COVID-19 (Temporary Measures) (Amendment No 3) Bill

Order for Second Reading read.

3.04 pm

The Second Minister for Law (Mr Edwin Tong Chun Fai): Mr Speaker, I beg to move, "That the Bill be now read a Second time."

With your permission, Sir, I have asked the Clerks to place handouts on Members' seats, explaining the details of the new framework introduced in this Bill.

Mr Speaker, this Bill is also linked to the next Bill on our Order Paper, the Insolvency, Restructuring and Dissolution (Amendment) Bill, or IRDA Bill, for short. May I, Sir, propose, with your permission, that the substantive debate on both these Bills takes place now. Members will be welcome to raise questions or express their views on both Bills during the debate. We will still have the formal Second Reading of the IRDA Bill to ensure that procedural requirements are met.

Mr Speaker: Please proceed.

Mr Edwin Tong Chun Fai: Thank you, Sir. Sir, I will first speak on the new Part 10 introduced by this Bill and subsequently on the IRDA Bill. Minister Desmond Lee will speak on the relief for the construction and property sectors, found in the new Parts 11 to 13 introduced by this Bill. Finally, Minister Lawrence Wong will speak on the amendments relating to the property tax rebate and rental relief.

Mr Speaker, over the past year, since the pandemic began, several major temporary measures have been passed by Parliament to provide relief for businesses and also to protect our economy and fundamentally, jobs. Today, new temporary measures have been tabled before this House. Before I take the House through the key features, allow me first to explain why there is a need for these further measures and the broad architecture of the proposed amendments as they are tabled in the Bill.

Sir, after almost a year, the COVID-19 pandemic continues to rage on around the world. The global toll stands today, at about 45 million infections and over 1.1 million deaths, across over 160 countries. 21 October – less than two weeks ago – saw the highest total infections reported in a single day across the world. A second wave of COVID-19 is surging across Europe. France, Germany and most recently, the UK, are now in lockdown. Infections in the US are trending toward a third peak, and just last week, saw a record for the highest number of cases in a single day.

COVID-19 is staggering in scale and unprecedented in the way, it has affected almost every aspect of our daily lives. The way we work, the way we go to school, the way we transact business and even the way we greet each other – we no longer shake hands!

When we pause to reflect and compare our lives and our daily routines now, compared to where it was eight to nine months ago, we see what a drastically different world we live in today.

We have managed to do quite well in terms of treating the sick and keeping the number of deaths low. However, as an international trade hub, we cannot escape the global economic disruption caused by COVID-19 restrictions and border restrictions around the world. And indeed, for Singapore, we are in our worst recession since Independence. Our GDP is forecast to shrink by 5% to 7% this year. MAS predicts that Singapore's recovery will be more protracted than in previous crises and uneven across different sectors.

In a corresponding manner, unprecedented Government relief has been provided, to help businesses weather the storm and also to protect jobs. Around S$100 billion has been committed in support measures to deal with COVID-19 or assist people in the face of the impact of COVID-19. This amounts to about 20% of our GDP.

Just last month, in Parliament, Deputy Prime Minister Heng observed that the relief measures have helped avert a 5.6% loss in real GDP this year and they would have helped save an average of 155,000 jobs each year, in 2020 and 2021. That shows the extent of the measures that the Government has so far introduced.

Measures were also enacted, to deal with the contractual aspect, as Members would know. Let me just briefly recap them. In April this year, my Ministry enacted a temporary legal circuit breaker. We called that "COVID 1". We did that practically on the eve of the circuit breaker in April this year. "COVID 1" provided for a moratorium on legal and enforcement actions, for prescribed contracts. Over 8,000 Notifications for Relief were filed and they were filed to invoke the moratorium from April this year.

"COVID 1" also raised the debt thresholds for bankruptcy and insolvency to help people avert those consequences as far as possible. Bankruptcy and insolvency applications have consequently dropped significantly, to half or less compared to the first quarter of 2020, since the measure was introduced. June saw the introduction of "COVID 2" to give SME tenants immediate rental relief.

The relief has worked as intended and in September I updated Parliament on the impact of these measures. They have been a crucial lifeline for many businesses. One beneficiary of the Act likened it to a parachute, stopping the free fall, helping affected businesses land safely – so still dropping, but with some measure of resistance. This has softened the impact of the pandemic on the economy as a whole and prevented a precipitous increase in defaults on contracts, insolvencies, litigation and consequently, loss of jobs.

However, we cannot allow or afford for these relief measures to continue, indefinitely. We will risk sustaining businesses that are no longer viable. It would trap, and lock away, precious economic capacity, such as workers or property and assets. This, in the longer term would be damaging for our economy.

