Hang on in There, Christy Ng
PUBLISHED ON 30 APRIL 2020 BY IRENE WONG
I was reading the article entitled “Losing Sleep and Weight over the MCO” published by The Edge on 2.4.2020 and I cannot help but feel for Christy Ng. She is not the only one whose dream has turned into a nightmare. This global pandemic and MCO changed the entire landscape for manufacturers and retailers like her.
Many like her now must find ways to improve cashflow and drastic approach must be undertaken. With more than 100 employees, 2 factories, 8 retail outlets and an e-store, she has reasons to lose sleep. Afterall, her overheads must be high with rentals to be paid, administrative costs to be settled, salaries to be disbursed and etc.
Even with the latest stimulus package announced by our PM, she won’t be able breathe easier as she would still need to show a decline in revenue of more than 50% since January 2020 to claim RM800.00 for each employee earning a month income of RM4,000.00 and less for 3 months under the Wage Subsidy Programme. To enjoy this benefit, she must not terminate the services of her employees for a period of 6 months.
Chances are she might need to cut the number of the rental outlets and maybe even one of her factories. She may be able to rely on the “force majeure” clause, if any, in her rental agreements to discontinue with the rental of the premises or suspend the payment of rental. To rely on this clause, it must be drafted into the agreement.
A “Force majeure” clause embodies the legal principle which allows a contracting party to exit or suspend the performance of the contract contains such clause due to reasonably unanticipated event that is beyond the control of the parties which renders the contract difficult or impossible to be performed.
The Covid-19 pandemic has undoubtedly caused great difficulties to do business especially retail business and the MCO entirely prohibited retail business from 18.3.2020 onwards until MCO is lifted. Should her landlords agree that these are covered under the “force majeure” clause, she can terminate the rent without penalty or suspend the payment of rentals for a time. The same goes for any applicable service and maintenance charges for her rented premises.
As said earlier, the Government’s Wage Subsidy Programme would be of little benefit to her. With the projection of slow economy post-MCO, her retail business is likely to continue to suffer. She may need to have some of her workers particularly factories workers and sales staffs to take extended unpaid leave. If so, she can apply for some reliefs under the Government’s Employee Retention Programme under which she can claim up to RM600.00 for 6 months for her employees should they be asked to take more than 30 days of unpaid leave from 1.3.2020 onwards.
Besides the above, another option is to reduce the working hours of her employees and have them work on a rotation basis i.e. one day work, one day rest. This can only be done with the agreement of the employees. If imposed unilaterally, it is arguably a breach of contract which allows the employee to bring either a civil action or an unlawful dismissal claim against her.
If she needs some employees to leave, she may want to offer a severance package for employees who volunteer to leave or take early retirement i.e. voluntary separation scheme. Should there be no volunteers, retrenchment would be the last resort. I know she would prefer to keep all her employees but should the survival of the business call for this measure, it would be best for her to engage a counsel to advise her company on this. The principle of “Last In, First Out” (LIFO) and the Code of Conduct for Industrial Harmony are to be complied with.
Her ability to service the loans obtained by her company needs to be looked into. Should there be difficulty, it would be best to start negotiating to have the loans restructured. Should her privately incorporated company be wound up for inability to settle debts, she is likely to be personally liable for some of the loans granted to her company, either as a principal or a guarantor. If so, it would be best to have the loans restructured. Given the current landscape, the banks may be more lenient and willing to negotiate.
The Prihatin stimulus package does not benefit her much. Her landlords are not mandated to waive or defer rentals. Whilst the 6 months loan moratorium, postponement of payment of income tax for 3 months and deferment of EPF contributions to employees offer breathing space, she will need to come up with the money to pay the same and it has to be fast. She is eligible to apply for a loan under the Prihatin Micro Credit scheme wherein she can obtain a maximum of RM75,000.00 loan with 0% interests payable within 1 to 5 years. Processing time only takes 6 days.
Under the Companies Act 2016, there is saving mechanism that helps prevent companies who are struggling to pay their debts from being wound up, namely, the Corporate Voluntary Arrangement where a compromise on the debts owing to the creditors or a class of them can be made and a moratorium of the companies’ obligations to pay can be deferred for 28 days or up to 60 days. This prevents the creditors from taking any action against the companies including initiating winding up proceedings.
Another rescuer would the Judicial Management which allows the management of a company be placed in the hands of a qualified insolvency practitioner upon the application of either the director of the company or a creditor. A moratorium applies to enable the Judicial Manager to assist in the revival of the company without intervention of the creditors.
Both mechanisms will allow her company to continue to run its business and gives it a chance to fight back. I understand her desire to keep her business running even if it means she has to sell everything of value that she owns, but sometimes it is better to live to fight another day. If that day comes, her company through its directors and shareholders can decide to wind up voluntarily.
It is tough time ahead for them but I hope Christy Ng and her team can ride out this wave and emerge more effective and resilient than ever. I would like to continue wearing their heels.
The contents of this article are not intended to constitute legal advice on any specific matter and should not be relied upon as a substitute for specific legal advice on matters or transactions.
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