Businesses and individuals around the world have been affected by unprecedented and unforeseeable supply chain disruptions, manpower shortages and cashflow issues arising from the COVID-19 pandemic. In his speech on the COVID-19 (Temporary Measures) Bill, Law Minister K. Shanmugam noted the increasing difficulties of businesses and individuals in fulfilling their contractual obligations due to the COVID-19 outbreak. To complement the financial schemes, grants and reliefs announced by the Singapore Government in the Resilience Budget and Solidarity Budget on 26 March 2020 and 6 April 2020, the COVID-19 (Temporary Measures) Act 2020 ("Act") was passed on 7 April 2020. The Act seeks to provide temporary relief to business and individuals affected by the COVID-19 pandemic, among other temporary measures, and to apply retroactively, and cover contractual obligations performed on or after 1 February 2020, which is the approximate date when the coronavirus outbreak started to significantly impact Singapore.
While parties may continue to rely on force majeure clauses (if that is available), or the doctrine of frustration either in common law or under the Frustrated Contracts Act (Cap. 115), the Act seeks to provide temporary cash-flow relief to businesses and individuals, and provide them with the opportunity to evaluate their financial situation in a just and equitable manner during the COVID-19 situation.
The measures under the Act will be in place for a period of six months from the commencement of the Act.
Framework for seeking relief from contractual obligations
The Act provides temporary relief from legal action over the following types of contracts:
- Loan facilities granted by a bank or finance company to certain enterprises where the loans are fully or partially secured against commercial or industrial immovable property, plant, machinery, fixed asset located in Singapore;
- Supply or construction contracts;
- Hire-purchase agreements or conditional sales agreement over any plant, machinery, fixed asset or commercial vehicle in Singapore;
- Contracts for provision of goods and services for events;
- Contracts related to tourism or the promotion of tourism in Singapore; and
- Leases or licences of non-residential immovable property.
Under the Act, if a party to any of the above contracts is unable to perform an obligation due to be performed on or after 1 February 2020, it may serve a notice for relief on all counterparties and any surety or guarantor. The inability to perform the obligation in the contract must be to a material extent caused by the COVID-19 pandemic or due to the operation of any laws (whether in Singapore or elsewhere) made by reason of or in connection with the COVID-19 pandemic.
If a counterparty is served with the notification for relief, it shall be prohibited from the following:
- Commence or continue any court or arbitral proceedings against the party or their guarantor or surety;
- Enforce any security over immovable properties or movable properties used for the purposes of a trade, business or profession;
- Commence any bankruptcy or insolvency proceedings;
- Repossess any goods under a leasing, hire-purchase or retention of title agreement;
- Terminate a lease or licence of immovable property; or
- Enforce a court judgement, arbitral award or determination by an adjudicator under the Building and Construction Industry Security of Payment Act.
The Act also provides further reliefs for construction and supply contracts, such as allowing for an extension of the term of the bond to remain valid up to 7 days after the expiry of the prescribed period, or prohibiting a call on the performance bond at any time earlier than 7 days before the date of expiry of the performance bond or the extended date of expiry of the performance bond pursuant to the provisions of the Act.
Things to note
Relief for SMEs
The temporary relief from repayment obligations to a bank or finance company is only available to enterprises established and carrying on business in Singapore with a turnover not exceeding S$100 million in the latest financial year, and is at least 30% owned by citizens of Singapore or permanent residents of Singapore or both. Therefore, multi-national corporations or businesses with a large portfolio of international investors may not stand to benefit from the Act, even if the loan is secured against immovable assets, plant, machinery or fixed assets located in Singapore.
Addressing global effects
The economy in Singapore is heavily dependent on overseas trade and the performance of the global economy. The Act recognises this by allowing parties who are unable to perform contractual obligations due to a COVID-19 event, whether arising in Singapore or elsewhere, to benefit from the temporary reliefs. This will be helpful to businesses that continue to be affected by global events that may continue to develop at a pace differently from events in Singapore.
Key considerations for a successful application
Under the Act, an assessor will be appointed upon an application for relief by a party. The assessor will then make a determination of the application taking into consideration the ability and financial capacity of the party concerned to perform the contract, and seek an outcome that is just and equitable in the circumstances of the case. While the framework is new and we have yet to see any determinations from the application of this Act, large or listed companies with strong financials may do well to keep this in mind, and be clear about the outcome they wish to achieve under this framework before making any application under this framework.
It should also be noted that the assessor's determination will be final and binding on all parties to the application and all parties claiming under or through them. There will be no appeal from an assessor's determination. While the Act contemplates a straightforward, efficient and affordable way for parties to resolve disputes arising from the COVID-19 situation during the prescribed period, a prospective applicant should carefully consider the dispute and be certain of the outcome they wish to achieve under the Act, before making the application to do so.
We hope the above has been helpful. If there is anything that you wish to discuss with us, please feel free to reach out.
You can also discuss any questions with our Singapore-based Corporate and Capital Markets experts, Associate Director Jia Yun Teo, Partner Tan Choon Leng, and Associates Yin Lynn Chong and Joan Choo, working in the offices of JurisAsia LLC, who prepared this Insight. Gowling WLG has an exclusive association with JurisAsia LLC, a Singapore firm specialising in IP and corporate law.