Knowledge Highlights 8 April 2020

On 7 April 2020, the Covid-19 (Temporary Measures) Act 2020 (“Act”) was enacted to provide temporary relief to businesses and individuals who are unable to fulfil their contractual obligations because of Covid-19.

The new Act was expedited through a Certificate of Urgency signed by the President of Singapore, allowing all three readings of the Covid-19 (Temporary Measures) Bill to be taken in one Parliament sitting. In a statement published by the Ministry of Law, the Minister for Law and for Home Affairs K Shanmugam, stated that “[t]he Bill was put together very quickly, in a matter of days, as we saw the situation deteriorating. Different Ministries and Agencies came together. MOF, MTI, MND, MAS, AGC - it was a whole-of Government effort".

The Act, described by Minister Shanmugam as a “legal circuit breaker”, covers relevant contractual obligations that are to be performed on or after 1 February 2020, and contracts that were entered into or renewed before 25 March 2020. The measures will be in place for six months from the commencement of the Act, which may be subsequently extended for up to a year from the commencement of the Act.

The Act also revises thresholds for bankruptcy and corporate insolvency, provides for alternative arrangements for the conduct of meetings and court hearings, requires landlords to pass on Covid-19 property tax rebates in full to their tenants, and provides for Covid-19 control orders to be made by the Minister for Health.

 Relief from legal action

 The Act will provide temporary relief from legal action over the following types of contracts: 

  • Leases or licences for non-residential immovable property (e.g. lease for factory premises); 
  • Construction contracts or supply contracts (e.g. contract for the supply of materials);
  • Contracts for the provision of goods and services (e.g. venue, catering) for events (e.g. weddings, business meetings);
  • Certain contracts for goods or services for visitors to Singapore, domestic tourists or outbound tourists, or promotion of tourism (e.g. cruises, hotel accommodation bookings);
  • Certain loan facilities granted by a bank or a finance company to SMEs (businesses with turnover of not more than S$100 million in the latest financial year) where the loans are fully or partially secured against commercial or industrial immovable property, plant, machinery or other equipment used for business purposes in Singapore; and
  • Certain hire-purchase agreements (e.g. where the goods hired is a commercial vehicle).

 Prohibited legal actions include:

  • Court and insolvency proceedings;
  • Enforcement of security over immovable property as well as movable property that is used for the purposes of business or trade;
  • Call on a performance bond given pursuant to a construction contract; and
  • Termination of leases of non-residential premises.

Illustrations of these reliefs: 

  • Leases or licences for non-residential property: For example, if a restaurant cannot afford to pay rent for February and March 2020, the tenant can seek relief. If relief is given, it will be a criminal offence for the landlord to terminate the lease, repossess the premises, or start or continue court or insolvency proceedings against the restaurant; 
  • Construction and supply contracts: A contractor will be relieved from liability for liquidated damages or delays arising from non-performance if this was caused to a material extent by Covid-19; 
  • Events and tourism-related contracts: There will be additional relief in respect of forfeiture of deposits. For example, if a person who booked a venue for an event (e.g. for a wedding) postpones the event because of Covid-19 restrictions, the venue provider cannot forfeit the person’s deposit unless the provider obtains a determination from an assessor that it would be just and equitable to forfeit either the whole deposit or a part of it (e.g. if the person cancels the booking entirely);
  • Hire-purchase agreements: For example, a private-hire car driver who bought his car on hire-purchase loan in 2019. Due to fewer passengers leading to reduced income, he is unable to afford the monthly instalments for February and March 2020. If relief is given, the finance company cannot repossess the car or start or continue insolvency proceedings against the driver. Depending on the circumstances, the assessor may make further determinations (e.g. requiring the driver to pay one or more instalments). 

In the event of a dispute, assessors appointed by the Minister for Law will decide if the inability to perform contractual obligations was due to Covid-19 and will have the powers to grant relief that is just and equitable in the circumstances. The process will be affordable, fast, and simple. Parties will not be allowed to be represented by lawyers, and each party must bear their own costs. Assessors’ decisions will be final, binding, and not appealable. Any person who fails to comply with the assessor’s determination without reasonable excuse will be guilty of an offence and shall be liable on conviction to a fine not exceeding S$1,000.

To apply for relief, the party seeking relief must serve a notification for relief containing information on the parties to the contract, the guarantor or surety for their obligation in the contract, and such other person as may be prescribed. Generally, the relief will last until the earliest of the following: Expiry of the prescribed period, the withdrawal of the notification for relief by the party seeking relief, or when the assessor determines that the case in question is not one where relief applies.

