Knowledge Highlights 21 October 2020

The Ministry of Law (“MinLaw”) has extended the relief period under Part 2 of the Covid-19 (Temporary Measures) Act 2020 (“Act”), which enables parties in prescribed categories of contracts to obtain temporary relief from legal action for their inability to perform contractual obligations due to Covid-19. The relief period, which was initially scheduled to expire on 19 October 2020, will be extended by one to five months, depending on the category of contract.

In a press release issued on 12 October 2020, MinLaw stated that this measure was intended to support individuals and businesses as they continue to adjust to the economic impact of Covid-19. Parties can also use this time to work through their contractual disputes rather than resorting to legal proceedings after the expiry of the extended relief period, which would incur substantial time and costs.

The relief period under Part 3 of the Act, for measures relating to bankruptcy and insolvency, expired on 19 October 2020.

1. Background

Under Part 2 of the Act, parties in seven categories of contracts may, upon service of a Notification for Relief, obtain temporary relief from certain legal and enforcement actions for their inability to perform contractual obligations due to Covid-19. Part 2 of the Act also offers a framework to resolve disputes, through Assessors who determine whether this relief applies and seek to make just and equitable determinations. Part 2 of the Act entered into force on 20 April 2020 and initially covered five categories of contracts.

Part 3 of the Act provides temporary relief for financially distressed individuals and businesses by increasing the monetary thresholds and time limits for bankruptcy and insolvency. Part 3 of the Act also entered into force on 20 April 2020.

2. Extension of relief period from legal and enforcement actions for specified categories of contracts

Extension of relief period

The relief period for the following categories of contracts under Part 2 of the Act has been extended to 19 November 2020:

  • Loans to small and medium enterprises (“SMEs”) secured by certain collateral in Singapore
  • Leases and licences of non-residential property
  • Hire-purchase and conditional sales agreements for commercial vehicles, or plant/machinery used for commercial purposes
  • Rental agreements for commercial equipment or commercial vehicles

Longer extensions to the relief period under Part 2 of the Act will also be provided for the following three categories of contracts, as these continue to face significant uncertainty due to Covid-19:

  • Event and tourism-related contracts, up to 31 December 2020: The extension will provide individuals and businesses who have booked events or tours taking place in late 2020 and 2021 with more time to monitor the Covid-19 situation and discuss with their vendors whether and how they should proceed, before deciding if they need to rely on reliefs under the Act.
  • Options to purchase and sale and purchase agreements with developers, up to 31 December 2020: The extension will assist purchasers of residential, commercial and industrial properties who require more time to make their payments, particularly those who pay developers directly without taking a bank loan, with minimal impact to developers’ cash flow.
  • Construction contracts or supply contracts, or any performance bond granted thereto, up to 31 March 2021: The construction sector continues to face significant delays, due to work stoppages during the circuit breaker and reduced operating capacity because of the implementation of safe management measures. The extension will provide contractors with continued support as they adjust to new operating requirements, and also complement the other relief measures for the sector from the Government.

Filing of Notifications for Relief and Applications for Assessor’s Determination

After the relief period (or extended relief period) under Part 2 of the Act ends for each category of contract, the reliefs triggered by a Notification for Relief that has already been served will cease. Parties may commence or resume legal and enforcement action, as provided for in their contracts and in general law. Parties will no longer be able to file Notifications for Relief or Applications for an Assessor’s Determination. However, exceptions will apply for the following three categories of contracts, where Applications for an Assessor’s Determination may be submitted within two months after the end of the extended relief period under Part 2 of the Act: 

  • Event and tourism-related contracts: Parties must serve a Notification for Relief by 31 December 2020 but may submit an Application for an Assessor’s Determination up to 28 February 2021.
  • Options to purchase: Parties must serve a Notification for Relief by 31 December 2020 but may submit an Application for an Assessor’s Determination up to 28 February 2021.
  • Construction contracts or supply contracts, or any performance bond granted thereto: Parties must serve a Notification for Relief by 31 March 2021 but may submit an Application for an Assessor’s Determination up to 31 May 2021.

Changes to repayment scheme for rental arrears under rental relief framework

The repayment scheme for rental arrears under the rental relief framework references the end date of the relief period for leases and licences of non-residential property under Part 2 of the Act. With the relief period extended to 19 November 2020, eligible tenant-occupiers who qualify for additional rental relief under the rental relief framework (“Additional Rental Relief”) and wish to take up this scheme will now have up till 19 November 2020 to serve a written notice on their landlord, as well as any guarantor/surety for its obligations in the contract. Consequently, the date the first instalment payment must be made by has been deferred by one month till 1 December 2020. The period of rental arrears covered under the repayment scheme will also be extended to cover an additional month, up till 19 November 2020. The revised terms of the repayment scheme are as follows: 

Eligibility for repayment scheme

SME/Non-Profit Organisation tenant-occupier who qualifies for Additional Rental Relief

Period of rental arrears

1 February 2020 to 19 November 2020

Maximum accumulated arrears

  • Qualifying commercial properties: 5 months’ rent
  • Other non-residential properties (e.g. industrial/ office properties): 4 months’ rent

“Rent” refers to contractual rent, excluding any maintenance fees and charges for provision of services such as cleaning and security.

Period of repayment

Over remainder of lease, up to maximum of 9 months

Instalment amount

Equal monthly instalments over the period of repayment

Applicable interest rate

Capped at 3% per annum

First instalment payment to be made by

1 December 2020

Application procedure

Eligible tenant-occupier must serve written notice on landlord, as well as any guarantor/surety for its obligations in contract, before 19 November 2020.

(Source: MinLaw website www.mlaw.gov.sg)

It should be noted that these changes will not apply to parties that have already served a written notice on their landlord and any guarantor/surety of their intent to take up the scheme, or parties that have started their repayments under the scheme.

3. No extension of relief period for measures relating to bankruptcy and insolvency

With the expiration of the relief period under Part 3 of the Act on 19 October 2020, the monetary thresholds and time limits under the Insolvency, Restructuring and Dissolution Act 2018 will apply for bankruptcy and insolvency applications, as well as statutory demands served.

MinLaw encourages individuals who potentially face bankruptcy proceedings to seek assistance from Credit Counselling Singapore and/or find out more about bankruptcy through the official website of the Insolvency Office. MinLaw is also working on a Simplified Insolvency Programme to assist micro and small companies that need to restructure or wind down their businesses in a simpler, faster, and lower cost manner. To complement this, a new scheme will be launched by Credit Counselling Singapore and supporting partners in the financial industry to help sole proprietors and partnerships in financial distress to restructure their business debts.

Reference materials

The following materials are available from the MinLaw website www.mlaw.gov.sg and Singapore Statutes Online website sso.agc.gov.sg:

Further information

Allen & Gledhill has a Covid-19 Resource Centre on our website www.allenandgledhill.com that contains knowhow and materials on legal and regulatory aspects of the Covid-19 crisis.

In addition, we have a cross-disciplinary Covid-19 Legal Task Force consisting of Partners across various practice areas to provide rapid assistance. Should you have any queries, please do not hesitate to get in touch with us at covid19taskforce@allenandgledhill.com.

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