The COVID-19 Pandemic has resulted in grave financial impact for various business sectors. In light of this, the Government is seeking to introduce a series of measures under the COVID-19 (Temporary Measures) Bill, which is scheduled to be introduced, debated and passed by Parliament on 7 April 2020. This note seeks to briefly explain the Bill's impact on companies exercising their contractual rights. It also answers some frequently asked questions concerning the Bill.
What the Bill is about
The COVID-19 (Temporary Measures) Bill (the "Bill"), and when enacted, the COVID-19 (Temporary Measures) Act (the "Act"), aims to provide temporary and targeted measures to alleviate the unexpected pressures that COVID-19 has caused to individuals and businesses. One of the key features of this Bill is that it provides temporary legal relief to parties who are unable to fulfil their contractual obligations and may otherwise have to pay damages, risk having their deposits or assets forfeited, or face litigation or possible insolvency.
What Contracts are covered under the Bill?
Businesses should be aware that the Bill only applies to contracts that satisfy the following conditions ("Relief Conditions"):
- The Contract must fall within the Schedule of the Bill. The Schedule includes, amongst others, leases for non-residential property, construction contracts, supply contracts, performance bonds, hire-purchase agreements, supply contracts, tourism-related contracts and event contracts.
- The Contract must be entered into before 25 March 2020.
- Under the Contract, the obligation to perform must be performed on or after 1 February 2020
- The non-performing party's inability to perform their contract must be "to a material extent" caused by a COVID-19 event. Such an event would include the pandemic itself and any government-related control measures (a "COVID-19 Event").
- The non-performing party must serve a notification for relief in accordance with section 9(1) of the Act on the other contracting parties, any guarantors or such other persons that the Act prescribes.
What is the relief that eligible Contracting Parties are entitled to?
If the non-performing party is entitled to relief, the Bill seeks to prohibit the other contracting party from taking any of the actions listed under section 5(3) of the Bill against the non-performing party ("Prohibited Actions").
Some of the more relevant Prohibited Actions include:
- Commencing legal proceedings and arbitration proceedings under the Arbitration Act (Cap. 10) against the non-performing party or the guarantor or surety of the obligation. Companies should be aware that the Act does not include any arbitration proceedings under the International Arbitration Act (Cap. 143A).
- Enforcing any security over any immovable property; or movable property used for trade or business purposes (e.g. plant or machinery).
- Levying any execution, distress or other legal process against any property of the non-performing party or its guarantor or surety, except with the court's leave and subject to such terms as the court imposes;
- Re-possession of any goods under any hire-purchase or retention of title agreement.
- Filing any insolvency-related applications in relation to the non-performing party or its guarantor or surety. This would include applications for bankruptcy, winding-up, receivership, schemes of arrangement, and judicial management applications under the Companies Act (Cap 50.).
- Termination of a lease or licence of immovable property where the non-performing party was unable to pay rent or other monies as a result of COVID-19.
- Enforcement against the non-performing party or its guarantor or surety of any judgments, arbitration awards under the Arbitration Act (Cap. 10), or any determinations under the Building and Construction Industry Security of Payment Act (Cap. 30B).
It is emphasized that the relief proposed under the Bill is only temporary. Contracting parties will be allowed to enforce their contractual obligations against the non-performing party after the following dates, whichever is earlier:
- The expiry of the prescribed period (which the Bill states as 6 months from the date of the commencement of the Act, though the Bill gives the government the right to extend or shorten this period). However, the total duration of temporary relief must not exceed 1 year;
- When the non-performing party withdraws its notification for relief; or
- If an assessor determines that the non-performing party is not entitled to relief under the Act.
It is also important to note that parties still have the contractual freedom for invoking their force majeure clauses (where applicable), which depending on the language of the clause, may allow the parties to suspend or even terminate their obligations.
To view the full article click here.
Originally published Shook Lin & Bok LLP, May 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.