Small firms hit by pandemic may be allowed to renegotiate deals

The Re-Align Framework will cover businesses under a specified annual revenue cap that have experienced a significant fall in revenue due to Covid-19.PHOTO: ST FILE

Updated from : The Straits Times3 Nov 2020

With the business landscape completely altered by the Covid-19 pandemic, badly hit smaller players are being offered a chance to terminate certain unviable contracts as painlessly as possible.

These small and micro enterprises will be able to renegotiate certain types of commercial contracts with their business partners, in line with the current economic conditions, under a proposed law introduced in Parliament yesterday.

If an agreement cannot be reached, the proposed framework will allow for the contract to be terminated without any penalties. However, the businesses will still be liable for any outstanding debts and obligations.

The sanctity of contracts remains an important feature of Singapore’s attractiveness as an international commercial centre, and a fundamental pillar of legal policy, said the Ministry of Law (MinLaw) in a statement yesterday.

“The Government therefore does not intervene in contracts lightly. When it is necessary to do so, under exceptional circumstances, and for the greater public good, this will be done in a targeted, conservative manner,” it added.

The wide-ranging impact that the pandemic has had on the business environment prompted the latest intervention. Many food and retail businesses were contracting. A significant proportion of nightlife operators feared they would have to shut down.

“The fundamental assumptions upon which businesses entered into their contracts may have changed significantly and no longer be valid in a new Covid-19 normal,” the ministry said.

This prompted the tabling of the framework, which was part of the latest set of amendments to the Covid-19 (Temporary Measures) Act, on an urgent basis, said Second Minister for Law Edwin Tong during a media briefing yesterday. It will be debated today.

The proposed laws will allow small businesses to adapt for the long term, or exit.

MinLaw said the Bill overcomes the difficulties small businesses face in renegotiating their options, as they may be otherwise deterred by the prospect of sizeable penalties for terminating contracts. The alternative is to accumulate more losses.

“Such a situation would be to no one’s benefit and would place a drag on Singapore’s recovery,” it said.

Only commercial contracts, including those with the Government, would be covered by the framework, said Mr Tong.

The businesses involved must be small – below a specified annual revenue – and should have been badly hit by Covid-19. The contracts should have been entered into before March 25, before the impact of Covid-19 was felt.

“We’ll find a way to scope it such that this will cover the majority of small and micro business in Singapore,” said Mr Tong, who is also Minister for Culture, Community and Youth.

Singapore is home to 207,000 micro companies with annual revenue of less than $1 million, and 44,000 small firms with annual revenues below $10 million.

The contracts that the framework will cover include commercial property leases, the sale and purchase of goods and services, and rental or hire-purchase deals for commercial equipment and vehicles, among other things.

However, the framework does not cover consumer, employment and insurance contracts.

Mr Tong hopes that businesses will be able to reach agreements on their own, without having to turn to ministry-appointed assessors to settle their disputes.

“What we’d like to do is to have the parties in the market look at the framework and decide for themselves whether or not it’s possible, even without invoking the assessors…That will be the ideal.”