Deputy Prime Minister Heng said as well in October, that for the economy to recover, support must evolve and it must go from resuscitate, to rejuvenate. That is the key principle behind why this Bill has been proposed. The existing Government support will eventually have to taper off.

The "COVID 1" moratorium should also not be prolonged. The moratorium holds enforcement actions at bay, as Members know, but it does not stop debts from being incurred as businesses continue and as they continue to perform on contracts entered into. As announced on 12 October, we have extended the moratorium for a short period of time. Save for construction and supply contracts, options and sale and purchase agreements with developers and event and tourism-related contracts, which will be extended for longer periods, the moratorium for the other types of contracts are extended only for a month and will expire on 19 November. The extension for these contracts was for one month, in anticipation of the present Bill being introduced at this sitting.

Sir, with Government measures tapering off, where are businesses today? Businesses have been feeling the impact of COVID-19 since February and in some cases, possibly before that. In April and May, the circuit breaker was implemented. This was necessary to break the chain of COVID-19 infections and transmissions and to flatten the curve. But this was an especially painful period for businesses. Many lost two months of revenue and the impact continues to be felt even some time after the end of circuit breaker.

Due to the impact on their cash-flow, many businesses started accumulating arrears. Through the Phase Two re-opening, the Government has been carefully monitoring the evolving situation, to see if further relief is needed. Members would know that there has been a modest recovery – uneven and modest. However, COVID-19 restrictions cannot be completely lifted as we move cautiously into Phase Three, as announced by the Multi-Ministry Task Force about two weeks ago. This would continue to significantly impact some businesses.

First, travel restrictions are still stringent. This affects roughly over 20,000 businesses in the tourism, hospitality, conventions, exhibitions sectors – in those sectors alone, 20,000. This will also affect the F&B and retail stores and transportation workers that rely on tourist spending.

Second, foot traffic remains reduced, especially in the CBD areas where many still continue to work from home.

Third, retail and F&B outlets must comply with mandatory safe management measures. This has reduced their operating capacities.

Fourth, some businesses are not even permitted to operate at all and this may continue for quite a while. Take for example many of the 1,300 nightlife establishments, which employ around 20,000 workers. Those have not been able to operate even now. Many businesses will be forced to operate in unfavourable conditions in the COVID scenario and in fact, including the immediate post-COVID period for an extended period of time.

In a survey by the Singapore Chinese Chamber of Commerce and Industry or SCCCI from mid-June to early August this year, they found that half of the respondents said that COVID-19 had a major impact on their business models. Respondents had experienced a substantial average decline in revenue compared to 2019, without a proportionate decline in business costs. Over 80% of them do not expect business to recover to pre-COVID-19 levels in the next year. And 58% indicated that they were worried that they will not be able to generate sufficient revenues to even cover their costs.

Nightlife businesses especially, are in a difficult situation. According to a poll by the Singapore Nightlife Business Association, over 90% of respondents said there was at least a 50% chance of them wholly shutting down, if they did not reopen soon. And close to 40% said they would definitely, permanently shut down

That is why the Government has rolled out specific, targeted support for the worst hit areas. For nightlife businesses, MTI will be providing an assistance package for them to transit out and pivot to new areas should they choose, and will be announcing more details soon.

For the tourism, aviation, arts and sports sectors, the relevant Ministries have, to-date, announced specific support packages for them as well, including grants to help with them with the immediate cash flow difficulties.

Sir, our broad objective in this Bill is this: as we move from resuscitate to rejuvenate, a key priority is to ensure that businesses can look ahead and focus on recovery. They should be reallocating resources to more productive uses, rather than being stuck in a prolonged, painful and unproductive struggle, when circumstances, business assumptions have clearly changed.

However, some businesses, particularly the smaller ones, face obstacles in doing so. And let me just share an example to illustrate the point with Members.

A tenant wrote to MinLaw that his tenant's lease was for a period ending in October 2021. The rent was approximately $9,000 per month, something that he entered into before COVID-19. Safe management barriers have been erected near his shops. As a result, footfall has dropped drastically. The tenant's earnings dropped to only $3,000 and even after the Phase Two reopening, the pick-up in footfall has been slow, and clearly, unlikely to return to pre-COVID levels. He clearly cannot continue at this rate until October 2021.

And I think this is a story which many of the Members in this House would find some resonance with. The tenant approached the landlord, hoping to negotiate a temporary reduction until the situation improves. If he could only get a rent reduction for a period of time, he could also free up some resources to transform his business or do what was needed to survive. However, in this particular case, the landlord refused to entertain discussions.

