A Company’s reputation and credibility are often measured by its ability to honour its contracts to customers.
But what happens when companies are unable to deliver due to unforeseen circumstances, such as the Covid-19 pandemic?
During the Movement Control Order period, a lot of companies, through no fault of theirs, will fail to fulfil obligations on their business dealings.
Property developers will not be able to deliver their housing projects on time.
Tourism companies without cash reserves will not be able to pay the monthly instalments on their tour buses.
Similarly, airline companies will not be able to meet the monthly payments on their leased but grounded aircraft.
What can the government do to prevent machineries owned by small and medium enterprises from being seized by lenders once the pandemic is over?
Such a situation, often referred to by its legal term force majeure, is rare as natural disasters or pandemics do not happen every other day.
But the caveat exists in insurance clauses and the law.
On April 7, the Singapore Parliament passed the Covid-19 (Temporary Measures) Act 2020, which seeks to protect businesses for the next six to 12 months.
Singapore Law and Home Affairs Minister K. Shanmugan said this law provided companies temporary relief as business assets such as machinery and hire-purchase cars could not be repossessed by financial companies if they were proven to be affected by the Covid-19 pandemic.
Loans undertaken using such assets as collateral will also be shielded from forfeiture if firms are unable to repay their instalments due to the pandemic.
Azmi & Co senior partner Datuk Azmi Mohd Ali said the Covid-19 legislation carried a lot of merits.
“Effectively by law, the government should intervene to suspend contractual obligations of the parties affected by the Covid-19 pandemic.
“During this period, companies will gain some breathing space to reorganise themselves. The obligations are not cancelled altogether, but rather they are suspended.”
Azmi said having a Covid-19 Act was a good approach but the legislation must be well crafted.
“The problems that businesses now face are unprecedented, and so the solutions may also have to be unconventional.
“Whichever way, the approach to the Covid-19 Act is similar but more advanced than the Pengurusan Danaharta Nasional Bhd Act 1998 and the Corporate Debt Restructuring Committee during the 1998 Asian financial crisis.”
Malaysian lawmakers must follow suit quickly so that firms will be protected from any court action.
Such an act will ensure business owners get to keep their businesses, while at the same time provide a much needed breather from lenders.
United Kingdom-based legal firm Clyde & Co said on its website Singapore’s Covid-19 act would have a considerable impact on the enforcement of certain contracts and commercial disputes.
It said the key measures of the act included temporary relief from the inability of firms to perform contractual obligations if that inability was materially caused by Covid-19.
The act provides temporary changes to bankruptcy and insolvency laws and gives a safety net to allow businesses to continue to trade while technically insolvent.
Clyde & Co said the nature of this relief was to put a freeze on banks or companies from taking legal action on other parties for breach of certain contracts.
These are extraordinary times that require extraordinary measures.
The writer is former NST business assistant editor
The views expressed in this article are the author’s own and do not necessarily reflect those of the New Straits Times