Focus on… The Effects of the Pandemic, with Tiruchelvam Associates

The Pandemic continues to have a mixed impact on Sri Lanka. The intermittent curfew has interfered with certain industries in the manufacturing sector and continuing restrictions on inbound travel have interrupted potential investor plans. The overwhelming effect on the global economy means our migrant labour, export oriented businesses and the tourism sector struggle to cope.

The unexpected flip side is the strong, innovative nature of Sri Lankan businesses which have managed to steer the country away from total collapse. For instance, the garment manufacturing sector quickly shifted to the manufacture of protective gear. Even small retail stores turned “online” and door to -door delivery services sprung up overnight.

The Government reacted fast – debt moratorium, financial aid for low income families, restrictions on imports and foreign exchange outflow by residents, special relief packages for worst affected sectors, new tax benefits and inviting foreign currency deposits. Even certain regulatory bodies like the Securities and Exchange Commission of Sri Lanka (SEC) granted moratorium to clients of Stock Brokers and Margin Providers from the payment of interest on credit.

Still to be understood is how many of our flourishing SMEs will survive and how the labour market will be affected.

Special Regulatory Measures of interest:

The key change in regulatory measures is in the Pharmaceutical industry. The National Medicinal Regulatory Authority (NMRA) went online immediately and has extended registrations and licenses until it has time to breathe – currently the focus is COVID-19 products such as testing kits. Only applications for registering of a limited number of new products will be processed at this point. Most important to note is the Government’s special emphasis on locally produced pharmaceuticals and to support this has even proposed a dedicated industrial zone.

In an attempt to induce new investments, the supply of residential accommodation in the form of condominium housing units has been exempted from Value Added Tax (VAT). Hotels, guest houses, restaurants and/or other similar businesses registered with the Sri Lanka Tourism Development Authority and providing similar services were granted tax benefits. The companies engaged in educational services, promotion of tourism, construction services, agro processing and healthcare services benefitted through reduced income tax.

The tourism sector has received a boost of several specially targeted loans and relief schemes. Those engaged in Information technology and enabled services and the non-residents providing laboratory services or standards certification services are also eligible for tax exemptions.

Business in the new normal

We are confident that Sri Lanka’s laws on electronic transactions are well prepared to manage remote conclusion of transactions. Similarly, many regulators have gone digital and we have experienced a remarkable upsurge in electronic systems and communications and many offices such as the Registry of Companies, Inland Revenue Department, Central Bank of Sri Lanka and the National Intellectual Property Office have implemented E-Systems and now routinely respond by email. Regulators now take the initiative, updating us by phone (unheard of “pre COVID”) and coordinating with each other behind the scenes to reduce the burden on Clients. This is remarkable and must be commended.

Conversely, physical searches required in some sectors, especially for real estate and construction, are blindsided. Projects are being delayed by several months due to lack of access to registries and local council record rooms.

Sadly, initially, we were flooded with questions on debt restructuring, insolvency and redundancy. Our advice to clients was to attempt to manage rather than take extreme steps since sometimes, stopgap measures may be financially more viable. For instance, Sri Lanka’s strict regulation of redundancy could have resulted in payments of over 3 months terminal pay per completed year of service per employee. So, we advised short term furlough type schemes of perhaps reduced pay until the situation is clearer. Similarly, even a voluntary liquidation could have taken several months to complete. Instead we suggested a “compromise of debts” as provided by our law.

Simultaneously, we experienced increased interest in electronic transactions, on IT related products including education programmes, data and cyber security and supply chain management. In our experience, while the larger corporations in Sri Lanka managed to “weather” the situation, the winners were the small and medium enterprises which responded creatively to the crisis. Many of them shifted focus- underwent operational restructuring such as cost reduction strategies, reorganizing and reallocating resources, exploring alternate revenue streams managed a smooth transition to online/ e-commerce and converted to work from home seamlessly.

Is there a new normal or do we go back to the old normal?

We anticipate people will begin to reduce their dependency on courts for dispute resolution. Much of this year our disputes team has been concentrating on negotiation as a means of resolving clients’ issues.

We are also yet to see whether the Government and regulators will continue to grant relief to businesses and the outcome of proposals by the Export Development Board.

More troubling is the shift from permanent employment to consultancies and worse, to dependence by major industries on manpower agencies. The Sri Lankan legal structure has no remedies to offer employees who may be affected by this change in practice. The Pandemic has highlighted the vulnerability of these workers who work for well established businesses but have no recourse for remedies for illness or loss of jobs from them since their “employer” technically is the manpower agency. It is imperative that the Government thinks through a relief programme such as official furlough etc to counter the negative impact on the labour market.

The importance of basics such as intellectual property rights is highlighted now more than ever before. We find our investment in understanding patents and industrial designs is well timed to meet Clients’ new concerns. At the same time, we have experienced a larger than usual number of residence visa applications from the region in the last few months. So, it is possible that Sri Lanka with its reputation for a well organised public health service may become a destination of choice for regional companies.

