Tuesday, 10 February 2009
Corporate battles on the rise as debt collection becomes harder
Harmony breeds prosperity, or so a Chinese saying goes. But some old pieces of wisdom lose their relevance in today’s corporate world. As companies find it harder to recover debts or meet deal obligations amid the downturn, more have turned to legal battles to protect their wealth.
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Corporate battles on the rise as debt collection becomes harder
By EMILYN YAP
9 February 2009
Harmony breeds prosperity, or so a Chinese saying goes. But some old pieces of wisdom lose their relevance in today’s corporate world. As companies find it harder to recover debts or meet deal obligations amid the downturn, more have turned to legal battles to protect their wealth.
Lawyers have been seeing more of such cases since late 2008.
‘There certainly is an upswing in the number of legal disputes involving companies. This probably started in Q4 last year,’ said joint managing director of TSMP Law Corporation, Stefanie Yuen Thio.
Drew & Napier director Wendell Wong told BT: ‘We have seen an increase in lawsuit-related inquiries in recent months.’
Anecdotal evidence suggests that most lawsuits arise when debts are not paid.
In the past few months, for instance, Advance Modules Group and its subsidiaries have been hit by legal letters and court orders from business partners and even audit firms demanding payment.
‘We in the firm have seen an increase in claims against companies in Singapore starting about September or October 2008,’ said Shook Lin & Bok head of litigation and banking practices Sarjit Singh Gill.
‘The claims are mostly for non-payment of debts both to banks as well as to other creditors.’
According to industry insiders, some creditors will accept debt restructuring plans and turn to legal action only when debtors still fail to pay up.
‘There will be a time when the creditor is going to have to say ‘enough is enough’,’ said a partner at KordaMenthaNeo, Neo Ban Chuan.
The corporate recovery and restructuring firm has been ‘looking at more cases for sure’, he added.
Companies have also been suing against cancellations of sale and purchase agreements, joint ventures or investment deals.
In December, for example, Freight Links Express Holdings said that it started legal action against AMP Capital Business Space Reit for rescinding a 2007 agreement to buy a property. No reason was given for the deal cancellation.
‘Some legal disputes involve agreements struck earlier when valuations were much higher than today, and when credit to do the deals was more readily available,’ said TSMP Law’s Ms. Thio.
Now that valuations have fallen and banks are stricter in lending, ‘parties are reviewing their rights much more carefully’.
And with an economic recovery nowhere in sight, the number of legal spats is likely to rise further. Shook Lin & Bok’s Mr. Gill, for instance, expects the amount of litigation work to increase.
‘Every collection and every dollar’s worth of receivable will become increasingly important to each company,’ said Drew & Napier’s Mr. Wong. ‘Self-preservation will be the determining factor as to whether companies will sue and how vigorously companies will defend such lawsuits.’
Seems like the corporate world may soon give a new twist to the old saying - ‘Prosperity breeds harmony’ could make more sense these days.
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