Upon receiving the notification for relief, a party cannot take any prohibited action against the other party during the prescribed period. Proceedings relating to a prohibited action that have already commenced must be stayed. Non-compliance in relation to a prohibited action will be an offence, and the relevant party shall be liable on conviction to a fine not exceeding S$1,000.

Relief from bankruptcy and insolvency

The Act will introduce temporary relief for individuals and businesses in financial distress.

  • For individuals, the Act will increase the monetary threshold for bankruptcy from S$15,000 to S$60,000, lengthen the statutory period to respond to demands from creditors from 21 days to six months, and increase the monetary threshold for the Debt Repayment Scheme from S$100,000 to S$250,000. Additionally, a bankrupt will be temporarily relieved from his obligations to prevent his business’ trading while insolvent if the debt is incurred in the ordinary course of the bankrupt’s business, during the prescribed period, and before application for voluntary arrangement or bankruptcy. 
  • For businesses, the Act will increase the monetary threshold for insolvency from S$10,000 to S$100,000 (for companies/partnerships), and lengthen the statutory period to respond to demands from creditors from 21 days to six months. Officers of the company will be temporarily relieved from their obligations to prevent their companies trading while insolvent if the debts are incurred in the company’s ordinary course of business, during the prescribed period, and before the appointment of a judicial manager or liquidator of the entity. However, directors remain criminally liable if the debts are incurred fraudulently.

 Antecedent transactions

Any period of limitation prescribed by the law regarding the clawback periods for antecedent transactions such as unfair preference transactions, transactions at an undervalue, dispositions of property, insolvent trading, fraudulent trading, extortionate credit transactions, floating charges for past value, etc. will also be extended, starting from the date of the notification of relief, until the earliest of the following: expiry of the prescribed period, the withdrawal of the notification for relief by the party seeking relief, or when the assessor determines that the case in question is not one where the relief applies.

Alternative arrangements for meetings

 Where personal attendance at any meeting or class of meetings is provided for in any written law or legal instrument, the Act also provides that the relevant Minister may prescribe alternative arrangements for conducting such meetings. These provisions are found in Part 4 of the Act and are deemed to have come into operation on 27 March 2020. For background and further details, please see our previous article titled “Holding meetings amid Covid-19 outbreak: SGX Regco updates guidance, MinLaw and MOF propose legislative changes to provide legal certainty for businesses”.

Alternative conduct of court hearings

The Act provides measures to facilitate the conduct of court proceedings using remote communication technology approved by the Chief Justice during the specified period. These provisions are found in Part 5 of the Act and are deemed to have come into operation on 7 April 2020. For more details, please see:

For background and further details on this, please see our previous article titled “Singapore courts hear only essential and urgent matters from 7 April 2020 and SIAC operates via telecommuting”.

Remission of property tax

The Act will provide that an owner of property who benefits from a rebate on property tax has an obligation to pass the benefit on to a tenant of the property. If the owner, without reasonable excuse, fails to comply with these provisions, the owner shall be guilty of an offence and shall be liable on conviction to a fine not exceeding S$5,000. In the event of a dispute or non-compliance with these provisions, the Act also provides that the owner or tenant may apply for the dispute to be heard by a Valuation Review Panel, with a further possibility of appeal to the High Court. For more details, please see our article titled “Covid-19 (Temporary Measures) Act 2020 to impose duty on landlords to transfer benefit of 2020 property tax rebates to tenants”.

Enforcement of enhanced safe distancing measures

Finally, the Act provides for temporary control orders made by the Minister for Health for the purpose of preventing, protecting against, delaying or controlling the spread of Covid-19. A control order may require an individual to stay at a specified place and not to leave except for certain purposes, require the closure of premises such as workplaces, and impose restrictions such as relating to the manner of carrying on business or work or the gathering of individuals in any place. These provisions are found in Part 7 of the Act and have come into operation on 7 and 8 April 2020. More details on control orders can be found in the Covid-19 (Temporary Measures) (Control Order) Regulations 2020 which are in force for the period between 7 April 2020 and 4 May 2020 (both dates inclusive).

The Act provides that any person who, without reasonable excuse, contravenes a control order, commits an offence and shall be liable on conviction to a fine not exceeding S$10,000 and/or to imprisonment for a term not exceeding six months, with enhanced penalties for repeat offenders.

Further information

Allen & Gledhill has a Covid-19 Resource Centre on our website www.allenandgledhill.com that contains published knowhow 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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