Buyer beware: When businesses suddenly wind up

Photo credit: channelnewsasia

The number of complaints from consumers left in the lurch by sudden business closures has shot up from 73 just two years ago to 417 in the first 10 months of this year.

In fact, the Consumers Association of Singapore (CASE) expects the figure to reach up to 500 by the year’s end, executive director Seah Seng Choon told Talking Point.

In October, for instance, the closure of established bridal salon Sophia Wedding Collection affected more than 70 couples. The month before that, reports were lodged against well-known hair salon The Scissorshands. Other instances this year include renovation firm D’Concept Design, Sadhana Sanctuary spa, Sky Fitness gym and travel agent Asia-Euro Holidays.

In each case, many customers had handed over thousands of dollars upfront – oftentimes after they were lured by discounts or freebies to do so. But now, their chances of getting their money back may be slim to non-existent.

A private limited company is viewed as an independent legal entity separate from its owners, noted lawyer Benjamin Cheong, a partner with Rajah & Tann.

“The owners cannot be sued for the debts of the company. Therefore, even if the Small Claims Tribunal rules in favour of the customers and orders the company to pay damages to the customers, the owners are not legally responsible to pay the damages,” said Mr Cheong.

So how can consumers protect themselves every time they put down a deposit or buy a pre-paid package? A recent episode of Talking Episode examined this question, as well as why some businesses fail.

One bridal salon owner said it came as no surprise when Sophia Wedding Collection closed down.

Mr Ben Soh, managing director of Bliss Bridal Creations, said the industry has been badly hit by Taiwanese firms offering wedding services here from temporary booths at shopping malls.

“They do not have shops or workers here. They pay for the rental of their booth and that’s about it. They stay here for one or two weeks, then go back to their country. Two weeks later, they come again,” he added.

If each of them can sign 10 packages a week, “that’s 520 packages year for one bridal shop. Can you imagine if there are four of them?” he said.

Local bridal salons are also struggling with rising costs, while trying to keep prices competitive. Mr Soh said some are offering packages at the same price as 10 years ago. “Staff salaries, rental, everything goes up. How can you make money?” he said. “If you’re constantly selling at a cheap price, frankly, the industry will just collapse.”

Mr Seah from CASE said more businesses are jumping on the pre-paid package bandwagon, such as nail and hair salons.

“It’s getting very pervasive nowadays, and the businesses find it convenient and beneficial because this is free credit they can get from consumers to ease their cash flow,” he said.

As such, buyers should be cautious and protect themselves. “Businesses will come and go, so consumers will have to bear this in mind,” said the executive.


One couple's tale serves as a warning, after they were left stranded just two weeks before their wedding when Sophia shut unexpectedly.

Mr Alex Huang and his fiancée had to scramble to find a new gown and suit before the ceremony on Oct 24. They had paid Sophia S$7,000 for their package – a bargain, they thought, after it was reduced from the original S$10,000.

But in the end, about S$4,000 worth of their contract was not fulfilled. They also had to fork out another S$2,100 for the gown, suit and photographer for their big day.

The couple filed a police report, and was directed by CASE to the Small Claims Tribunal. Though the tribunal ruled in favour of the customers, it was a hollow victory as the salon owners were not contactable.

Mr Seah said: “You can get the judgement but if the company is not able to pay, or there are not enough assets left, then the consumer will still end up getting nothing.”

He explained that if a business goes under liquidation, debtors such as financial institutions get priority. “Most of the time, consumers end up with nothing to receive.”

But there is some hope if you paid using a credit card. Said Mr Seah: “Usually, the bank would allow the credit card holder to claw back some money if the business is not able to provide the service.”

He added that buyers can also minimise their risk by paying as little as possible upfront in the first place. “If you have to pay the full sum, then you make sure that the business has some protection measure in place, such as insurance or some form of escrow.”

For instance, any CASETrust accredited spa is required to provide insurance cover with their packages.

Also, a Trust card programme launched in May involves EZ-Link holding customers’ funds in trust. If the shop closes, the buyer can get back the unused sums on this pre-paid card. While this Trust card is currently only available to the spa and wellness sector, Mr Seah hopes other industries will also come on board.

He said: “I think it is only fair that businesses provide some form of protection for prepayment by consumers.”

For the disgruntled groom, it was a costly lesson. “It’s very frustrating because there you are solving things for your wedding day, like seating arrangements, and suddenly you’re back to square one,” said Mr Huang. “After the experience, I realised that as consumers, we really have to be careful.”

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