IMPACT OF COVID-19 ON THE CONTINUITY OF COMPANY'S OPERATIONS

In the context of the current pandemic crisis, the protective measures adopted at the global level, while certainly beneficial from a health point of view, have had serious consequences on the economies of countries, since many companies, particularly small and medium-sized enterprises, were forced to suspend their activities, and as a result found themselves in great difficulty (stoppage of orders, economic layoffs, loss of turnover, increased debt levels, failure to comply with restrictive clauses, increased difficulties in accessing additional credit, etc.). Thus, this situation related to COVID-19 could create new or exacerbate existing going concern problems. Going concern principle The concept of "fact of such a nature as to compromise, the continuity of the operation of the business, as it emerges from the provisions of Article 547 of Law 15/95 forming the Commercial Code, has come back to the forefront and deserves special consideration both by business managers and by the accounting profession. According to Moroccan accounting standards (CGNC), under the assumption of the "going concern principle", the company must prepare its financial statements with a view to the normal pursuit of its activities. Therefore, in the absence of any indication to the contrary, it is expected to prepare its financial statements without the intention or obligation to go into liquidation or to significantly reduce the scope of its activities. In the event that the conditions for a total or partial cease of activity are met, the going concern assumption must be abandoned in favour of the liquidation or disposal assumption. » Role of the External Auditor The statutory auditor, as the supervisory body that guarantees the fairness of the financial information emanating from a company, has an important preventive role, as it is well placed to detect the first signs of deterioration in the company's situation. The provisions of Article 547 of the French Commercial Code specify that: "The statutory auditor, if any, (...) shall inform the head of the company of any facts likely to compromise the continuity of the company's operations". As the occurrence of the pandemic crisis coincided with the period of the closures/approvals of the annual accounts, the auditor's alert must set out the consequences of the pandemic and specify the reasons why it would compromise the continuity of the company's operations for the current financial year and the following financial year. Finally, after a specific analysis of the situation, the managers must draw up a plan of measures to mitigate the possible consequences of the pandemic which may lead to the operation of the company being called into question (modification of the share capital, transformation of the legal form of the company, reduction of the workforce, search for new partners, etc.). The auditor is in turn required to: - assess the action plans established by management against its going concern assessment, and determine whether the implementation of these plans is likely to improve the situation and whether the plans are feasible in the circumstances; - review the cash flow forecasts prepared by management and assess the reliability of the underlying data and the justification of key assumptions; - assess emergency financial assistance and other forms of support offered by the State to the entity and its employees; - evaluate credit facilities and repayment terms; Collective  proceedings Collective procedures have been provided for by the provisions of Book V of the Commercial Code, can be a real solution if they are applied at the right time. Indeed, Book 5 offers a whole range of procedures for dealing with business difficulties, tailor-made to suit the needs of the company: - External prevention: the aim is to anticipate the difficulties of enterprises in order to better control them by appealing in particular to the president of the court, who may, if he deems it useful, appoint a special agent to help the head of the enterprise to find possible solutions for recovery (establishment of a dialogue between the head of the enterprise and his staff, obtaining payment deadlines from the partners of the enterprise). - The conciliation procedure: considered to be the last phase before the opening of legal proceedings, the conciliation procedure enables the managers of companies in difficulty to find simple, quick and discreet amicable solutions to redress the situation of their companies. Its main advantage is that it allows for a temporary stay of proceedings, allowing a company director who is unable to pay most creditors to apply to the president of the court for a temporary stay of proceedings initiated by his creditors, which gives him time to prepare a plan for the company's recovery. This suspension measure also prohibits any possibility of execution by creditors on the company's movable and immovable property. - The safeguard procedure: this procedure aims to help firms encountering difficulties, which they are unable to overcome, which could lead to suspension of payments. The president of the court, after hearing the head of the enterprise, designates procedural bodies (a trustee and a bankruptcy judge), whose objective is to help the head of the enterprise to prepare a safeguard plan that will enable the enterprise's situation to be redressed. The safeguard plan specifies the commitments necessary to maintain the operation of the enterprise and the means to finance it, as well as the guarantees granted for the execution of the draft safeguard plan. The court sets a period of 5 years for the execution of the safeguard plan during which it can benefit from the stay of individual proceedings. - Reorganisation proceedings: initiated either at the request of the debtor, or by one of the creditors or by the court. It guarantees (i) the protection of the company's assets (taking protective measures and maintaining all the actions necessary to preserve the company's rights against its debtors and to preserve its production capacities) (ii) the continuation of current contracts (lease contracts, provision of services, etc.) and (iii) the non-transferability of the corporate rights of managers. Written by Imane BENABOUD  TAX Manager