Global M&A trends and risks
Powerful new forces shaping in the M&A landscape
You can withdraw your consent by clicking “manage cookies” and following the instructions shown.
Singapore | Publication | April 2020
The Singapore government has introduced the COVID-19 (Temporary Measures) Act 2020 (the COVID-19 Act) with the objective of:
These temporary measures (the Temporary Measures) are initially intended to last for six months (the prescribed period) and may be extended for up to 12 months. The prescribed period will commence on a date to be set out in the Government Gazette.
The Temporary Measures applicable to certain contracts prohibit certain actions to be taken against counterparties or their guarantors if the inability of the counterparty to perform such contracts is to a material extent caused by COVID-19.
Only the following types of contracts set out in the schedule to the COVID-19 Act (the Scheduled Contracts) may be subject to relief as part of the Temporary Measures:
a) Leases or licenses of non-residential immovable property
b) Construction or supply contracts
c) Performance bonds or equivalent granted pursuant to a construction or supply contract
d) Contracts relating to the provision of goods and services for events
e) Contracts relating to the provision of goods and services relating to tourism
f) Certain secured loan facilities provided by financial institutions to qualifying small and medium enterprises (being businesses in Singapore where not less than 30 per cent of its shares or other ownership interest are held by citizens and/or permanent residents of Singapore and the turnover of the group to which it belongs is not more than $100 million in the latest financial year) (SMEs)
g) Certain hire purchase agreements relating to plants, machineries or fixed assets located in Singapore which are used for manufacturing, production or other business purposes, or commercial vehicles
The COVID-19 Act also provides for Scheduled Contracts to extend to individual contracts where the Government is a counterparty. This would include contracts entered into with URA, JTC and HDB as counterparties.
Scheduled Contracts (as currently defined) in relation to secured loan facilities will only include contracts with a bank licensed under the Banking Act or a finance company licensed under the Finance Companies Act as a counterparty. Loan facilities extended by other lenders not licensed under the Banking Act or Finance Companies Act may not be affected by the COVID-19 Act.
Any Scheduled Contract entered into before March 25, 2020 with contractual obligations to be performed on or after February 1, 2020 will be subject to the Temporary Measures. A Scheduled Contract entered into before March 25, 2020 but which automatically renews in accordance with its terms would be considered a Scheduled Contract entered into before March 25, 2020 notwithstanding it is automatically renewed after March 25, 2020.
However some contracts may be renewed only after a determination is made notwithstanding that determination may, in the ordinary course of business, be merely administrative. Would those contracts then be considered to be entered into after March 25, 2020 and hence not a contract having the benefit of the Temporary Measures? Rollover of working capital facilities which tend to be rolled over annually come to mind.
Non-contractual obligations are not included in the COVID-19 Act and accordingly will not be subject to the Temporary Measures. However it is possible that non-contractual claims may arise from the breach of contractual obligations.
The following actions are prohibited against the counterparties to the Scheduled Contracts (and in the case of paragraphs (a) to (d), their guarantor):
a) Commencement or continuation of any court or arbitration proceedings
b) Court and insolvency proceedings (including applications for bankruptcy, winding up, judicial management and schemes of arrangement) and enforcement of judgments and domestic arbitrations
c) Commencement or levying of execution, distress or other legal process
d) Appointment of a receiver or manager
e) Enforcement of security over immovable property and movable property used for the purpose of a trade, business or profession
f) Repossession of any goods used for the purpose of a trade, business or profession under any chattels leasing agreement, hire-purchase agreement or retention of title agreement
g) Termination of leases or licences of immovable property in connection with non-payment of rent or other moneys
h) Exercise of a right of re-entry or forfeiture under a lease or licence of immovable property or any other right with a similar outcome
It is significant to note that a statutory demand is technically not a court proceeding and should be permitted. This is supported by the fact that the COVID-19 Act has not prohibited the issuance of statutory demands during the prescribed period, but has instead increased the monetary threshold for the issuance and the length of the period within which a debtor should pay.
However the issuer should expect practical issues in relation to effecting personal service of the statutory demand in the current situation. The issuer will also be prohibited from carrying out any of the above actions following such statutory demand during the prescribed period.
The Monetary Authority of Singapore (MAS) has also clarified that a bank’s contractual rights to charge interest including default interest would not be affected during the prescribed period. However, any prohibited action cannot be taken against the contracting party till after the end of the prescribed period. This means that at the end of the prescribed period, unless separate arrangements have been made, the contracting party will be liable for all accrued liabilities.
