LEGAL UPDATES: COVID-19 (TEMPORARY MEASURES) ACT 2020 – KEY CONSIDERATIONS FOR COMMERCIAL TRANSACTIONS
Misa MITSUGI, Juen Yi FAN
Businesses and operations around the world are currently at an unprecedented standstill with the outbreak of the COVID-19 pandemic, and Singapore has not been spared. In an effort to provide some temporary reprieve for businesses in Singapore, the COVID-19 (Temporary Measures) Act 2020 (the “Act”) was passed by the Singapore Government and came into force on 20 April 2020.
Overview of the Act
The temporary relief measures provided by the Act shall be available for a period of six months from the commencement of the Act (“Prescribed Period”), and may be subsequently extended for up to a year. The Act provides arrangements for temporary relief to businesses and individuals who are unable to fulfil their contractual obligations and are in financially distressed as a result of COVID-19.
Temporary Relief for inability to perform contracts
Part 2 of the Act provides temporary relief from legal action for businesses and individuals who are unable to fulfil contractual obligations that are to be performed on or after 1 February 2020 and contracts that were entered into before 25 March 2020 due materially to COVID-19.
Provisions for relief under the Act apply to the following five categories of contracts:
· loans by banks and finance companies to Singapore small and medium enterprises;
· construction contracts or supply contracts (e.g. contracts for the supply of materials), or any performance bond granted thereto;
· event and tourism related contracts (e.g. cruises, hotel accommodation booking, venue or catering, etc.);
· hire-purchase agreements or conditional sales agreements for plant or machinery used for commercial purposes or commercial vehicles; and
· leases or licenses of non-residential immovable property (e.g. lease for factory premises, office, or retail spaces and convention centres).
Parties who are unable to perform contractual obligations because of COVID-19 are encouraged to negotiate with the other party to resolve the matter. A moratorium on legal action may be imposed under the Act to facilitate such negotiations and protect parties from legal proceedings. Parties who wish to obtain such temporary relief under the Act are required to serve a Notification for Relief on the other party or parties to the contract setting out:
1. the obligation that is or was expected to be performed,
2. that the inability to perform the obligation was materially caused by a COVID-19 event, and
3. proposes an alternative solution.
The other party or parties to the contract on whom the Notification for Relief is served upon are prohibited from taking certain actions to enforce the contractual obligation during the period of relief, which includes the following:
· Starting or continuing court proceedings or insolvency proceedings;
· Enforcing security over commercial or industrial immovable property;
· Enforcing security over plant, machinery, or fixed assets that are used for manufacturing, production, or other business purposes;
· Terminating a lease or licence of commercial or industrial property on the basis of non-payment of rent; and
· Repossessing any goods under a hire-purchase agreement.
Other relief measures offered by the Act in relation to contracts include relief in respect of forfeiture of deposits for events and tourism-related contracts and providing contractors relief from liability for non-performance of construction and supply contracts.
If parties are unable to reach a solution on their own after a Notification of Relief is served, either party can make an application for an Assessor’s determination. The Assessor, appointed by the Minister of Law, shall decide whether the case is one to which relief under the Act applies, and will seek to achieve an outcome that is just and equitable in the circumstances. All determinations by an Assessor is binding on the parties and may not be appealed. Parties will not be permitted to be represented by lawyers in proceedings. This application is currently free and will not be awarded against any party.
Temporary relief for financially distressed businesses, firms and individuals
Part 3 of the Act provides temporary relief for financially distressed businesses, firms and individuals by:
· increasing the monetary threshold for bankruptcy for individuals from S$15,000 to S$60,000;
· increasing the monetary threshold for corporate insolvency from S$10,000 to S$100,000;
· lengthening the statutory period to respond to creditors’ demands from 21 days to 6 months; and
· relieving directors from their obligations to prevent companies from trading while insolvent if the debts are incurred during the Prescribed Period and in the ordinary course of the Company’s business.
For more information, please visit our website www.flintbattery.com or write to us at firstname.lastname@example.org.
· COVID-19 (Temporary Measures) Act 2020
· Annex: Categories of contracts covered and relief available
· Press Release: COVID-19 (Temporary Measures) Act provisions relating to temporary reliefs to commence on 20 April 2020
· COVID-19 (Temporary Measures) (Prescribed Period) Order 2020
· COVID-19 (Temporary Measures) (Temporary Relief for Inability to Perform Contracts) Regulations 2020