After the failed military coup in Turkey on July 15th, 2016, The Council of Ministers of Turkey declared a State of Emergency (SoE) in the country. This article focuses on the position of a GC when suddenly confronted with a SoE, needing to ensure the transformation of the company to ensure compliance with the SoE regime.
After the Declaration: Day 1
By their nature, legal functions always monitor legal developments in relevant areas, and thus are often first to hear of sudden and unexpected developments. The first task is to make sure the General Counsel (GC) is informed immediately after the SoE declaration, and it is extremely valuable for the team to provide the GC with a summary of information about the SoE regime.
The GC should then take the following actions with his/her team immediately;
- Check: The GC should check to ensure that the CEO, the Board of Directors, Senior Executives, and Legal Function members are safe and accessible, while seeing that HR departments are doing the same thing for employees.
- Review: The SoE regime, including international law considerations, should be reviewed by the in-house team (with the help of external legal advisors, if necessary).
- SoE Team: A SoE team should be created and made responsible for dealing with SoE-related issues, questions, informative tasks, trainings, and so on. This team may consist of lawyers, paralegals, and members of the finance, risk, compliance, AML department teams, along with other officers as necessary.
- Assessment Meeting: The GC should schedule a meeting with available Senior Executives to inform them about SoE and assess the SoE’s effects on the business – if possible with the contribution of external legal advisers.
- Informing Employees: The legal function should prepare a summary regarding the SoE and its significance to the company and distribute it to all employees of the company. The note should include:
- The reason for and expected duration of the SoE
- Things/actions to take into account under the SoE regime
- Announcing the formation of the SoE Team
- Any elimination or limitation of fundamental, personal, and/or social and economic rights and freedoms that may be effected by the SoE
A Week After the SoE Declaration
After seven days of SoE the company should be somewhat accustomed to the SoE regime, and the following items should be completed:
- SoE Committee: Establish a committee to monitor and manage SoE related activities, potentially chaired by the GC, receiving regular updates from the SoE team.
- Plan of Action: The GC should ensure that Senior Executives have assessed the situation and should ensure that a resulting plan of action is submitted to the Board of Directors. This plan should, at the very least, consist of:
- Information about the SoE regime
- A list of responsible persons in the company related to the SoE, including emergency contacts
- Information about the roles and responsibilities of the SoE Committee
- Information about which forms of business as usual need to change, and how – especially of course those involving money
- Potential emergency scenarios and responses (including, potentially, a stress test).
- Reviewing Contracts: Almost all contracts have Force Majeure clauses, and as a SoE is generally accepted as a legitimate triggering event justifying the right to terminate contracts, the legal function should review all contracts with third parties accordingly.
- Supplier Check: The GC – with the help of the Procurement Department – should check suppliers’ contracts and their positions under Governmental Decisions, Court Decisions, and a SoE regime. (In Turkey, for instance, thousands of entities closed following the SoE Declaration and their assets forfeited to the Government).
- Cash Out-Flows: The GC should instruct the Finance Department to be sensitive about payments to third parties or customers, and anti-money laundering programs and prevention of financing of terrorism measures should be followed scrupulously.
- Customer Communication: The Marketing Department – with the help of the GC – should inform customers regularly about developments in the SoE and the legal position of their assets.
Final Tips to General Counsel
The GC’s role in furnishing legal advice to the Board of Directors, CEO, and other senior executives is even more important under a SoE. Therefore the GC should be assisted by external legal advisers in making and communicating critical decisions. My experience is uncertainty in legislation is not unusual in a SoE, therefore the following steps may help GC in this process:
- Obtain the view of external counsels
- Communication with the regulator is key, and requesting clarification in regulations is always an acceptable approach
- Use associations and lobbying channels to request additional clarification of legislation
- Check other States’ experience in States of Emergency
GCs are powerful persons and companies from time to time rely on their opinions or personal interpretation in business because of lack of clarity in legislation or uncertain regulations. However, making an important business or legal decision based on a personal understanding or assumption may not be as advisable in a SoE.
States of Emergency are, by their nature, temporary in duration but intense in their consequences, and GCs should even more proactive than normal in such periods. GC’s support to other departments during SoEs is vital, and GC should ensure that senior executives are aware of the need to consult with them before making any critical business decisions which may have a link with SoE regime. This helps GC to intervene in problematic decisions early, and protect companies against potentially negative consequences.
This Article was originally published in Issue 4.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.