Our Managing Partner, Baldev Bhinder has been appointed by the Ministry of Law as an Assessor under the COVID (Temporary Measures) Act 2020. The Act came into force in April 2020 and seeks to suspend recovery, enforcement action of defaults connected with COVID-19. The Act covers various aspects affecting both procedural and substantive rights when enforcing specific contracts.
(1) Temporary Relief for Scheduled Contracts
The Act provides temporary relief in the form of a moratorium against enforcement of contracts and related security. The Act is intended to span a period of 6 months in the first instance (which may be extended).
Application: It provides for temporary relief for 5 specific types of contracts covering; loans to SMEs, construction & performance bonds, tourism & events related, landlord-tenancy issues and hire-purchase agreements. This category may be extended by the Minister.
Time Period: The Act covers obligations that have accrued from 1 Feb 2020 and does not extend to contracts entered into post 25 March 2020.
Threshold: The Act applies to obligations under the specific types of contracts within the specified time period that have been materially affected by the COVID-19 virus.
Trigger: To apply for the protection of the Act, a party needs to fulfil the criteria above and notify its counterparty that it’s obligations are affected by COVID-19. If there is a dispute as to whether a party is entitled to protection under the Act, the matter is referred to an Assessor whose decision is final and non-appealable.
Effect: If the conditions are satisfied, then enforcement action by way of court action, insolvency or domestic arbitration alongside enforcement procedures in Singapore cannot be brought for the period of the Act. The Act does not extinguish or amend substantive rights.
(2) Construction Contracts & Performance Bonds
For construction contracts, the Act affects substantive rights over and above the temporary relief provisions in Point 1. In particular, apart from the restrictions on calling on performance bonds, the Act introduces a substantive defence to delay in construction contracts impacted by COVID-19. Extraordinarily, this means that damages or liquidated damages for obligations affected by COVID-19 under the Act, are thereby extinguished for the period of the Act.
(3) Changes to Timelines & Monetary Thresholds for Liquidation/ Bankruptcy
Statutory demands are typically issued as a precursor to winding-up or bankruptcy proceedings for debts. Statutory demands provide for a statutory period of 21 days for a debt to be repaid or compromised and in the event the debt remains outstanding, a statutory demand then acts as evidence of a presumption of an inability to pay debts when due – the threshold required for commencing liquidation or bankruptcy proceedings.
The Act changes the minimum debt size to S$60,000 and S$100,000 for starting insolvency depending on whether the debtor is an individual or corporate. More importantly, the time period for a statutory demand has been extended from 21 days to 180 days.
