Taiwan's Revision of Labor Law Reportedly to Impact NT$4.9 Trillion SME Loans

Taiwan's Cabinet recently approved the revision of Labor Standard Law to entitle employees to the same rights as lenders or banks to claim compensation as mortgage, severance pay and pension from employers who go bankrupt or shutter business, and then could not be held liable for such debts.

The Financial Supervisory Commission (FSC) estimates the retroactive, revised law may impact loans of about NT$4.9 trillion (US$163.33 billion) extended by domestic banks to small and medium enterprises.

Such revision reportedly results from the recent, high-profile  protests staged by former workers of the collapsed Hualon, erstwhile leading textile manufacturer in Taiwan, which owes employees severance pay and pension.

An urban legend in Taiwan says that even major firms sometime opt to shutter operations secretly either amid prosperity or nearing insolvency to leave long-term workers basically left without entitled pension and severance pay.

Ex-employees of Hualon argue inequality that the company's lenders will be reimbursed about NT$2.1 billion (US$70 million) of NT$2.4 billion (US$80 million) from the sale of  its factory land in northern Taiwan, with the the remaining  NT$200 million (US$6.67 million) paid for land-sales tax and only NT$2 million (US$66,667)  distributed among about 100 ex-employees.

Some say such legislative revision may discourage banks from offering financing to SMEs, yet can force them to set aside adequate reserves for pensions. Some 160,000 SMEs in Taiwan don't have adequate reserves for pensions. (JL)