Insights – COVID-19: Key takeaways from Singapore’s COVID-19 (Temporary Measures) Bill
On 1 April 2020, the Ministry of Law announced new measures under the COVID-19 (Temporary Measures) Bill (“Bill”) in response to the COVID-19 pandemic. The Bill seeks to offer temporary relief to businesses and individuals who are unable to fulfil their contractual obligations and new measures to existing insolvency laws to help individuals and businesses get through these very difficult times. Key takeaways on the new measures to existing insolvency laws are summarised below.
Recap of the new measures to existing corporate insolvency laws
The Bill will introduce temporary relief for businesses in financial distress by temporarily increasing the monetary threshold for insolvency from $10,000 to $100,000 (for companies/partnerships) and lengthening the statutory period to respond to demands from creditors from 21 days to 6 months
Directors will be temporarily relieved from their obligations to prevent their companies trading while insolvent if the debts are incurred in the company’s ordinary course of business. However, Directors remain criminally liable if the debts are incurred fraudulently
Analysis
The Bill is timely and essential to support companies during these extra-ordinary times and follows similar measures put in place in Australia and the UK
Increasing the monetary thresholds and statutory period will particularly help smaller companies and companies in sectors that have been hardest hit from any recovery or winding up proceedings against them
Temporarily relieving directors will give directors comfort that they can continue to trade in the ordinary course of business without the fear of being personally liable for trading while insolvent, whilst providing time and space to review the cash position, consider the options that are available to continue as a going concern and possible restructuring strategies. There are certain carve outs where fraud is involved to provide safeguards against abuse
The Bill helps directors and companies facing short term liquidity pressures arising from an extra-ordinary operating environment from having to immediately file for insolvency and to provide a safety net so that they can trade through until the crisis passes and ultimately return to a stable and solvent position