On the other hand, if the tenant chooses to terminate the contract before his lease ends next year, over a 12-month period, he will have to pay substantial damages for termination. And that is calculated on the unexpired portion of the lease period. He is therefore stuck in this position and continues to bleed. If nothing changes, it is likely that he will breach the tenancy. If the arrears or compensation for termination is not paid, parties could then end up litigation and the tenant might then end up insolvent.

Sir, this case is not unique and we receive feedback from many businesses asking for assistance in a similar fashion.

That said, we are at the same time also aware of many enlightened landlords. Many of them have proactively approached the tenants to offer relief or vary the terms of the tenancy. They have renegotiated them, on new terms to help the tenants at least tide over this period of time.

However, for the many businesses suffering from the lasting economic effects of COVID-19, it really is a simple question in some ways. Will their counterparties work with them to help them adapt to their business models, restructure the arrangements, possibly downscale or pivot to a different area? If they cannot get the counterparties to work with them and they are looking at meeting pre-COVID-19 obligations in a COVID-19 economy, then they are heading inevitably for at least a significantly curtailed cashflow, possibly insolvency, and very likely, litigation.

This latter scenario is not in the interest of parties nor indeed in the interest of the greater overall good of our economy. If these businesses close down, they will likely be under a mountain of debt. That is not good for the counterparty either because it is unlikely to be able to recover the full debt. Jobs will be lost, while businesses and creditors tussle over in insolvency or litigation proceedings in Court. The fallout is likely to be substantial. The number of SMEs who have experienced a significant revenue fall on a rough estimate is about five times what it was in 2019.

And we can expect the number of insolvency proceedings to substantially increase correspondingly.

Hence, Sir, we have a two-pronged solution. First, to ensure that these businesses do not get stuck in a limbo in a situation where they can neither find it feasible to continue in the present trajectory on the current cash flow and assumptions, nor to terminate and then bear the brunt of the financial impact of that termination.

So, that is the first prong.

The second is to have a situation where resources are instead quickly unlocked for more productive ventures in the new operating environment. That is the broad objective of these two Bills.

In this respect, Part 10 of the Bill puts in place a realignment framework or we call it the Re-Align Framework for parties to have new alignment. It will help businesses to realign the contractual obligations to the new business reality. Second, the IRDA Bill will put in place amendments to introduce a Simplified Insolvency Programme, SIP. This will make it easier for small businesses to restructure their debts, liquidate, and also distribute their assets in an orderly, effective and efficient manner. The two measures are separate but complementary, as Members will see. I will take the House first through the Re-Align Framework and subsequently the Simplified Insolvency Programme.

Sir, first, let me briefly explain the need for intervention. I wish to emphasise that this is not a step that has been taken lightly and we have very carefully considered both the implications as well as the scope of this framework.

The nub of the problem for the mall tenant that I took the Members through is that he has entered into a contract pre-COVID-19. The business environment and assumptions that he had then is very different today. Now, when all these assumptions are different, he is bound to a set of obligations that were designed at a very different time. And while business is not stagnant, no one could have predicted that the environment would have changed so dramatically, drastically and fundamentally in such a short period of time.

For the businesses that are not permitted to resume operations, which I have sketched out earlier, the situation would be even more dire.

Just to give one example of many, I will share an appeal we received from a nightclub owner. He had been prohibited from operating since March this year, as is the case for the nightlife industry as a whole. Its lease continues to run due to expire only in March 2021. Pivoting to another business model like F&B is possible, but will be difficult. The premises themselves have no kitchen and the nightclub's workers have returned to their home countries. Its manager cannot today enter Singapore to come back to work.

The owner is fearful of terminating the lease due to the termination penalties that I sketched out earlier, but with each passing month, the dilemma I think is clear to see.

For suppliers of goods and services, their costs may have skyrocketed and the price that they are contractually bound to pay for the goods and services no longer covers their cost.

Sir, in the free market and with freedom to contract, there will be risk and the risk will not be different from what I have outlined earlier; change in market conditions, higher prices, drop in supply – all of which would affect the ability to deliver services at the contracted price.

But the impact of COVID-19 has also been sudden, widespread and deep. And whilst some large businesses might be able to absorb the shocks like this, for many businesses, it will be unsustainable. Our first prong, the Re-Align Framework, therefore deals with contracts entered into when the world was a very different place. The problem, Sir, that needs to be addressed would be as follows.

In relation to businesses trying to meet obligations in a very different circumstances, the contracts in this scenario will need to be realigned. It will not happen on its own for a number of reasons.

First, counterparties may refuse to renegotiate the terms of the contracts. This is now a familiar story and I have outlined some examples. This also commonly arises with the smaller businesses, with less leverage and negotiating power. So, you take the examples that I have highlighted earlier. It is going to be very difficult for a small business – one of maybe several that the counterparty is dealing with, to go back and seek a renegotiation of terms.

