The liquidity crisis that has slammed embattled e-commerce platforms Tmon and WeMakePrice, affiliated with Singapore-based Qoo10 Group, has taken a distressing turn that raises questions about the failed oversight of authorities and the lack of proper regulations over irresponsible online trade.

The major e-commerce debacle in South Korea, which hit both vendors and customers, is now snowballing in scale and depth over how the two e-commerce players have failed to pay vendors and used up customers’ money.

The main trigger is speculated to be the liquidity crunch resulting from aggressive merger deals by Qoo10, a development that the Korean financial and trade authorities failed to identify in time.

Worse, the prospect that Tmon and WeMakePrice will repay vendors on their platforms has dimmed further, with the size of unpaid bills widely expected to grow to affect as many as 60,000 vendors selling products on the two platforms, most of whom are small merchants or self-employed people.

Early on Monday, Qoo10 founder and CEO Ku Young-bae pledged to normalize the operations of Tmon and WeMakePrice by selling his stakes in the two firms. But eight hours later, he changed his position and filed for court receivership with the Seoul Bankruptcy Court in a surprise move.

The unexpected application for court receivership shocked and angered vendors operating on the platforms, which suggests the two open-market platforms, as well as Qoo10, are stuck in a make-or-break financial situation unable to be resolved without help.

On Tuesday, the Seoul Bankruptcy Court, perhaps reflecting the urgency of the incident, froze the assets and debts of the two platforms, a move that blocks creditors from taking action to force debt repayment from the firms until a decision is made on court-led debt restructuring.

A court decision has to be made within a month, but the process can take longer, as the firms applied for the “autonomous restructuring support” program, which secures up to three months for debtors and creditors to work on debt repayment. And this delay could hurt the business of cash-strapped vendors and partner companies. The government said Monday it would inject at least 560 billion won of funds to small vendors affected by the payment delays.

Lee Bok-hyun, chief of the Financial Supervisory Service, said during an emergency parliamentary hearing Tuesday that the liquidity issues involving the two troubled platforms were estimated to surpass 1 trillion won ($722 million).

“I am sorry for the lack of supervision,” Lee said, adding that the financial regulator is trying to trace and secure liquidity from the parent firm Qoo10 and has asked for a prosecution probe into the case. The Justice Ministry imposed an overseas travel ban on Qoo10 CEO Ku.

At Tuesday’s parliamentary hearing, Ku said he has about 80 billion won at his disposal, but refused to make a commitment on injecting all 80 billion won to resolve the liquidity crisis. Ku said that Qoo10 had “temporarily” used Tmon and WeMakePrice's capital in its takeover of global e-commerce platform Wish in February, but that the money had since been returned -- a claim that is yet to be confirmed by authorities.

On Thursday, prosecutors raided the headquarters of Tmon and WeMakePrice to investigate their delayed payments to vendors, as well as the home of Ku to seize documents and data related to the liquidity crisis. Among other issues, the probe must check facts over allegations that Tmon and WeMakePrice had continued their businesses even though they knew they could not pay bills to vendors as a result of liquidity problems, and who are responsible for the large-scale failure.

The government and related regulators, which are now under fire for failed oversight and negligence, are required to fix regulatory loopholes and strengthen rules over e-commerce platforms to prevent similar incidents.