Articles and Views

Contractual and Legal Protection Under COVID-19

April 1, 2020

As COVID-19 escalates across the globe, governments have scrambled to institute emergency economic measures to safeguard businesses and livelihoods. This includes usual measures within the budgetary arsenal including tax relief, grants, and government loans. However, one of the less usual measures introduced in this economic crisis, are regulatory measures to provide relief from legal and contractual obligations. This article considers the potential impact of these measures.


Although this article focuses on the Singapore context, such measures have also been introduced in other countries. For example, the Australian Federal Government has passed temporary legislative amendments to provide relief to directors from risk of personal liability for insolvent trading, by allowing businesses to operate during a temporary six-month period without having to enter voluntary administration or liquidation. Hong Kong is also reportedly planning to introduce a corporate rescue package at the next legislative session, introducing procedures similar to Chapter 11 in the US, as well as a six-month moratorium for debtors from hostile creditor actions such as winding-up or liquidation, to prevent an implosion in corporate failures resulting from both the earlier anti-government protests as well as the current coronavirus outbreak.


Further out, the German government has introduced similar measures including suspending insolvency filings, subject to exceptions, until 30 September 2020, relieving managing directors from liability for payments made in the ordinary course of business after the company is insolvent, and prohibiting hostile creditor actions during a 3-month transition period. Similarly, the UK government has temporarily suspended the wrongful trading regime since 1 March 2020, and is in the midst of considering further legislation.


Temporary relief from some legal obligations under the COVID-19 (Temporary Measures) Bill

In Singapore, the COVID-19 (Temporary Measures) Bill was passed on 7 April 2020 to offer temporary reliefs to address the impact of COVID-19 pandemic to businesses and individuals who are unable to fulfil their contractual obligations as well as additional temporary measures relating to bankruptcy and solvency, which was dubbed as a “legal circuit breaker” by Singapore Law and Home Affairs Minister Mr. K Shanmugam.


Temporary relief in relation to contractual obligations

The temporary relief offered under the Bill covers contractual obligations that are to be performed on or after 1 February 2020, for contracts that were entered into or renewed before 25 March 2020. Under the temporary relief, a contracting party will be prohibited from taking certain legal actions which includes amongst others, court and insolvency proceedings, against a non-performing party covering the following types of contracts:

  1. Leases or licenses for non-residential immovable property;
  2. Construction contract or supply contract;
  3. Contracts for the provision of goods and services for events;
  4. Certain contracts for goods or services for visitors to Singapore, domestics tourists or outbound tourists, or promotion of tourism; and
  5. Certain loan facilities granted by a bank or a finance company to SMEs.

The relevant temporary relief will be in place for a prescribed period, i.e. six months from the commencement of the Act at first instance and may be subsequently extended for up to a year. In addition, assessors will be appointed by the Minister for Law to resolve disputes arising from the application of the Act.


Temporary relief in relation to bankruptcy and insolvency

The Bill also introduces temporary relief relating to bankruptcy and insolvency as follows:

  1. Increasing the minimum debt amount eligible for the Debt Repayment Scheme administered by the Official Assignee under the Bankruptcy Act from S$100,000 to S$250,000.
  2. Increasing the monetary threshold for individual bankruptcy from S$15,000 to S$60,000;
  3. Increasing the monetary threshold for business insolvency from S$10,000 to S$100,000; and
  4. Lengthening the statutory period to respond to creditors’ demands from 21 days to 6 months.



These measures will grant individuals and businesses in financial distress a longer grace period to meet their obligations before facing legal actions under the relevant statutory provisions. Additionally, the directors of a company will be temporarily relieved from their obligations to prevent their companies trading while insolvent so long as the debts are incurred in the company’s ordinary course of business which will be essential for company’s survival during this very difficult period. Notwithstanding that, the directors remain criminally liable if the debts are incurred fraudulently.

However, the above measures are not a panacea for businesses and careful consideration is required in taking advantage of the relief. The measures are unprecedented and there can arguably be many gray areas in the application of the above regulations, for example, what happens after the relief period and how liability will be attributed to actions before, during and after the relief period.

The measures also impact financial reporting, for example:

  • the assessment of going concern and whether it should take into account the effect of the measures;
  • the assessment of expected credit loss (ECL) e.g. whether taking advantage of debt repayment holidays is still considered an indicator of “default” and how ECL is impacted when the law prohibits recovery of collateral;
  • timing of recognition of revenue where the revenue contract is suspended as a result of the above regulations;
  • the assessment of onerous contracts, e.g. landlords who are obligated to adhere to rental contracts where they are legally prohibited from evicting non-paying tenants.
  • The legislative amendments will also impact valuations, adding on to business uncertainties that already abound with the development of the pandemic. In March 2020, the International Valuation Standards Council issued guidance and advice in the form of a guidance letter “Dealing with valuation uncertainty at times of market unrest”.



The legislation amendments to provide temporary relief from contractual obligations during COVID 19, will doubtlessly be a welcome and timely reprieve for many business owners. It is a bold and decisive action by governments, that is necessary to safeguard the economy, businesses, and livelihoods. However, it sends businesses into novel territory, where care must be taken at every turn to avoid unexpected fallout. Qualified professional business advisors at Complete Corporate Services Pte Ltd can provide a valuable source of insights to ensure that all issues have been properly identified and considered.