Assuming the contract is a Scheduled Contract and the timing of performance of such contract falls within the abovementioned criteria, the party claiming that its inability to perform its contractual obligations is to a material extent caused by a COVID-19 event must issue a notification for relief on the counterparty(ies) to the contract and any guarantor of its obligations under the Scheduled Contract. A notification for relief may be issued even before a demand for performance is made by the counterparty.
Upon receipt of a notification for relief, the recipient of such notification cannot take any prohibited action mentioned above. Any prohibited action that has already commenced will also be stayed. It is not specifically mentioned that the proceedings must have commenced after February 1, 2020 and arguably it would include proceedings commenced before that. In which case how far back does one go?
If any counterparty to a Scheduled Contract disputes that the non-performance of the Scheduled Contract was to a material extent caused by a COVID-19 event, such disagreement can be referred to an “assessor” appointed by the Minister for Law. Such assessor has powers to grant relief to achieve a “joint and equitable” outcome. There will be no appeals following a determination by an assessor.
In summary, for a contractual breach to enjoy the benefits of the Temporary Measures:
If all of the above are true, a notice of relief may be served on the counterparty to that contract.
It should be noted that the Temporary Measures are just that – temporary, or six months (for now). At the end of the prescribed period, those contractual obligations will continue unabated. Contracting parties should be prepared to start performing those contractual obligations at the end of the prescribed period unless a separate agreement has been made for an alternative arrangement before the end of the prescribed period.
The monetary threshold to apply for the bankruptcy of an individual will be increased from S$15,000 to S$60,000.
The time period to satisfy or set aside a statutory demand is increased from 21 days to 6 months.
The monetary threshold for the Debt Repayment Scheme (a pre-bankruptcy scheme administered by the Official Assignee for the debtor to repay debts over a period of time not exceeding five years will be increased from S$100,000 to S$250,000.
The monetary threshold to petition for an insolvency of a business is increased from S$10,000 to S$100,000.
The time period to satisfy or set aside a statutory demand is increased from 21 days to 6 months.
As mentioned above, the MAS has clarified that other than the right to commence legal action for default on a loan covered under the COVID-19 Act, the contractual rights of banks are not affected by the Temporary Measures. Significantly, the banks’ contractual rights to charge fees and interest for non-payment or late payment of loan obligations is not affected by the COVID-19 Act.
MAS has thus recommended that SMEs take into account any late charges and higher interest, and the possibility that they may end up paying more in the future. In this regard, SMEs should engage their banks to explore options made available by the individual banks (if any) for example, deferment of principal repayment with a waiver of late charges.
Directors will temporarily be relieved from their obligations to prevent their companies from trading while insolvent if the debts are incurred in the company’s ordinary course of business, during the prescribed period and before the appointment of a judicial manager or liquidator of the company. However, they remain criminally liable if the debts are incurred fraudulently.
All social distancing measures will override any current legal requirements concerning meetings. If such alternative meeting arrangements are complied with since March 27, 2020, they will be deemed complied with for the purposes of the main legal requirements. In other words, they apply retrospectively.
It is possible that even after the end of the COVID-19 pandemic, such alternative arrangements may become a permanent platform for meetings heralding the “new normal” for corporate meetings.
Social distancing measures apply to court proceedings as well. Court proceedings may be conducted remotely including from witnesses and accused. However, unlike meetings, in order to ensure cases are conducted fairly, not all court proceedings will be conducted remotely. Currently, all matters scheduled for hearing in the Supreme Court from April 7, 2020 to May 4, 2020 will be adjourned unless the matter is assessed to be essential and urgent. Such matters include certain criminal matters, applications for urgent injunctions, applications for the arrest or release of a vessel, applications under the Building and Construction Security of Payment Act and requests for urgent hearings for matters assessed to be urgent. Any hearing conducted from April 7, 2020 to May 4, 2020 will be conducted through electronic means unless otherwise directed by Court.
The COVID-19 Act comes at an appropriate time when businesses in Singapore are struggling to make ends meet, from cash flow to keeping staff. A “Black Swan Event” requires a “Black Swan Act”. Hopefully the COVID-19 Act goes far enough to support businesses and jobs in these uncertain times.
Nina Varumo is a freelance portrait and documentary photographer based in Stockholm. A recent project of hers Kvinnor till sjöss (‘Women at sea’) is on ongoing photo series highlighting the working life of female seafarers in order to change the stereotypical image of what and who is a seafarer.
Companies have been publicly reporting on their financial performance for over a hundred years. However, they are increasingly having to make public non-financial disclosures relating to sustainability and environmental, social and governance (ESG) matters as a result of rules, laws and regulations issued by stock exchanges, governments and regulators worldwide.
© Norton Rose Fulbright LLP 2023