The COVID-19 pandemic that has been sweeping the world poses not only a threat to life but has been wreaking havoc on the economy as governments are compelled to impose lockdowns in order to curb the spread of the deadly disease.
The Singapore Government has recognised the impact that the virus has had on particular areas of industry and acted quickly to pass the COVID-19 (Temporary Measures) Bill (the “COVID-19 Bill”) into law in early April 2020.
Temporary relief for the inability to perform contractual obligations
The COVID-19 Bill will offer temporary protection and relief from legal action in relation to the following types of contracts, for a period of 6 months:
- Secured loans against commercial or industrial property
- Secured loan facilities against plant, machinery or fixed assets in Singapore
- Performance bonds in relation to construction or supply contracts
- Hire-purchase agreements for plants, machinery or vehicles used for business purposes
- Construction contracts (including the supply of construction materials)
- Events or tourism-related contracts
- Lease or license of non-residential
The protection accorded does not absolve or remove contractual obligations but only changes it by suspending / placing a moratorium on those obligations for an initial period of 6 months from 20 April 2020 to 19 October 2020. This is to allow time for contracting parties to negotiate and work out an acceptable solution with each other without the worry of litigations/legal proceedings or the enforcement of any security. There are additional relief measures for certain types of scheduled contracts, for example, one such as the inability to forfeit any deposit (or part thereof) for event/tourism-related contract.
The protection applies to contractual obligations that are to be performed on or after 1 February 2020. The party relying on the relief has to show that their inability to perform is to a material extent caused by a COVID-19 event and that they have served a notification for relief in accordance with the requirements of the COVID-19 Bill.
The Notification of relief is filed by individuals or corporate bodies and must contain certain prescribed information. It is also recommended for it to be supported by documents showing how the contract has been affected materially by COVID-19.
If a party contravenes the relief provided without reasonable excuse, they will be guilty of a criminal/prosecutable offence and their action such as any enforcement of any security or termination of a lease of immovable property would be void.
Temporary relief for financially distressed individuals and businesses
The COVID-19 Bill also modifies the statutory requirements to commence bankruptcy or insolvency proceedings in the next 6 months up to and including 19 October 2020.
It increases the prescribed amount for bankruptcy from $15,000.00 to $60,000.00 and for corporate insolvency from $10,000.00 to $100,000.00. It also increases the threshold of the Debt Repayment Scheme from $100,000.00 – $250,000.00.
Further, the COVID-19 Bill extends the statutory period to respond to demands from creditors from 21 days to six months and allows for bankrupts or officers of companies to continue trading while insolvent subjected to certain conditions.
The amendments / modifications to the Bankruptcy Act and the Insolvency, Restructuring, and Dissolutions Act, Companies Act, Limited Liability Partnerships Act, and Business Trusts Act allows for individuals and companies to continue in their businesses even during this trying times.
Employees and Employment contracts
The COVID-19 Bill is however silent on the employment contracts between companies and their employees. A common query is whether a company can “ask” its employees to take a pay cut during the COVID-19 pandemic. Although COVID-19 has certainly dominated the media and international consciousness, in the absence of any similar legislation being passed, generally each party’s contractual obligations remain the same, meaning to say that an employer is obliged to make payment in full of the contractually stipulated salary, and the employee is obliged to still perform his or her duties.
Therefore while an employer may offer to renegotiate an employee’s salary for, perhaps the next 3 months, the employer may not force the employee to accept a lower salary. On the other hand, the option still remains for the employer to exercise their contractual right to terminate an employment contract in accordance with the provisions of the employment contract.
In addition, the Ministry of Manpower of Singapore from time to time will also issue guidelines and notices on whether an employer is entitled to cancel a work or employment pass – it is important for employers to keep updated on these developments.