Temporary relief from financial distress situations under the COVID-19 (Temporary Measures) Act 2020
Relief from financial distress
Through the three budgets as announced by the Singapore Government, a total of S$9 billion will be disbursed to businesses and individuals in April 2020 to counter the impact that the COVID-19 pandemic has had on the business community in Singapore. Businesses and workers in Singapore will receive reliefs through various measures announced by the Singapore Government in the Solidarity Budget and Reliance Budget, through the enhanced Wage Credit Scheme, Foreign Workers Levy, and the Jobs Support Scheme. Despite these measures, many businesses continue to face difficulties with their loan and payment obligations as the COVID-19 pandemic continue to affect businesses and enterprises in unprecedented scale and speed.
On 7 April 2020, the COVID-19 (Temporary Measures) Act 2020 (“Act“) was passed by Parliament in an urgent effort to provide temporary relief to businesses and individuals impacted by the COVID-19 situation. The Act was expedited through a Certificate of Urgency signed by the President of Singapore, allowing for three readings of the COVID-19 (Temporary Measures) Bill to be taken in one Parliament sitting. In addition to freezing legal actions for breaches of certain types of contracts, the Act also revises thresholds for bankruptcy and insolvency applications. Through the Act, business and individuals in financial distress during the COVID-19 situation will have the opportunity to review their financial position, and take the necessary steps to alleviate the financial burdens on their cash flow situation.
The Act seeks to make certain modifications to the Bankruptcy Act, the Insolvency, Restructuring and Dissolution Act 2018, and the relevant provisions under the Companies Act.
Revision of framework for insolvency and winding up of businesses
Under the Act, the monetary threshold for insolvency for a business was increased to S$100,000 from S$10,000. The statutory period to respond to statutory demands from creditors has also been increased to six months from 21 days.
Officers of a company in a financial distress situation will be temporarily relieved from their statutory 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 juridical manager or liquidator. However, directors remain criminally liable if the debts are incurred fraudulently.
Revision of framework for bankruptcy of individuals
For individuals, the monetary debt threshold for personal bankruptcy has been raised to S$60,000 from S$15,000. The Act also seeks to make it easier for an individual to be suitable for a debt repayment scheme, and the suitability threshold for the aggregate amount of debts has been raised to S$250,000 from S$100,000. The statutory period to respond to demands from creditors before an individual is presumed to be unable to pay his debts has also been extended to a period of six months from 21 days.
Extension of timeline for antecedent transactions
In line with the notification for relief from contractual obligations as permitted under the Act, the period of limitation under the relevant laws in relation to clawback periods for antecedent transactions such as unfair preference transactions, transactions at an undervalue, extortionate transactions, floating charges for past value, shall be extended for the period starting from the date of the notification of relief, until the earliest of (i) the expiry of the prescribed period under the Act, (ii) the withdrawal of notification of relief by the party making the application; or (iii) upon the determination by an assessor that the application for relief does not apply.
Easing of requirements from Monetary Authority of Singapore
To further support customers, the Monetary Authority of Singapore had also on 7 April announced that certain regulatory requirements will be adjusted to allow financial institutions to redirect their resources to the handling of COVID-19 related matters and support their customers during this challenging period. Banks with sufficient capital are also encouraged to utilise their capital and liquidity buffers as necessary to support its lending activities, to help their customers tide through these difficult times. However, financial institutions and financing companies alike should continue to practice sound risk management, as they may be extending credit to businesses that may continue to remain in an insolvent position even after the temporary measures. They should also remain vigilant to heightened risks of fraudulent transactions and money laundering.
We hope the above has been helpful. If there is anything that you wish to discuss with us, please feel free to reach out.
Tan Choon Leng
Choon Leng is a highly regarded Corporate M&A and Private Wealth lawyer and leads JurisAsia's Corporate Practice.