The COVID-19 outbreak has had a devastating economic impact across the region, with businesses shuttered and markets crashing. To mitigate the impact locally, Singapore has responded by introducing a new bill that aims to ease economic pressures on businesses and individuals. The COVID-19 (Temporary Measures) Act, was passed in parliament in April, and is now fully in effect.
WHAT IS THE SCOPE OF THE BILL?
Sim Kwan Kiat, head of Rajah & Tann Singapore’s restructuring and insolvency practice, says the COVID-19 (Temporary Measures) Act aims to provide targeted, temporary relief to those in certain contracts unable to perform their obligations as a result of the pandemic. “The act applies to specific types of contracts – including (a) tourism and events related contracts, (b) construction contracts and performance bonds related to such contracts, (c) certain bank loans to small and medium enterprises in Singapore which are secured by non-residential immovable property or fixed assets used for business purposes, and (d) leases and licences over non-residential property,” Sim says, adding that there is a time limit — the prescribed relief period is six months from the time the act comes into effect.
Should there be disputes, an assessor appointed by the Ministry of Law will make a final, non-appealable determination. “With regard to winding up or bankruptcy applications during the prescribed period, the Act also extends the timelines for statutory demands in general (from 21 days to 6 months) and the minimum monetary thresh-olds for bankruptcy applications (from S$15,000 – or $10,600, to S$60,000), and for statu-tory demands for winding up applications (from S$10,000 to S$100,000),” Sim adds.
WHAT KIND OF CLARIFICATIONS ARE BUSINESSES SEEKING?
Prakash Pillai, a partner at Clyde & Co, says in the short term, the act is likely to cause “an uptick in parties to the scheduled contracts – for example, in the tourism, hospitality and construction sectors – seeking advice on whether they can avail themselves of the temporary relief provisions under the Act, or conversely, whether their contractual counterparties are entitled to claim such relief.”
Additionally, with the act being so recently deployed, parties are also likely to seek legal advice on what exactly constitutes a “COVID-19 event” under the Act, Pillai says.
While there is likely to be a reduction in the number of winding up and bankruptcy applications during the prescribed period, Sim says, lawyers are likely to be kept busy.
“We expect to see lawyers being active in advising on the scope and effect of the COVID-19 (Temporary Measures) Act 2020, how parties’ rights are affected, and on the process of determination by assessors (though parties cannot be represented by lawyers in the determination process),” he says.
Meanwhile, businesses should not be sitting idly — instead, they are advised to take an active approach in attempting to understand the broad effect of the COVID-19 (Temporary Measures) Act 2020 and how it impacts them, Kiat adds.
“If a business faces difficulty in performing its contractual obligations because of the COVID-19 pandemic, it should seek legal advice on the effect of the COVID-19 (Temporary Measures) Act 2020 and how it may seek relief. The counterparty should also seek advice on how its rights may have been restrained, in particular, whether and what legal action it may take during the prescribed period,” he says.
ARE OTHER TYPES OF LEGISLATION LIKELY TO BE PUT IN PLACE?
While there doesn’t appear to be further specific COVID-19 targeted measures, one recent legislative development that is being keenly awaited is Singapore newly enacted Insolvency, Restructuring and Dissolution Act (IRDA), which has not yet come into effect, says Pillai.
Considering the recent developments, this may be rolled out more swiftly. “With the likely economic fallout that will result from the COVID-19 pandemic, getting the IRDA online has taken on a new significance. The IRDA gives companies and creditors a number of potential mechanisms to restructure their businesses and hopefully trade out of any distressed financial situation caused by COVID-19,” Pillai says.
But it’s too early to predict additional COVID-19 legislative developments, Sim says, adding that Singapore is likely to “assess and review the situation in deciding what other types of measures are needed.”
“It is important to try to maintain a balance between the interests of parties who could not perform their obligations and the counterparties’ rights under the contracts. COVID-19 (Temporary Measures) Act 2020 does not extinguish contractual rights and obligations; it merely suspends certain legal actions during the prescribed period,” he adds.
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