SINGAPORE — Businesses struggling to cope with the impact of the Covid-19 crisis may be able to get some much-needed relief from their contractual obligations for as long as six months, under the Covid-19 (Temporary Measures) Bill that was passed in Parliament on Tuesday (April 7). 

The new law — dubbed a “legal circuit breaker” by Law and Home Affairs Minister K Shanmugam — will apply to contractual obligations that need to be performed on or after Feb 1 this year. 

This is regardless of when the contracts were signed, he said. 

The aim of this law is to give “breathing space” and “staunch the flow of blood” for businesses struggling over the past two months since the deadly coronavirus reached Singapore’s shores, Mr Shanmugam said in Parliament during a debate on the new provisions before they were passed. 

The impact of Covid-19 started to be significantly felt in Singapore on Feb 1, he said, but the proposed measures in the Bill do not apply to contracts that were signed on or after March 25 this year.

That is because the Ministry of Health announced tighter restrictions to promote safe distancing the day before. 

“So parties with knowledge of those measures (who) entered into contracts in the last few days, they should not seek help from this Bill,” Mr Shanmugam said. 

HOW DOES IT WORK?

To bring about a temporary suspension of one’s contractual obligations, a business or individual has to give notice to the other party. 

Once that has been done, these actions would be prohibited:

• Starting or continuing a legal action

• Making a bankruptcy application 

• Terminating a lease or licence of immovable property for non-payment of rent 

• Enforcement of any security over immovable property

• Enforcement of any security over movable property used for a trade, business or profession

• Repossession of goods used for a trade, business or profession

Not complying with these proposed prohibitions would be an offence that is punishable with a fine. 

Parties who are not agreeable may take up their dispute to assessors, who would be appointed by the Ministry of Law. Assessors could include legal professionals, industry representatives, accountants and others. 

Mr Shanmugam said that the ministry will be looking to appoint more than 100 assessors, who will try and hold hearings among disputing parties as quickly as possible after all the relevant documents have been submitted. 

Parties cannot hire lawyers to represent them, and no appeal can be made after an assessor makes a decision. There are no fees that need to be paid for going to one. 

WHAT TYPE OF CONTRACTS ARE COVERED? 

There will be five broad categories of contracts covered under the Bill, with the Law Minister having the power to add more. 

• Leases and licences of non-residential property

• Construction-related contracts

• Event and tourism-related contracts

• Hire-purchase or conditional sales agreements

• Certain types of loans for small- and medium-sized enterprises (SMEs) 

1. Leases and licences of non-residential property

• Tenants seeking relief must show that they are unable to pay rent, and that the inability to pay is due to a Covid-19 event. 

• Once they show that, their lease or licence cannot be terminated by the landlord based on the non-payment of rent.

• Legal proceedings cannot be started against tenants.

• If landlords and tenants cannot agree, they may go to assessors appointed by the Law Ministry, who will then decide. 

However, Mr Shanmugan said that this does not mean that all tenants do not have to pay rent. 

“Those who have the ability to make rental payments must continue to do so. The Bill seeks to help those who are unable to pay,” he said. 

So, if a multinational company or a company with substantial resources applies for a suspension, it will probably not qualify. 

Mr Shanmugam also said that the Real Estate Investment Trusts (Reits) Association of Singapore, made up mainly of mall owners, have given feedback that the Bill is in favour of the tenants and would affect their returns.  

“Landlords also have to be realistic about the impact that Covid-19 has had on the entire economy and on cash flow and all sectors. Reits are not the only one affected,” he said. 

He also pointed out that landlords are getting help from the Government, in the form of wage subsidies in the month of April and also for the next few months. 

If small businesses are not helped, the entire business ecosystem could crash, Mr Shanmugam said. 

“Landlords have benefited tremendously from growth… And fairness and justice require that they help share some of this pain rather than leaving it to the smallest and weakest to bear it all,” he added. 

“I would suggest that there are broader concerns beyond the rate of return. Everyone has to take a collective approach.

“Is it really going to be possible for you to get that previous rate of return for the next six months? Is it possible to have business as usual in the next few months? Not possible.” 

2. Construction-related contracts

If a contractor is unable to perform his obligations due to a Covid-19 event between Feb 1 and the end of the prescribed period, that period should be disregarded in determining the period of delay in performance. 

Contractors are also able to defend themselves against claims of breach of contract if the inability to perform their obligations occurred on or after Feb 1 and before the end of the prescribed period. 

Mr Shanmugam said that the sector will likely face financial difficulties because its building materials are facing supply disruptions and there is also manpower shortage. 

3. Event and tourism-related contracts

Those who have made deposits for an event scheduled to be held on or after Feb 1 but could not proceed due to a Covid-19 event can serve a notification to the other party to have their deposits restored.  

These include deposits that have been forfeited. 

Non-compliance by the other party will be an offence.

If parties cannot agree, they can take up their dispute to an assessor who will make the final decision. 

These contracts include:

• Those signed with event providers to hold wedding banquets, business meetings, conferences

• Those signed with caterers as well as other providers of goods and services for such events

• Accommodation or entertainment for tourism-related events 

However, Mr Shanmugam said that the Bill does not mandate that the deposits be refunded immediately or companies would be in serious trouble. 

The two parties may take up several other possible options:

• Postpone the event and the deposit is held back

• Cancel the event and the deposit is repaid in full or partially, depending on how much service has been rendered before the event took place 

• If the deposit is to be repaid fully or partially and the company is given time to repay, an assessor will have to consider and decide if time needs to be given.

4. Hire-purchase or conditional sales agreements

These are agreements that include: 

• The sale of a plant, machinery or fixed asset located in Singapore used for manufacturing, production or other business purposes

• The sale of a commercial vehicle

Mr Shanmugam said that the Government has received many letters and petitions, mainly from tour-bus owners and private bus drivers, and some have had their vehicles repossessed by financial companies.

The provisions in the Bill will mean that these goods, such as commercial vehicles, cannot be repossessed if the owners have sought relief measures. 

Finance companies who think they have reason to repossess may state their position to an assessor. 

5. Certain types of loans for small- and medium-sized enterprises 

For SMEs that are unable to repay instalments on loans due to a Covid-19 event, lenders cannot:

• Enforce security, where it is any commercial or industrial immovable property located in Singapore

• Enforce security, where it is a movable property such as a plant, machinery or fixed asset located in Singapore and used for manufacturing, production and other business purposes

• Take legal action 

WHAT ABOUT THE FINANCIALLY DISTRESSED?

Bankruptcy and insolvency laws will be temporarily modified for individuals and businesses, Mr Shanmugam said. 

For individuals, the minimum debt amount in the debt repayment scheme under the Bankruptcy Act will increase from S$100,000 to S$250,000. 

The increase in the threshold means that more individuals can participate in the scheme and avoid bankruptcy, Mr Shanmugam said.

For individuals and businesses making a bankruptcy application, the minimum debt amount will increase from S$10,000 to S$100,000. 

A debtor has to file for bankruptcy after being served notice by a creditor and the filing needs to be done in 21 days. The time is now extended to six months.