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Responding to COVID-19: Temporary Relief in Singapore for Inability to Perform Contractual Obligations

April 02, 2020

The Ministry of Law of Singapore announced the introduction of a new bill on 1 April aimed at protecting individuals and businesses that are unable to fulfil their contractual obligations because of the coronavirus (COVID-19) pandemic.

The public health measures imposed by governments around the world in response to the pandemic, including travel bans and restrictions, city lockdowns, and the quarantine of individuals, have resulted in business and supply chain disruptions and manpower shortages – undermining the ability of individuals and businesses to fulfil their contractual obligations.

COVID-19 (Temporary Measures) Bill

The COVID-19 pandemic has resulted in individuals and businesses defaulting on their contractual obligations. Contracts relating to commercial undertakings, such as construction projects and commercial and industrial tenancies, as well as contracts for individual consumer transactions, such as event and travel-related bookings, have been severely impacted. Parties who are in default of their obligations under their contracts may be liable for damages or forfeiture of deposits and assets, and may also face potential litigation or insolvency.

The new COVID-19 (Temporary Measures) Bill is aimed at providing temporary and targeted protection for individuals and businesses who are unable to fulfil certain contractual obligations due to the COVID-19 pandemic.

The new legislation will have retroactive application and will cover relevant contractual obligations that are to be performed on or after 1 February 2020, for contracts that were entered into or renewed before 25 March 2020. It will be in place for six months from the commencement of the Act and may subsequently be extended for another six months thereafter.

Temporary Relief from Legal Action

The new bill will prohibit a contracting party from taking the following legal actions against a nonperforming party:

  • 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
  • Termination of leases of nonresidential premises

The temporary relief measures will apply to the following contracts:

  • Leases or licences for nonresidential immovable property (e.g., factory leases)
  • Construction contracts or supply contracts (e.g., contract for supply of materials)
  • Contracts for the provision of goods and services for events (e.g., venue or catering contracts for weddings or business meetings)
  • Certain contracts for goods or services for visitors to Singapore, domestic tourists or outbound tourists, or promotion of tourism (e.g., cruise and hotel bookings)
  • Certain loan facilities granted by a bank or a finance company to Small and Medium Enterprises (i.e., businesses with turnover of not more than S$100 million in the latest financial year)

There will also be additional relief in respect of the forfeiture of deposits for events and tourism-related contracts. For example, a provider cannot forfeit the deposit for an event or tourism-related contract if there is a postponement of such event or contract which occurs as a result of COVID-19 restrictions, unless it obtains a determination from an assessor that it would be just and equitable to forfeit either the whole deposit or a part of it.

In the case of construction and supply contracts, a contractor will be relieved from liability for nonperformance if this was caused, to a material extent, by COVID-19.

Measures Relating to Bankruptcy and Insolvency

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

  • For individuals, the monetary threshold for bankruptcy will be increased from S$15,000 to S$60,000.
  • For companies and partnerships, the threshold for insolvency will be increased from $10,000 to S$100,000.
  • The statutory period to respond to demands from creditors will also be lengthened.
  • Directors will be temporarily relieved from their obligations to prevent their companies from trading while insolvent if the debts are incurred in the company’s ordinary course of business. However, directors remain criminally liable if the debts are incurred fraudulently.

Conclusion

The new bill provides breathing space for individuals and businesses who are unable to fulfil their contractual obligations as a result of the ongoing COVID-19 pandemic. The measures under the new bill provide temporary relief for individuals and businesses who may otherwise suffer monetary losses or damages or face potential litigation or insolvency. Individuals and businesses should however be mindful that their contractual obligations are only suspended and not waived. Their contractual obligations will continue to accrue and will need to be satisfied after the temporary relief period ends.

The process of passing the new legislation will be expedited through a Certificate of Urgency signed by the president, which will allow all three readings of the bill to be taken in one Parliament sitting, and is expected to be passed in Parliament next week. The Ministry of Law of Singapore has stated that further details will be released in due course.

Coronavirus COVID-19 Task Force

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers, who are directors of Morgan Lewis Stamford LLC, a Singapore law corporation affiliated ‎with Morgan, Lewis & Bockius LLP:

Singapore
Wai Ming Yap
Gina Ng