of the world’s biggest companies are not immune either, being held responsible for countless data breaches over the years.

As such, some believe citizens should be responsible for their own digital identities, making them ‘self-sovereign’. The ambition is to free our own personal information from existing databases and prevent companies from storing it every time we access new goods or services. Data controls such as GDPR and CCPA are a start – policing and regulating how companies use, control, and protect data.

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However, ‘self-sovereign’ identities could only become mainstream if governments relinquish their sole responsibility for issuing and storing our identity information. It will also require new technologies, such as blockchain, to gain traction and be trusted. A cultural shift will be paramount, too.

Some suggest that instead of the rise of ‘self-sovereign’ identities, we’ll see some of the industry’s biggest players emerge instead. We’re already used to verifying our identities through Google and Facebook, using them to speed up registrations or access new services. Could those tech giants become our digital identity guardians?

Or would we rather entrust our digital identities to financial companies such as Visa or Mastercard, who have been looking after our financial transactions for decades, historically taking on the risk for us, and are now able to process disputes and stop unauthorised withdrawal of funds even faster?

Balancing trust and control

It’s clear that taking good care of one’s digital identity is a fine balance between trust and control. Security is also a personal thing, and what is right for one may not suit another. One thing is for certain: identity is the essence of the human being, so guardianship should be hard-earned.

Both businesses and individuals have a part to play when protecting our digital twin. With the help of digital identity verification and cybersecurity protection technologies, we can make self-sovereign identities a reality - if that’s what the people want.

The Takeover Panel was required to look again at the use of conditions, including MAC, a subject on which it last provided substantive comment and guidance in 2001. Dean Harper, Consultant Solicitor at McCarthy Denning, explores the incident and what it means for M&A.

On 12 March 2020, Brigadier Acquisition Company Limited announced a recommended cash offer for Moss Bros at 22p per share, valuing the target at £22.6 million. The takeover was structured as a scheme of arrangement under Part 26 of the Companies Act 2006 requiring both court and 75% shareholder approval. Unlike in the more straight-forward offer structure, the target under a scheme has more control over the process and is required to prepare much of the scheme documentation. A scheme document, setting out the proposals and including the conditions to the Brigadier offer, was duly prepared and sent to Moss Bros’ shareholders on 7 April and a shareholder meeting called to approve the scheme.

The World Health Organisation had publicly declared the spread of coronavirus to be a pandemic the day before the Brigadier offer was announced. In the period between the announcement of the offer and the publication of the scheme document, the Government introduced the Coronavirus lockdown on 23 March. Moss Bros issued an announcement only a few days later on 25 March 2020 that, having seen a “significant reduction in footfall across our retail outlets”, the decision had been taken to temporarily close all its stores until further notice. The announcement also stated that “The Group expects that the effects of the COVID-19 will result in a significant reduction in revenue and profitability for the year ending 30 January 2021” but to which it added “…it is too early to determine the precise quantum at this stage.”

The World Health Organisation had publicly declared the spread of coronavirus to be a pandemic the day before the Brigadier offer was announced.

On 22 April, Moss Bros announced that it had been informed by Brigadier that it was seeking a ruling from the Panel in order to invoke a condition of its offer and lapse its offer for Moss Bros. Withdrawing or lapsing an offer after it has been announced requires the consent of the Panel. The Panel’s has previously stated position is that the “normal assumption should be that shareholders and the market expect that protective provisions will not be invoked” so Brigadier was facing an uphill task from the outset.

The Brigadier Offer was made subject to a long list of conditions, some quite specific and some more general. One of those conditions was a MAC condition: “there having been…no material adverse change and no circumstances having arisen which would reasonably be expected to result in any material adverse change in, the business, assets, financial or trading position of profits, operational performance or prospects of any member of the Wider Moss Bros Group which is material in the context of the Wider Moss Bros Group taken as a whole”. Although it was not been made public at the time, we now know that Brigadier sought to invoke a number of conditions, including this MAC condition.

They also tried to rely on a condition relating to the enactment of legislation which materially adversely affected the business, finances or prospects of Moss Bros, the condition concerning Moss Bros admitting inability to pay its debts, stopping payment of debts  or seeking to restructure its indebtedness, and, finally one that required no liability having arisen or increased which would have a material adverse effect on the Moss Bros Group. All of these conditions required the relevant matter to have a material and adverse effect so they could all be generally characterised as MAC conditions.

The Panel’s has previously stated position is that the “normal assumption should be that shareholders and the market expect that protective provisions will not be invoked” so Brigadier was facing an uphill task from the outset.

Notwithstanding Brigadier’s request that the Panel allow it to withdraw its offer, Moss Bros announced on 23 April that there would be no change in the offer timetable and went ahead with the Court Meeting and the General Meeting of shareholders on 29 April (although, due to social distancing rules, shareholders were told to stay away and submit their votes by proxy). At the meeting, the scheme was approved and the directors were authorised to take all such action as they may consider necessary or appropriate for carrying the Scheme into effect. In the meantime, the Panel was still considering whether to allow Brigadier to lapse its offer on the basis of the MAC condition.