Finally, there is a new idea here that as lawyers we are just beginning to understand – an appreciation of all things Lankan. Import restrictions have led to growth in sales of domestic produce. Travel restrictions have translated to internal tourism. Sri Lankans who dream of making it big as migrants or foreign students are concentrating on locally available avenues to move forward. Coupled with the SME culture of reduced overheads, direct marketing and emphasis on excellence, there is great potential for lawyering – where ideas will take precedence over quantity – and we look forward to this.

About Tiruchelvam Associates

Major hires/announcements

The Legal 500 rankings

Consistently ranked as tier 1 Firm for Projects and Energy, Tax and Private Client related work
Consistently ranked as Tier 2 Firm for Corporate and M&A and Real Estate
Laila Nary recognized as Leading Individual for Projects and Energy
Nirosha Peiris recognized as rising star for Projects and Energy
Our former Associate, Abirami Nithiananthan recognized as rising star for tax for her contribution towards the tax matters of the Firm

Alliances/network partnerships

Affiliations

Bar Association of Sri Lanka
Inter-Pacific Bar Association
Legal 500
AMCHAM Sri Lanka
World Bank Doing Business
Trace International

Network Partners

Barry Appleman &Leiden LLP
Law Quest
The Global Talent Mobility Company
Peregrine Immigration Management

Major landmark deals

1984	Sri Lankan lawyers representing the Sri Lankan interests of Galadari Brothers LLC, an Emirati Business conglomerate
1996	Represented Pepsi Co. in its investment in Sri Lanka
1997	Represented Nippon Telegraph &Telecom Corporation (NTT)in the only privatisation of a public utility in Sri Lanka
1999	Represented the Commonwealth Development Corporation on a multimillion-dollar multilateral loan
2002	Advised Bloomberg in relation to legal and regulatory compliance in Sri Lanka for various financial and other products offered by the Client. The Firm continues to advise the Client on fintech related matters
2002	Advised the Marks & Spencer Group on the Strategic investment in the Garment Sector in Sri Lanka
2003	Appointed as the IP agent to handle all IP matters of the world’s leading premium drink business, Diageo PLC
2006	Set up the Sri Lankan presence for Global Payments Asia Pacific, the World’s largest payment processor and led all its negotiations with the Central Bank of Sri Lanka. Firm continues to act as its counsel and corporate secretary.
2007	Represented Standard Chartered Bank in a multimillion-dollar multilateral loan
2010	Successfully negotiated the lease with Government on behalf of the investor in relation to setting up a luxury resort in Sri Lanka
2011	Acted as the Sri Lankan legal specialist for the India-Sri Lanka Grid interconnection project
2011	Began representing MIT in major labour issues and continue to do so for the new owner, LSEG
2012	Acted as the legal advisor for a 3k Township project, which involved the development of satellite towns bordering the three main highways as a PPP.
2013	Conducted the due diligence on behalf of Moody’s Corporation in relation to its takeover of a Sri Lankan entity.
2013	Acted as the legal counsel for Eni S.P.A Italy in relation to the second off-shore licensing round for oil and gas exploration in the Cauvery Basin and Mannar Basin of Sri Lanka
2013	Set up a Joint Venture between Expolanka International (Pvt) Ltd and Brandix Lanka Limited for Commercial Hub operations in a BOI processing zone
2014	Managed the setting up of the Maldivian presence for Global Payments Asia Pacific
2015	Began advising one of the world’s largest banking conglomerates on the Sri Lankan law impact of its regional restructuring efforts
2015	Acted as the legal counsel for China’s largest banking conglomerate on many of its loan agreements with Sri Lankan Banks. The Firm continues to act is it local counsel
2016	Represented the client in a fundamental rights application against the cabinet of ministers challenging the cabinet’s decision in relation to illegal regulations to grant ownership of elephants kept in the Pinnawala elephant orphanage to private individuals.
2016-2017	Appointed as the National Legal Specialist for the Asian Development Bank and the Ceylon Electricity Board on a proposed 100MW wind power plant in Mannar
2017	Set up the Sri Lanka presence of Novo Nordisk A/S, a multinational pharmaceutical company.
2018	Represented the Sri Lankan interests of the Scandinavian Tobacco Group in respect of a global acquisition by the Client
2018	Local Counsel for a social media giant and advised on its proposed products, constitutional law and content related matters in Sri Lanka
2018	Conducted a feasibility for a business model proposed by a client, who is one of the largest chemical producer.
2019	Represented Altaaqa Alternative Solutions Global FZE for provision of emergency power for the Ceylon Electricity Board
2018-2019	Appointed as the legal specialist by the Public Utilities Commission of Sri Lanka to draft guidelines for the investigations on the alteration and tampering of electricity meters
2019	Set up the “BEES Network” in Sri Lanka – a World Bank Initiative to bring together member organisations from the SAARC Region for the business and economic empowerment of women
2019	Commissioned by the Public Utilities Commission of Sri Lanka to draft guidelines in relation to shifting/removing electric lines/poles in public roads
2020	Represented leader in IT products in all its immigration and regulatory matters in setting up its presence in Sri Lanka
2020	Advised on the share option scheme proposed by the world’s second largest tyre manufacturer
2020	Conducted a legal audit on the production hub for one of the world’s largest cigar manufacturers