Here, I think it would be useful to reiterate what Minister Shanmugam had said when this Act was first enacted in April; in these critical times, everyone should take a collective approach. This is not the time to be circling the wagons, taking all that a business can give until they go bust, in the name of exacting contractual rights.

Sir, second – a business who is unable to renegotiate a contract, may then want to terminate it. But they are often deterred by the risk of having to pay substantial damages for terminating the contracts early. Again, in the manner which I have outlined earlier.

Third, the existing recourse that may be available in such situations, may be out of reach and difficult for these struggling businesses to access. Depending on the facts of the case, some businesses may already have recourse to the doctrine of frustration in Singapore law to discharge their contracts. Under this doctrine, parties are discharged from further performance of their contractual obligations where it can be shown that there is an unforeseeable, supervening event that occurs after the contract was entered into. The event is not the fault of either party and it renders the performance of the obligations fundamentally different from what the parties had envisaged.

COVID-19 is clearly an unforeseeable event. However, as I am sure Members here will know, if there is a dispute, businesses will end up spending precious resources: time, effort, money in Court. The outcome could also be uncertain and maybe also uneven in the context of different businesses, depending on the facts of each case.

COVID-19 is unprecedented. So, it is also difficult to predict how the Courts may rule in one case to another.

For a business already bleeding, the prospect of going to Court to argue these points can be daunting and it is also unproductive for parties to spend the resources in this fashion. It is worth noting that these problems with relying on the law of frustration, were highlighted in an op-ed by former Justice VK Rajah and Dean of SMU Law School, Goh Yihan, published in May. In the op-ed, the authors recognised the need for new COVID-19 legislation to overcome these problems. They suggested borrowing aspects of contract law from civil law jurisdictions, which allow adjustment of contractual obligations where there is a supervening event.

What the above makes clear, Sir, is that if left to the market alone, the necessary realignment of contracts on the new paradigm, in many cases, will probably not happen. That is why we have considered intervening. My Ministry has received requests from businesses seeking fairly substantial and substantive interventions. For example, they have asked the Government to consider requiring the mandatory reduction in arrears. That means you go back to the arrears and you just forgive the arrears. Or second, just having a different way to calculate future rent.

We have studied these proposals carefully. What we think would work best is a more measured approach, which I will now go into.

The Re-Align Framework seeks to help small businesses substantially impacted by COVID-19 restrictions. These are businesses that have been faring badly, little leverage and so on. It provides a framework to renegotiate, failing which the contract may be terminated on a no-fault basis in a manner that gives a fair and just outcome.

In redesigning the Framework, I would like to outline to the House three key objectives that we have kept to, in designing this framework. The first is to sort out the imbalance to give parties the best chance to come together to renegotiate for themselves what is just and fair in their own context.

And we believe that contractual issues between two parties are best sorted out between the parties themselves as far as possible. They know their contract best. They know their operating assumptions and their cost positions and they know what innovations could be made to their specific contract, to help them get over this period.

The Framework therefore seeks to solve this issue by giving the affected business the right to demand renegotiation from the counterparty, as a start. And second, unless agreement is reached, an eligible business will have the right to terminate the contract on a no-fault basis without having to pay substantial damages in penalties for compensation in the manner that I had outlined earlier – for example, in relation to the unexpired balance period of the tenancy.

The first aspect is adapted from concepts found in some major civil law countries. In these civil law jurisdictions, the right of renegotiation is built into the law. For example, in France, in Germany and in Japan, parties significantly affected by an intervening event can invoke the right to renegotiate the contract. And if it is not successful, they can then apply to court to vary the contract.

The second aspect, the "no fault" termination is drawn from principles of frustration. It extinguishes all prospective obligations but the parties remain liable for all accrued obligations. These consequences in respect of the accrued obligations also apply as a default in this Framework.

This right to terminate will shift the calculus for the party on the other side – to give it a nudge, to see if a re-negotiated contract would be a better alternative to either termination or litigation.

Often, termination is not the answer for both parties. For a tenant, for example, terminating the lease will come with costs, disruption, the impact of relocation and the risk of losing customers. For the landlord, insisting on strict contract rights in some cases might mean a tenant in serious unrecoverable debt, or a vacant unit or, very often, both. It may be better to temporarily accept slightly reduced rent or find some other mutually workable formula to help the tenant survive and stay on in the tenancy rather than to leave the premises vacant and to incur the cost of finding a new tenant.

There are a myriad ways to work things out, including shifting to a Gross Turnover or GTO model, for example, for rent or taking a lower rent in the initial period and then extending the term of the lease with a higher rent built in at the tail end – a number of different options that parties can look into. But ultimately, both sides must work out an arrangement that works well for them.