Conditions to an offer are governed by Rule 13 of the City Code on Takeovers & Mergers. Rule 13.5(a) of the Code states that “An offeror should not invoke any condition or pre-condition so as to cause the offer not to proceed, to lapse or to be withdrawn unless the circumstances which give rise to the right to invoke a condition or pre-condition are of material significance to the offeror in the context of the offer.”

Guidance on the scope and effect of Code Rule 13(a) has been given by the Panel in Practice Statement No. 5, issued in 2001 (and updated in 2004 and 2011) following the request by WPP Group plc to lapse its offer for Tempus Group plc as a result of the 9/11 terrorist attacks. In WPP’s view, 9/11 had resulted in a significant deterioration in Tempus’ long-term prospects and this constituted a material adverse change allowing them to use the MAC condition to withdraw their offer.

WPP were unsuccessful and, in fact, the Panel has never allowed an offer to be withdrawn or lapse based on the use of a MAC condition.  Its view is that “…meeting [the] test [of what is material significance] requires an adverse change of very considerable significance striking at the heart of the purpose of the transaction, analogous….to something that would justify frustration of a contract”.

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The Panel has since made it clear that this test does not require the offeror to demonstrate frustration in the legal sense, which is where a contract has become impossible to perform, but the bar to reliance on a MAC Condition is nonetheless set extremely high.

In determining what is of “material significance to the offeror” a matter must be specific and the position has to be considered objectively. Nonetheless, the views of the offeror and other informed parties, such as the offeree, should be given appropriate weight. The burden of proof is on the offeror.

The adverse change must also not be short-term in its effect. The Panel has previously indicated that something that has only a temporary effect on profitability is not sufficient to satisfy the “material significance” test. In relation to an acquisition for strategic reasons, the Panel has previously expressed the view that the purchaser is “clearly investing for the long term and therefore something of material significance to such an offer ‘in the context of the offer’ had to be long term”.  A Brigadier director quoted in the original announcement of the Offer referred to being “excited to contribute our expertise and assist in delivering the current strategy. We see the Acquisition as an opportunity to contribute our expertise to improve Moss Bros’ financial performance and protect its heritage, brand and presence on the UK high street.” This suggests a long-term view of the acquisition and the development of the company in private ownership and will not have assisted Brigadier’s chances of obtaining a favourable ruling from the Panel.

Moss Bros resisted the attempt to lapse the offer and indicated that it planned to “take all necessary action” to convince the Panel that Brigadier did not have a valid reason to allow it to revoke its offer and that they believed “the requirements [to lapse an offer on the basis of a condition] have not been met and that the offer should not therefore be permitted to lapse”. This view received support from major Moss Bros shareholders and the matter was identified by some as a test of the City’s resolve and the view has been expressed that allowing the Brigadier Offer to be lapse in these circumstances could start a worrying trend for future deals.

The Panel has previously indicated that something that has only a temporary effect on profitability is not sufficient to satisfy the “material significance” test.

Given the long-term strategic reasons for the acquisition, the difficulty in assessing the likely long-term effect of the current crisis on profitability, the likelihood that lockdown restrictions on non-food retail may be lifted in some way in the relatively near future and the chance of Moss Bros recovering from the damage the lockdown has caused, coupled with the not unreasonable expectation that Brigadier had or should have priced-in the potential impact of the coronavirus pandemic, it was always likely that the Panel would deny Brigadier the ability to lapse their Offer. The history of attempts to rely on a MAC condition to withdraw or lapse an offer was not on Brigadier’s side and the criteria to allow reliance on a condition of this type is very strict and Brigadier was always likely to fall short.

It came as no surprise to many when The Panel announced on 19 May that, having considered Brigadier’s submissions as to why it should be permitted to lapse its bid and Moss Bros’ submissions as to why it believed there were no grounds for allowing it, Brigadier had not established “that the circumstances which give rise to its right to invoke the relevant conditions are of material significance to it in the context of its offer” and that Brigadier should not, therefore, be permitted to invoke any of the conditions or withdraw its offer.

This serves to re-enforce the requirements for bidders to recognise that once a Rule 2.7 announcement of a firm intention to make an offer is made, reliance on a condition, other than the acceptance condition and regulatory approvals, is extremely unlikely to enable the offer to be withdrawn unless the impact is considerable and ,it seems, even the impact and consequences of something as momentous as the coronavirus pandemic may not be sufficient.  The Panel Statement noted, however, that Brigadier had been given a short period of time in which to decide whether to request a review of the Panel’s ruling by the Panel’s Hearings Committee and indicated that a further announcement would be made in due course.  Brigadier initially requested a review of the Panel Executive’s ruling but then withdrew its request and the Hearings Committee issued a statement on 26 May 2020 that, accordingly, the Panel Executive’s ruling stands.  It always seemed unlikely that Brigadier would obtain a more favourable result from such a review should their request not have been withdrawn and that no doubt figured in their decision to withdraw it.