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Small businesses hit by Covid-19 can renegotiate some contracts

[SINGAPORE] Small and micro businesses significantly affected by the Covid-19 pandemic will be able to renegotiate certain types of contracts with their counterparties from Friday (Jan 15).

They will have six weeks to enter into renegotiation under the Re-Align Framework, said the Ministry of Law on Thursday (Jan 14).

Only businesses that have an annual revenue for the financial year 2019 of not more than S$30 million on a global group basis are eligible under the framework.

They must also have experienced at least a 70 per cent fall in monthly average gross income for July to December last year compared to the previous year.

In addition, only certain commercial contracts entered into before March 25 last year are applicable under the framework, such as leases or licences for commercial property, rental agreements for commercial equipment or vehicles, and contracts for the sale and purchase of goods and services.

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The Re-Align Framework was passed urgently in Parliament in November last year to help smaller businesses cope with the fallout from the pandemic.

Businesses that wish to renegotiate their contracts under the framework must serve a Notice of Negotiation and the relevant documents proving their eligibility on the other parties of the contract by Feb 26.

This will activate a four-week period, where parties will have to renegotiate the terms of the contract and try to reach a compromise.

During this period, legal and enforcement actions cannot be taken against the affected business for their failure to perform any contractual obligation.

If the renegotiation is unsuccessful and parties cannot come to a mutual agreement by the end of the period, there are two possible outcomes.

First, if the other party of the contract believe that the affected business is not eligible under the Re-Align Framework, it can lodge an objection with the registrar within two weeks after the negotiation period ends.

An independent assessor appointed by the Ministry of Law will decide on the matter. Until a decision is made by the assessor, the contract will continue to run.

Second, if the other party does not lodge an objection within two weeks after the negotiation period ends, the contract will be terminated early without penalty two days after the objection period ends.

Any contractual obligations accrued up until the date of termination, however, will still be payable and enforceable.

However, if parties believe the terms of termination should be adjusted to better fit their circumstances and are unable to reach an agreement among themselves, they can seek an assessor to decide on the terms. This must be done within two weeks after the end of the objection period.

Decisions made by the assessors are binding and cannot be appealed against. Parties can seek legal advice but legal representation will not be allowed.

Second Minister for Law Edwin Tong said on Thursday that the six-week limit allowing businesses to enter into renegotiation was deliberately designed to avoid protracted uncertainty for counterparties and for the market.

Mr Tong, who is also Minister for Culture, Community and Youth, encouraged parties to have frank and open discussions. "Ultimately, the parties themselves know their contracts best. We hope they can understand each other's positions and difficulties, and try to reach a mutually beneficial agreement and find a way forward," he said.

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