The second objective is to keep this relief narrow and limited so as not to unduly trample upon the sanctity of contracts. That is a key and fundamental principle that undergirds our legal system. In line with the Government's policy of respecting the sanctity of contracts, this Framework will therefore be limited in scope in terms of who it helps and what it will do. I will elaborate on that in a moment.

The third objective is to ensure that the Framework is accessible, efficient and it has to be relatively simple to invoke and to use. We want to minimise uncertainty and to help parties realign their contracts efficiently, fairly and, also importantly, quickly. The sooner we are able to do this, the more we are able to deal with uncertainty in the market.

The Framework will therefore set out clearly who it applies to, what contracts it covers and what contracts it does not cover, what the default consequences of termination would be if parties were unable to reach an agreement after re-negotiation. So, it sets out a framework and a fairly clear formula as to what would be considered, should termination take place.

Part 4 of the Second Schedule of the Bill spells out the default consequences that will apply to a contract covered by this Framework.

The Framework is designed to encourage and give the tools to the parties to work out a negotiated resolution for termination on their own as much as possible. That is the fourth objective – for parties to work together as far as possible.

I will now go into the key features of the Framework to explain to Members how this is designed to work.

First, let me focus on whom this Framework would help.

The first limb of Part 3 of the Second Schedule of the Bill states that the first criteria will be by revenue. As I have mentioned earlier, our primary objective is to help the smaller and the micro businesses – give them a bit of a leverage to find some basis to re-negotiate. They have less negotiating power and are most in need of this assistance. We aim to extend help to the spectrum of businesses that fall within the criteria.

We will set a revenue threshold which will exclude the larger enterprises that ought to have the sophistication and wherewithal to engage in negotiations with their own counterparties even without the assistance of this Framework. We also intend to cover individuals who enter into contracts for a business or trade purposes, such as freelancers or private hire car drivers and also non-profit organisations.

Second, how do we identify those businesses that have been impacted by COVID-19?

Sir, as Members know, even in a non-recession year, a proportion of our businesses will suffer a fall in business revenue. That is just the vicissitudes of business. This Framework is not intended to help those businesses who might see a cyclical drop or who maybe, in a scenario where the economy has been doing well, they see a drop in their revenue. That is not the target audience of this Bill.

It will be, however, onerous and impractical to expect a struggling business – especially the very small ones, including the micro businesses – to have to go through a detailed analysis of its own business performance and pull out the factors that would justify its qualification for this relief. The effects of COVID-19 have been wide ranging, affecting businesses in many direct ways but also in many indirect ways, including disrupting supply chains, weakening consumer demand. Some may experience one or more of these and it may be uneven as well.

It will not be feasible to show all the various factors that have led to the revenue fall and further, to prove that these are caused by COVID-19. Even if it were possible, it would be difficult and it would be a protracted, long-drawn forensic investigation into each measure and then we get into an argument over whether this factor has got how much proportion and what weightage and whether there has been mitigation.

By the time that process is complete, it will likely be that the business will be in deeper trouble and might well be beyond saving at that juncture.

Indeed, Sir, it should not be difficult to identify a business that has been badly affected by COVID-19 and that is what we have done – to set an objective financial threshold. So, in the second limb of Part 3 of the Second Schedule of the Bill, eligibility will be determined by the fall in revenue it has suffered over a prescribed period compared to a relevant comparable period prior to the pandemic. The fall in revenue criteria will be suitably substantial and pegged to a level such that a business that needs it will clearly have been significantly and adversely affected by the pandemic.

This, in our view, will strike an appropriate balance between sufficiently showing that there has been substantial impact due to COVID-19 and helping businesses that need an efficient and accessible remedy. We have been and we remain in consultation with the industry on the precise criteria and we will announce the criteria once it is finalised. This will be set out in subsidiary legislation.

Next, which contracts would this apply to?

First, the contract that can benefit from this Framework must meet the following criteria. First, it must be governed by Singapore law and at least one of the parties must have a place of business in Singapore. Second, it must have been entered into before 25 March 2020.

The reason for this date is consistent with, and also explained when, we passed "COVID 1". It is the day immediately after MOH significantly stepped up COVID-19 related restrictions and if parties entered into contracts on or after 25 March with knowledge of the changed circumstances, then these circumstances are no longer unforeseeable, which is really the raison d'etre behind these amendments.

Next, the Framework will only cover the prescribed contracts. These are commercial contracts that tend to have substantial prospective obligations, which attract substantial damages or penalties. As such, these are the types of contracts that a business will likely want to re-negotiate and restructure.

