Proposed Bill to protect firms, individuals with contractual obligations affected by COVID-19

Restaurants at Clarke Quay. (PHOTO: Dhany Osman / Yahoo News Singapore)

SINGAPORE — Companies who are unable to pay their rent, as well as individuals who have placed deposits for events, will be protected under a new Bill to be introduced in Parliament next week.

In a media release on Wednesday (1 April), the Ministry of Law said that the Bill aims to provide temporary relief for businesses and individuals who are unable to fulfil their contractual obligations because of the COVID-19 outbreak.

“There are supply chain disruptions and manpower shortages, among other consequences,” it said of the impact of the pandemic. “In many cases, this has undermined the ability of individuals and businesses to fulfil contractual obligations. It would be unfair to hold them strictly liable for their failure to do so.”

As such, the Bill will seek to provide temporary cash-flow relief for these businesses and individuals, who may otherwise have to pay damages, or risk having their deposits or assets forfeited.

The measures will cover relevant contractual obligations on or after 1 February, and for contracts that were entered into or renewed before 25 March. They will be in place for six months from the commencement of the legislation, but may be extended for up to a year.

What contracts the Bill will cover

The Bill will cover the following contracts:

  • Leases or licences for non-residential immovable property (e.g. lease for factory premises);

  • Construction contract or supply contract (e.g. contract for the supply of materials);

  • Contracts for the provision of goods and services (e.g. venue, catering) for events (e.g. weddings, business meetings);

  • Certain contracts for goods or services for visitors to Singapore, domestic tourists or outbound tourists, or promotion of tourism (e.g. cruises, hotel accommodation bookings); and

  • Certain loan facilities granted by a bank or a finance company to SMEs.

The Bill will prohibit a contracting party from taking the following legal actions against a non-performing party:

  • Court and insolvency proceedings;

  • Enforcement of security over immovable property, as well as movable property that is used for the purposes of business or trade;

  • Call on a performance bond given pursuant to a construction contract; and

  • Termination of leases of non-residential premises.

There will also be additional relief in respect of deposit forfeits for events and tourism-related contracts. In the case of construction and supply contracts, a contractor will be relieved from liability for non-performance if this was caused to a material extent by COVID-19.

Assessors will be appointed by the Minister for Law to resolve disputes arising from the application of the Act. They will decide if the inability to perform contractual obligations was due to COVID-19, and will have the powers to grant relief that is just and equitable in the circumstances.

The process will be affordable, fast, and simple. Parties will not be allowed to be represented by lawyers, and there will be no costs orders. Assessors’ decisions will be final and no appeal is allowed.

Raising monetary thresholds for bankruptcy, insolvency

The Bill will also introduce temporary relief for individuals and businesses in financial distress by temporarily increasing the monetary thresholds for bankruptcy or insolvency.

For individuals, the threshold for bankruptcy is raised from $15,000 to $60,000, while for businesses, the threshold for insolvency is also raised from $10,000 to $100,000 (for companies and partnerships).

Furthermore, the Bill will lengthen the statutory period to respond to demands from creditors.

Directors will also be temporarily relieved from their obligations to prevent their companies from trading while insolvent, if the debts are incurred in the company’s ordinary course of business. However, they remain criminally liable if the debts are incurred fraudulently.

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