Small businesses hit by pandemic get 6-week period to renegotiate contracts

Singapore

SMALL enterprises hit hard by the Covid-19 downturn will get six weeks to renegotiate business contracts that they have trouble fulfilling.

Eligible companies can serve a notice of negotiation from Jan 15 to Feb 26, 2021 on other parties involved in certain contracts, the Ministry of Law (MinLaw) said on Thursday.

Once the notice is served, a business has four weeks to renegotiate contract terms. The other parties are barred from pursuing related legal and enforcement actions in that time.

The latest details from MinLaw shed more light on the Re-Align Framework that kicked in on Nov 3.

MinLaw noted in a statement that the fundamental assumptions behind some companies' contracts "may have changed significantly and no longer be valid in a new Covid-19 normal" as they rejig their business models to face changing conditions.

The ministry called it critical to let these businesses adjust for the long term as the various government support schemes are wound down.

Should firms struggle with unproductive contracts, "assets and resources will be locked in, instead of being freed up to drive business and economic recovery", MinLaw added.

Businesses that had revenue of less than S$30 million for FY2019 and saw monthly average gross income fall by at least 70 per cent year on year in July to December are eligible.

Edmund Lee, Singapore managing director of business services firm TMF Group, noted that the framework is not meant as "a universal, prescriptive contract modification template".

But he stressed that parties' appetite for amicable compromises will be key, as "it is in no one's interest to proceed with mass cases of default".

If no successful renegotiation is reached after the four weeks are up, contract counter-parties have another two weeks to object, and an independent assessor will be appointed to determine the parties' obligations when the contract is terminated.

Otherwise, the contract will be axed two weeks and two days after the renegotiation period ends, should the counter-parties decide not to lodge a notice of objection.

Default terms apply to contracts terminated under the framework. For example, tenants breaking their lease must pay rent up to the termination date - pro-rated if necessary - while landlords can offset accrued liabilities against security deposits or advance payments, but must return the balance four weeks from termination.

Parties that disagree with the default terms of termination and cannot reach an agreement will get two more weeks to apply for an assessor's decision, which cannot be appealed.

TMF's Mr Lee added that he hopes Singapore will move next year from emergency support, to spurring a recovery through fiscal stimulus and the easing of pandemic-related curbs.

The framework does not apply to contracts inked after March 25 or terminated before Nov 2. But contracts that were dropped from Nov 2 on, whether under the framework or otherwise, can be subject to the Re-Align Framework's terms of termination, if a notice of negotiation is served.

More information is available online at www.go.gov.sg/re-align/

Re-Align Framework: what's covered, what's not

CONTRACTS under the Re-Align Framework must be governed by Singapore law and involve at least one party with a business address here.

Agreements from the following categories are covered if they were inked before March 25, 2020:

But 14 types of contracts are not covered by the framework, even if they fall in the categories above.

These include: