Covid-19: New Bill to give temporary relief from contractual obligations

A NEW Bill in Singapore aims to grant temporary relief for six months to those who cannot fulfill contractual obligations - such as rent payments or planned events - because of Covid-19, such that tenants cannot be evicted and deposits are not automatically forfeited.

In a rare example of retroactive legislation, the measures will apply to contracts that were entered into or renewed before March 25, 2020, and cover contractual obligations to be performed on or after Feb 1, 2020.

The Bill also temporarily raises the monetary thresholds and time limits for bankruptcy and insolvency, making it harder for individuals to be declared bankrupt or businesses to be declared insolvent.

If there are disputes, parties can apply to a body of assessors, at no cost, with resolution to come within five days.

The two Budget packages providing Covid-19 support "can be seen as a transfusion of blood", said Law Minister and Minister for Home Affairs K Shanmugam. "So when you have transfusion, you also have to try to stanch the flow of blood."

That is where the new Bill comes in, to provide "breathing space" for companies. The obligations are only suspended, not removed - rent, for instance, still accrues and will eventually have to be paid after the temporary relief period is over.

The Bill covers five broad categories of contracts: leases or licences for non-residential property; construction contracts or supply contracts; contracts for the provision of goods and services for events, such as weddings; certain tourism-related contracts; and certain loan facilities granted to small and medium-sized enterprises (SMEs).

It will prohibit contracting parties from taking certain legal actions against parties that fail to perform their obligations, including starting or continuing court or insolvency proceedings.

First mentioned in the Resilience Budget unveiled on March 26, the measures are laid out in the Covid-19 (Temporary Measures) Bill that will be introduced in Parliament next week. The measures will be in place for six months from the commencement of the Act, and can be extended for another six months.

To receive the relief, the party which cannot perform the obligation due to Covid-19 has to serve a notification of relief to the other contracting party. This could be as simple as a tenant writing a letter or email to their landlord, explaining that they cannot pay rent due to lower footfall amid the virus outbreak.

The notified party will then be unable to take prohibited actions, such as terminating the lease or repossessing the premises. If they do not comply and still take the prohibited actions, this will be an offence. Details of the penalty for non-compliance will be released in due course.

For construction contracts or supply contracts, where obligations could not be performed due to Covid-19, the contractor will not be liable for liquidated damages, nor for delays or non-supply of goods.

For event contracts where the event is postponed due to Covid-19, paid deposits cannot be automatically forfeited. Similarly, for tourism-related contracts, if travel cannot continue due to Covid-19, sums paid cannot be automatically forfeited.

If there is a dispute, the assessor can decide if the deposit or paid sums should be fully or partially forfeited, taking into consideration legitimate expenses incurred. If a wedding is cancelled instead of postponed, for instance, the hotel may be able to forfeit the deposit.

SMEs, defined as those with annual revenue of no more than S$100 million, will also be protected against enforcement action in relation to loan facilities secured against real estate, or against plant, machinery, or other equipment used for business purposes.

The banks or finance companies granting the loan will not be able to enforce mortgages or seize equipment. This includes hire purchase agreements. For instance, if a private-hire car driver whose car was bought on a hire-purchase loan cannot pay instalments due to Covid-19, the car cannot be repossessed during the six-month period.

The assessors will determine if the inability to perform contractual obligations was due to Covid-19, and can grant relief that is "just and equitable" in the circumstances. There will be no representation by lawyers and no appeals will be allowed. Details of this will be released in due course.

About 100 assessors from sectors such as law, accountancy, and industry will be appointed. They are merely carrying out the policy, not serving a judicial function, noted Mr Shanmugam.

Most contracting parties should not need to come to the assessors, unless there is a dispute, he said. "We think that the rules themselves are fairly clear." A tenant should be able to simply go to their landlord, explain that they cannot pay rent due to Covid-19, and come to an agreement. A detailed explanation, with examples, will be put online.

The Bill will also temporarily raise the monetary threshold for bankruptcy to S$60,000 from S$15,000 usually, and raise the threshold for insolvency to S$100,000 from S$10,000 usually. The statutory period to respond to demands from creditors will be temporarily lengthened to six months, from 21 days usually.

Directors will be temporarily relieved from the obligation to prevent their companies from trading while insolvent, if debts are incurred in the ordinary course of business.

Mr Shanmugam said the Bill was put together "in a matter of days, as we saw the situation deteriorating", with the involvement of various ministries and government agencies, as well as consultation with private-sector representatives.