Legal challenges posed by the Covid-19 fallout and how the Small and Medium Enterprises (SMEs) should respond

  • Ace Global
  • December 30, 2021

COVID-19’s unprecedented and widespread disruptions to business operations have thrown many Small and Medium Enterprises (SMEs) into financial crisis. For this reason, SME owners are very concerned about labour costs, cashflow liquidity, solvency, and the going concern of their business.

Hence, the Covid-19 Temporary Measure Act 2020 (CTMA) has been issued to minimize litigation and support for cash-strapped businesses with five following elements:

1. Relief for SMEs that own debts and are covered by the COVID-19 Temporary Measure Act 2020.

The CTMA aims to minimize litigation and support for cash-strapped businesses.

In cases where the relevant contract qualifies for CTMA relief, the debtor could apply CTMA relief to receive protection from legal proceedings and other actions, such as repossession of g used for trade/business sold under a hire-purchase agreement.

2. Recovery of debts owed to SME owners

Although the granting of the CTMA relief may have good intentions, there would inevitably be many debtors out there who would take advantage of using the statutory moratorium as an excuse to delay their payment obligations.

However, If a creditor or SME owner does not agree that the debtor is eligible for relief, the creditor can apply to appoint an Assessor to decide on this issue.

If the Assessor determines that the debtor is not covered by the CTMA, it means that the debtor will not qualify for the relief. So, the creditor has the right to commence bankruptcy proceedings against the debtor.

3. Possible responses to debt recovery difficulties

SME owners may consider these following criteria with the debtors to recover debts:

  • First, proposing/agreeing to instalment payment proposals if debtors are unable to make full repayment in light of COVID-19.
  • Second, waiving or reducing interest for debtors who comply with such instalment plans to give incentive to the debtors so that they can make prompt instalment payments.
  • Third, engaging the services of debt recovery companies as a last resort in cases where the debtors are believed to possess the financial means to pay but are still delaying repayment. 

4. Ways to manage manpower costs

Due to the reduction/ cessation of business activities, SME owners are in difficult circumstances as a labor surplus, these are the following solutions for SME owners to manage the surplus employee situation: 

  • First, introducing temporary wage cuts and/or requesting employees to go on unpaid leave.
  • Second, keep abreast of the various support measures such as the Jobs Support Scheme and Enhancements to the Wage Credit Scheme rolled out by the government to assist SMEs.
  • Third, try to adapt to change circumstances and make relevant modifications to the business model to allow the existing employees to continue to be assets to the business.
  • Last resort, take the difficult decision to terminate the services of employees made redundant by the changing business environment.

5. Possible options for resolving contractual disputes

There are many disputes that arise from the COVID-19. Specifically, SMEs engage in legal battles on whether a party is entitled to statutory relief under the CTMA.

For this reason, it is important for SMEs to obtain legal advice in order to decide whether it is commercially viable to begin or continue litigation especially when the risks may happen. Sometimes, an amicable settlement reach via mediation and negotiation may bring greater benefits for the business in the long run instead.

If you require further assistance with the COVID-19 Temporary Measure Act (CTMA) 2020 , feel free to call/ WhatsApp us at +65 90612851 or email us at Alternatively, you may leave us a reply using our contact form below.

Be The First to Know

Keep in touch to receive the latest listing, news updates and special offers delivered directly to your inbox.

Recent Blogs

Contact us to get a Free First Consultation now!

Contact Us