The COVID-19 (Temporary Measures) Act became law on 7 April 2020. Bill in Par...


New Law Provides Temporary Relief for Inability to Perform Contracts Due to COVID-19

April 8, 2020

The COVID-19 (Temporary Measures) Act 2020 (the Act) became law in Singapore on 7 April 2020.  The Act offers temporary relief to businesses and individuals who are unable to perform their contracts because of the COVID-19 pandemic.  The Act also provides temporary measures for certain matters related to bankruptcy, in-person business meetings, court proceedings, property tax and movement of individuals.

Duration of the Measures

Most parts of the Act will be in force for a period of one year.  However, the Act does not specify the period during which the temporary measures will be in effect.  The Minister of Law may specify an initial period of 6 months, but may extend or shorten it.

Contracts Covered by the Act

The Act covers certain contracts that were entered into or renewed before 25 March 2020, or that renewed automatically after that date, including:

  • loan facilities granted to SMEs by banks or finance companies and secured in whole or in party by immovable property or certain movable property used for business in Singapore;
  • hire-purchase agreements for commercial vehicles and movable property used for business;
  • tourism-related contracts;
  • event contracts;
  • construction or supply contracts and related performance bonds; and
  • leases or licences for non-residential immovable property.

The Act provides detailed definitions for most of those categories of contracts.

Temporary Relief

For covered contracts, the Act prohibits a contracting party from taking legal actions against another party who is unable to perform an obligation arising on or after 1 February 2020 due to COVID-19, including:

  • commencement or continuation of court or arbitration proceedings against the other party or their guarantor or surety;
  • enforcement of security over movable property that is used for business or trade or any immovable property; and
  • a wide variety of actions to collect or enforce debt obligations, including insolvency and bankruptcy proceedings;

until after the temporary relief period has ended or an assessor has determined that the Act does not apply to that obligation, as discussed below.  Limitations on actions in law or in contracts will be correspondingly extended.  Special additional provisions apply to construction and supply contracts and to event and tourism-related contracts, including with respect to the forfeiture of deposits under the latter contracts.

A party adversely affected by COVID-19 must notify the other party or parties and any guarantors or sureties to qualify for relief under the Act.  The Act does not provide relief to parties unable to perform contracts for reasons other than COVID-19.

Body of Assessors

As a safeguard against unfair outcomes, the Ministry of Law will appoint assessors to resolve disputes related to claims for temporary relief regarding covered contracts and deposit forfeitures.  The assessors will be granted broad powers to decide whether any inability to perform contractual obligations was due to COVID-19 and to grant relief that is just and equitable in the circumstances.  As the aim is to keep the process affordable, fast and simple, parties may not be represented by a lawyer at proceedings before an assessor.  No costs orders will be given and all assessors’ decisions will be final and not appealable.

Measures Relating to Bankruptcy and Insolvency

The Act also introduces temporary relief for individuals and businesses in financial distress by increasing:

  • the monetary threshold for bankruptcy from S$15,000 to S$60,000;
  • a variety of other monetary thresholds under the bankruptcy and insolvency laws from S$50,000 to S$125,000 or from S$100,000 to S$250,000;
  • the monetary threshold for deeming a company unable to pay its debts from S$10,000 to S$100,000 (for purposes of winding the company up under the Companies Act); and
  • the statutory period to respond to demands from creditors.

In addition, directors 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.  However, the usual criminal liability remains if the debts were incurred fraudulently.

Measures Related to Individuals

Control orders adopted under the Act restrict the movement of people from their residences, prohibit social gatherings, mandate physical distancing when outside residences and restrict the use of sports and recreation facilities.  Persons violating a control order are subject to fines of up to S$10,000 or imprisonment for up to 6 months, or both, for a first offence and to double those penalties for further offences.  The control orders expire on 5 May 2020.

Other Measures

The Act also authorises the Minister of Law to prescribe alternative arrangements, such as video conferencing, for conducting meetings that are required by law or legal instrument to be held in person.

Courts may order accused persons and witnesses to appear and to give evidence by live video technology if it is in the interests of justice to do so.

Under a separate act, owners of commercial properties will be granted relief from property tax and are encouraged to pass the benefit of that relief to their tenants.  Under the Act, an owner’s failure to pass the benefit of that property tax relief to tenants without an excuse will be an offence.

Key Takeaway

During current uncertain times, the Act provides temporary protection that will be a welcome addition for individuals and businesses unable to perform contracts or in financial distress due to COVID-19.  However, it remains to be seen how assessors will construe what constitutes a situation “caused by COVID-19” or what is “just and equitable”.  It is important to emphasise that the relief afforded by the Act is temporary.  The Act does not excuse contract breaches (except in limited cases related to deposit forfeitures); it only suspends certain performance obligations and enforcement actions during the temporary relief period.

For More Information

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Disclaimer: This article is for general information only and does not constitute legal advice.


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