So, the legislation covers four main types of contracts for now. Section 78 of the Bill empowers the Minister to amend the Schedule of Specified Contracts. This power is needed so that there is flexibility, if necessary, to respond to evolving situations.

Sir, the four types of contracts are specified in Part 1 of the Bill and Members may refer to Handout 1, which I have left on your seats and which sets up a summary of the different categories of contracts to which it applies. [Please refer to Annex 2.] I will just very quickly take Members through them.

The first type of specific contract are leases or licences for non-residential property in Singapore that have terms not exceeding five years. In general, for these contracts, these are significant cost component for many businesses and the SCCCI's survey, which I cited earlier, found that the topmost need amongst respondents was a reduction or a waiver of rent. So, that is the first type.

The second relates to contracts for the supply of goods or services and these contracts are often at the centre of a business' operations.

The third category of Specified Contracts comprises hire purchase and conditional sale agreements for commercial equipment, including commercial vehicles.

As with "COVID 1", we have excluded from this category, hire purchase agreements entered into with MAS-regulated banks or finance companies. That is because MAS has worked with the financial industry to provide corresponding substantive relief. They will extend credit relief measures beyond 2020 to support individuals and SMEs who need more time to resume full loan repayments. These measures include partial deferments of principal repayments until March or June 2021, depending on the sector that the SME is in.

In addition, borrowers that require additional help can approach the banks or finance company for more customised restructuring arrangements. In that respect, banks and finance companies have recently developed a protocol to facilitate restructuring of loans across different lenders to reduce the need for borrowers to go to the Courts for resolution.

The fourth category comprises rental agreements for commercial equipment, including commercial vehicles such as taxis and private hire cars. For the avoidance of doubt, a business may invoke this Framework in respect of a contract even if the Government is a party to the contract as long as the contract is a Specified Contract.

Certain contracts will be excluded from the Specified Contracts for various reasons. We have set them out in paragraph 2 of Part 1 of the Second Schedule. Again, Members can look at Handout 1 for a summary of these exclusions.

For example, contracts with consumers and employees are excluded. These groups deserve greater protection. Construction and supply contracts will be excluded. They are dealt with under a customised set of measures for the construction industry. Minister Desmond Lee will be speaking on this later. Also excluded are contracts that are uniquely interconnected with other contracts, where the termination may have unforeseen knock-on effects. Finally, contracts that are governed by specific international conventions or regimes will also be excluded.

Paragraph 1 of Part 1 of the Second Schedule defines a Specified Contract to include contracts that are substantially in the nature of a specified contract. Let me explain this.

Not all contracts are neatly defined into one category or another necessarily and there are often contracts that are mixed or multi-faceted. For example, a contract for the supply of goods, which is in the whitelist, may well have an element of carriage of goods, which is in the blacklist. If it is substantially in the nature of the contract for the supply of goods in the whitelist, it will still be covered by the Framework.

A contract of national interest is defined in section 41(1) of the Bill. The contract must be certified as a contract of national interests by the relevant Portfolio Minister. It must be one where termination is likely to affect the provision of essential service or the ability of a public body to carry out its function – that is the definition. A list of specified essential services is set out in Part 2 of the Second Schedule and includes water supply services, security emergency services, broadband Internet services and so on – I think Members understand.

Special considerations therefore apply to contracts of national interest. An abrupt termination of these contracts can adversely affect national interest. Hence, a special regime will apply. This is set out in Division 6 of Part 10 of the Bill.

In this context, for these contracts, there will be no right to terminate contracts of national interest. Instead, there will be a right to re-negotiate the pricing under the contract. If no solution can be found by that negotiation, the party seeking relief can apply to a Specialist Assessor to adjust the price of the contract. Specialist Assessors will comprise judges and senior judicial officers appointed to the panel by the Chief Justice. This is needed because of the potential complexity, seriousness and, of course, sensitivity of the disputes, which may relate to contracts of national interest.

Sir, I now come to how the process will work. If Members refer to Handout 2, I have diagrammatically summarised the process, but I will take Members through key aspects. [Please refer to Annex 3.]

First, this relief will be available for a period of six weeks from the commencement date of this Bill if it is passed. As I explained earlier, we do not intervene lightly and when we do so, it will be in a limited way. The relief is therefore for a short window to prevent a wider disruption. This is in line with the desired outcome, also, of a quick resolution to the matter. Parties really ought not drag it out and there should not be uncertainty for a prolonged period as to whether a counterparty might end up wanting to terminate the contract or not.

Thus, to invoke this relief, the business which is defined as Party A in the Bill must serve a Notice of Negotiation on Party B, the counterparty, within a six-week window. Once the notice is served, there will be a moratorium on legal and enforcement actions for any non-performance of obligations arising after the date of service of the notice.

