COVID-19 – a timely reminder to re-assess underlying business risks

Businesses in Australia and around the world are experiencing unprecedented times with the impact of COVID-19.  However, research in Australia during and after financial crises have shown external circumstances are generally not the main drivers for corporate failures.  Rather, internal weaknesses (whilst exacerbated by external events) are the main driving causes for corporate collapses in Australia.  This is as a result of the risk appetite of companies, determined by their:

  • structural characteristics – companies having a greater separation of ownership and control, which may encourage managers to take more risk; and
  • cyclical company level characteristics – corporate failure is more likely when companies have high leverage, low liquidity and low profitability.

Whilst Government relief measures and emergency capital raisings are providing financial support to the external impact of COVID-19, business should take this opportunity to re-examine risk identification and management of their existing internal framework.  In particular, it may be desirable to:

  • review corporate governance policies, including viewing from a different risk perspective;
  • carry out stress testing and scenario analysis, allowing them to identify the scenarios and the type of adverse risks that would result in various degrees of financial stress; and
  • consider having half-yearly or annual risk management workshops with senior managers and other stakeholders to alert them to potential risks, enhancing the risk culture of the company.

Considering carrying out an emergency capital raising or conducting a risk or governance review?  Please do not hesitate to contact our partners David Woodford and Ha Dinh of our office on 03 8621 8887 or reach them by email at or, respectively.