“The framework will provide a quick and fair way for businesses to realign and move forward by allowing selected contracts to be renegotiated and to come to a mutual agreement. If they are unable to agree, the contract may be terminated. Businesses will remain liable for outstanding obligations but will not need to pay early termination penalties.”
Overview of Re-Align Framework
Process for renegotiation and termination of Scheduled Contracts
Other support measures
The COVID-19 pandemic has significantly impacted the viability of some businesses and changed the assumptions upon which businesses entered into contracts before COVID-19. While the Government has allowed the calibrated resumption of economic and social activities, safe distancing and travel restrictions will continue to impact many sectors.
Smaller and micro enterprises who have been significantly impacted by COVID-19 and need to review their business models and contractual obligations will soon benefit from the Re-Align Framework .
The framework will provide a quick and fair way for businesses to realign and move forward by allowing selected contracts to be renegotiated and to come to a mutual agreement. If they are unable to agree, the contract may be terminated. Businesses will remain liable for outstanding obligations but will not need to pay early termination penalties.
The broad principles are outlined below, more details will be released on application processes in due course.
Eligible businesses under the Re-Align framework will be identified via two key criteria :
(a) First, they will be subject to an annual revenue cap to be eligible. This criterion will cover the majority of enterprises in Singapore.
(b) Second, businesses must have experienced a significant fall in revenue across a comparable time frame pre-COVID19. This will identify businesses who have been severely impacted even after the resumption of economic and social activities.
We are in consultation with industry on these key criteria. We aim to find a threshold that helps smaller and micro enterprises and at the same time reaches out to a broad enough spectrum. Details, when finalised, will be set out later in the subsidiary legislation.
Download a copy of the infographic here.
The framework will only apply to a contract which meet the following conditions:
(a) Is governed by Singapore law;
(b) Was entered into before 25 March 2020;
(c) Has at least one party who has a place of business in Singapore; and
(d) Falls within the following five categories (“Scheduled Contracts”), which are likely to have long-term obligations that may need renegotiation or restructuring:”)
(i) Leases or licences for non-residential immovable property which have a term of 5 or less years;
(ii) Hire-purchase and conditional sales agreements for commercial equipment or vehicles (except agreements entered into with banks and finance companies regulated by the Monetary Authority of Singapore (MAS)1);
(iii) Rental agreements for commercial equipment or vehicles;
(iv) Contracts for sale and purchase of goods; and
(v) Contracts for sale and purchase of services.
Certain contracts will be excluded from the Re-Align Framework, even if they fall within the list of Scheduled Contracts (“Excluded Contracts”). These are:
- Consumer contracts
- Employment contracts
- Insurance contracts
- Leases or licences for non-residential immovable property which have a term of more than five years
- Contracts made in connection with a financial transaction, or for the supply of financial services (except hire-purchase)
- Construction and supply contracts
- Contracts for the carriage of goods for freight by sea, land or air, including any contract for freight forwarding and logistic services
- Contracts for the supply, storage, transportation, collection, treatment or disposal of certain hazardous materials
- Commodity contracts
- Contracts for factoring of receivables
- Contracts (or series of contracts) for the transfer for a business or part thereof as a going concern
- Contracts to which section 4 of the International Interests in Aircraft Equipment Act (Cap. 144B) apply
- Contracts to which the Sale of Goods (United Nations Convention) Act (Cap. 283A) apply
- Contracts affecting essential services and national interest2
Under the Re-Align Framework, a contractual party who wishes to renegotiate or terminate a contract, must serve a notice on the other party or parties to the contract.
(a) Parties will be required to enter into renegotiations with the counterparty. If parties are unable to successful renegotiate, contracts may be terminated. To encourage these arrangements to take place quickly, these measures will only be available for a limited period from the time of commencement. Limiting the time period to seek relief provides greater certainty to counterparties.
(b) Where there are disagreements on a party’s eligibility or the liabilities payable upon termination, parties may serve a notice to have an independent Assessor make a determination on these issues.
Additional Compensation for Small Landlords
The Re-Align Framework will seek to mitigate hardship that smaller landlords in financial hardship might face arising from the termination of the contract. The tenant will have to pay to an eligible small landlord additional compensation for early termination of the lease or licence agreement, that is to be determined by an Assessor. The details will be set out later in subsidiary legislation.
Choice to Pay Arrears by Instalment for Hirers and Renters of Commercial Equipment
As an alternative to contract termination, the Bill will provide an option for eligible hirers and renters of commercial equipment and vehicles to take up a Repayment Scheme to pay outstanding arrears in instalments. This is in recognition of feedback from some hirers and renters that while they have been substantially affected by COVID-19, they do not wish to terminate their agreements, as that would mean they have to return the equipment or vehicles and lose their source of income. Instead, they have requested for more time to repay their accumulated arrears. Details of the Repayment Scheme can be downloaded here
If the Bill is passed, MinLaw aims to introduce subsidiary legislation and implement the Re-Align Framework, including the compensation for landlords in financial hardship and the Repayment Scheme. More details will be announced in due course.
In view of the impact that COVID-19 has had on businesses, MinLaw is also introducing a Simplified Insolvency Programme under the Insolvency, Restructuring and Dissolution (Amendment) Bill to assist micro and small companies (“MSCs”)3 that require support to restructure their debts to rehabilitate the business, or to wind up the company as the business has ceased to be viable. Application details will be announced in due course.
1. MAS has worked with the financial industry to extend support measures beyond 2020, which will help SMEs facing cashflow difficulties to transition gradually to full loan repayments.↩
2. Parties in contracts affecting essential services and national interests may use the Re-Align Framework to renegotiate their conttracts but cannot terminate them.↩
3. Micro and small companies are companies with an annual revenue of less than $1 million and $10 million, respectively.↩