Second, after the Notice of Negotiation is served, there will be a mandatory four-week period for the parties to negotiate, during which no application can be made to the assessor. We hope that parties will use this four-week period productively and – I would say – openly and constructively to engage with each other in good faith to work out suitable and mutually acceptable arrangements for the longer term, for the balance period of a contract. If the parties are able to successfully re-negotiate that position, then the matter ends there.

Third, however, if the re-negotiation is unsuccessful, the contract will be terminated but with the default consequences set out in Part 4 of the Second Schedule of the Bill. These default consequences generally hold the terminating party to all accrued obligations. Generally, all prospective obligations are discharged. Members can refer to my Handouts 3A to 3D which will illustrate the default consequences that would generally apply for each type of Specified Contract. [Please refer to Annex 4.]

Fourth, either Party can apply for an Assessor's determination if there is any disagreement on the application of the Framework. So, if after you have terminated or you are trying to work out the terms and you are unable to settle on the consequences of termination, for instance, then the parties may apply to an Assessor and the Assessor's determination in those cases will be final, binding and non-appealable.

If there is subsequently a dispute over the performance of any obligations that a party may remain liable for after the termination, that dispute can be resolved in the Courts.

Sir, I now come to two specific regimes catered for under the Framework.

The first relates to an exception for small landlords who might face hardship. To invoke this exception, the landlord must meet certain eligibility criteria, which will also be prescribed.

The landlords that we have in mind for this are those who have invested their small property and rely on the rental for a good proportion of their annual income. And if the tenant were to terminate the lease in this case, the landlords may be put into a situation of hardship.

Division 3 of Part 10 of the Bill therefore provides that such landlords are entitled to additional compensation if the lease is terminated. The compensation amount will be determined by an Assessor in accordance with the criteria that is set out in the prescribed subsidiary legislation. To clarify, this is not an assessment of damages. It will not be done as an assessment of damages in the usual sense. And the small landlord might not be awarded the full damages that he might have had had he taken the matter to Court. But he would have to establish that on a different property value.

However, given that a tenant who qualifies to invoke this framework is likely to be suffering badly because of COVID-19, there is a chance that the landlord could not have recovered the full amount of damages from the tenant anyway. So, bear that in mind in the context of what I have also outlined in the preamble earlier.

Sir, the second specific regime relates to hire-purchase and conditional sale agreements, and leases, for commercial equipment.

As an alternative option to termination, the Bill also provides a Statutory Repayment Scheme or SRS specifically for these types of contracts. This is set out in Division 4 of Part 10 of the Bill. Let me explain why this specific regime is necessary.

My Ministry received petitions from several hirers. Once was a business that hire-purchased mini vans to ferry tourists and corporate clients. Its usual business had ground to a halt. It is now using the vans to do deliveries. The revenue earned is still not enough for it to fully pay its hire-purchase instalments. At the same time, the finance companies are threatening to re-possess the vans. And without the vans, obviously, even the new delivery business will fall. The livelihoods of these hirers depend on the equipment and the vehicles that they hire-purchase. Their situation is precarious. They are often the sole breadwinners with families who do depend on them to survive and termination in these cases is not really an option for such businesses. They cannot just, say, give up the vehicle and go back to where it was because that is the tools of their trade.

These businesses will benefit from the SRS which will allow them to pay outstanding arrears from a specified period in equal instalments every month for up to 18 months. Interest will remain payable on the outstanding arrears, capped at 5% per annum. And if a party fails to pay any instalment as required by the Schedule, or terminates or repudiates the contract during the period of the repayment period, otherwise they are still offsetting the instalments due, then all outstanding arrears will become immediately repayable.

Sir, this Framework will not affect contracts terminated prior to 2 November 2020, yesterday, when the Bill was read for the first time.

However, to ensure the smooth implementation and delivery of the relief to the intended beneficiaries, the relief under the Framework applies to contracts that are terminated from 2 November 2020 when the Bill was introduced. This will prevent a rush of terminations, leading to uncertainty in the market.

This Framework, Sir, is an exceptional, targeted intervention, for extraordinary times. The Rule of Law, which includes respecting the sanctity of contracts, is a foundational value for Singapore. We worked with legal experts, considered it carefully, and consulted industry stakeholders such as Singapore Business Federation, the Singapore Nightlife Business Association and other businesses and trade associations, landlords, tenants and banks. This was not a step that was taken lightly. Ultimately, this Framework protects our economy in the longer term by helping businesses overcome barriers to choosing the more economically productive route. It helps the market to correct and operate as it should. It is also not a concept alien to both the common and civil law traditions where we see that there is a recognition of fairness and that a fundamental unforeseeable change in circumstances that impacts the performance of a contract can justify a change in the contractual environment.

