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Businesses could soon get temporary relief from legal penalties for failing to meet contractual obligations

Ng Qi Siang
Ng Qi Siang4/1/2020 06:15 PM GMT+08  • 3 min read
Businesses could soon get temporary relief from legal penalties for failing to meet contractual obligations
It would be unfair to hold parties strictly liable for being unable to honour their contractual commitments under such extraordinarily difficult circumstances, MinLaw says.
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SINGAPORE (Apr 1): Businesses unable to fulfil their contractual obligations as a result of Covid-19 may soon enjoy temporary relief from the legal penalties.

The Ministry of Law has introduced the Covid-19 (Temporary Measures) Bill, which will be debated in parliament on April 6.

Citing significant disruption to contracts relating to commercial undertakings, commercial and industrial tenancies, as well as individual consumer transactions, MinLaw says the bill aims to protect businesses unable to honour their commitments due to unforeseen circumstances such as supply chain disruptions and manpower shortages.

The Ministry noted that it would be unfair to hold parties strictly liable for being unable to honour their commitments under such extraordinarily difficult circumstances.

“There are supply chain disruptions and manpower shortages, among other consequences. In many cases, this has undermined the ability of individuals and businesses to fulfil contractual obligations,” MinLaw says in a statement on Wednesday.

Amid the economic uncertainty, the Ministry says businesses that would otherwise be stable now run the risk of being sued and facing lengthy litigation or possible insolvency.

The bill is designed to work in tandem with provisions included in the government’s Resilience Budget announced last week.

Businesses will enjoy temporary and targeted relief from costly damages or forfeiture of deposits, while monetary thresholds and time limits for bankruptcy and insolvency will be raised.

The bill covers leases and licenses for non-residential immovable property, construction or supply contracts, contracts for the provision of goods and services for certain tourism-related activities, as well as certain SME loans.

It will apply to contracts performed on or after Feb 1, and for contracts signed or renewed before March 25.

If passed, the bill will prohibit contracting parties from pursuing court and insolvency proceedings against a non-performing party, enforce security over movable and immovable property used for business or trade purposes, call on a performance bond, or terminate leases of non-residential premises.

The bill also prohibits forfeiture of deposit unless an appointed assessor determines that it would be just and equitable to do so, for either all or part of the deposit.

These assessors are to be drawn from a pool appointed by MinLaw to decide whether contractual non-performance stems from Covid-19 and to grant appropriate relief.

The monetary threshold for businesses facing insolvency will be temporarily increased from $10,000 to $100,000.

The statutory period to respond to creditor’s demands will be lengthened, MinLaw says. However, no details have yet been provided regarding a specific time frame.

If debts are incurred through the ordinary course of business, company directors have been temporarily relieved from their obligation to prevent companies from trading while insolvent. They remain, however, criminally liable for debt incurred fraudulently.

Upon passage of the bill, these measures will come into force for six months after the commencement of the act. They may be extended for up to a year from date of commencement.

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