This Framework therefore adheres to the principles for intervention by the state in contracts, as set out by Minister Shanmugam in Parliament, when this Act was first introduced in April. First, that the freedom of contract has never been absolute, and even today, there are mandatory laws that can invalidate or override terms of a contract. The law of frustration being one example.

Second, a state may intervene in contracts, to fulfill its duty to safeguard vital interests of its people, where a significant part of the economy is at stake, and strict enforcement of a particular contractual rights could lead to damage to the whole economy.

In these circumstances, a state may intervene, with reasonable steps of limited duration, to safeguard the economic structure for the common good.

Let me also call on Members to bear in mind the impact of COVID-19 and the impact it has had on fellow Singaporeans and our business community. We have never before seen such deep and significant impact in any of our past crises, whether it is the Asian Financial Crisis, the Global Financial Crisis, or SARS. Often in those cases, we did not intervene to this extent. I therefore emphasise again that this is an extraordinary measure that the Government has taken carefully as a reaction to a once in a lifetime event of unprecedented proportions.

Mr Speaker, Sir, the Framework will serve as a necessary complement to support the measures that have already been put out. It would ensure that the cash infusions are not drained away because businesses are stuck in their contracts. It will help substantially impacted businesses avoid protracted disputes, re-strategise and, in Deputy Prime Minister's words, to rejuvenate.

I understand there may be concerns about knock-on terminations, chain reactions and so on. But let me ask Members to consider the facts.

The businesses that we have scoped this to cover are those that had been substantially impacted. Even without this relief, they face a likelihood of being insolvent, at the minimum, substantial litigation. The contract may not survive anyway. The nature of the consequences, even if one qualifies, will be calibrated and modelled on established legal principles as I have outlined, and outstanding debts will remain payable. The duration of this relief is limited and in consequences following the termination, carefully scoped, to ensure as far as possible, fairness for both parties.

There are fears the Framework could be used by parties as a convenient escape route to terminate the contracts that some parties might set unreasonable or unacceptable re-negotiation terms to force a termination. But Members ought to note that, first, this is designed to allow parties to be as flexible as possible in the context of their own contractual environment. And I would urge the parties to work together to look this productivey.

And second, whilst we cannot say for everyone and over-generalise, we believe that the vast majority of people and businesses affected by this will act commercially and rationally. No rational tenant will choose to exit a tenancy unnecessarily because there is a cost to moving, there is a relocation cost, and moving away from its existing pool of customers. Those who choose to exit will probably generally believe that they have no choice given their business and operating assumptions, and the cost.

But even in those cases, the landlords can engage in discussions to try and understand their difficulties and find a solution, again, using one of the different options that I have outlined earlier.

In the situation where there might be a number of parties who seek to attempt to misuse this system, the Assessor system is a check and safeguard against this. The Assessor's responsibility is primarily to ensure a fair and just outcome. If the facts show, for example, that a tenant is, in reality doing well, the Assessor can take that into account, make the appropriate directions, including additional compensation that can be paid on termination. Sir, if we are dogmatic and overly cautious in our approach, we will see our businesses continue to struggle and flounder.

In unforeseeable circumstances that are no fault of their own, many businesses will be worried about cutting costs, making ends meet, dealing with impending litigation or maybe insolvency. And this is a time when we would much rather help those businesses to adapt, to find a new paradigm, find a new operating assumption, to recover, get their businesses back on track and save jobs.

Sir, I will now move on to deal with the IRDA Bill, and the Simplified Insolvency Programme, that it introduces.

In order to fully appreciate how this Bill will help financially distressed companies, assist in saving jobs and strengthen the macro environment for businesses, let me first explain why an effective insolvency framework is important. for the economy.

A successful restructuring allows a company to continue as a going concern. This results in a better outcome for employees, creditors and investors as a whole, by saving jobs and the businesses and giving a lifeline.

Where the business of a company, on the other hand, is no longer viable, then an effective liquidation process realises the company's remaining assets in an orderly fashion and distributes the proceeds to creditors and stakeholders through an effective and transparent collective enforcement mechanism. This enables the reallocation of resources to other more productive business activities. It also reduces the number of zombie companies that might exist, those that are unable to generate enough profits to cover their debt-servicing costs and other obligations while the value of their assets dissipates over time. An efficient liquidation process will reduce the costs of liquidation, and maximise returns to the company's stakeholders.

It is therefore critical that the distressed companies are provided with the necessary statutory framework to either restructure, or to wind down their operations in an effective and orderly manner. An efficient and streamlined framework will reduce the complexity and hence the cost and time of doing so for debtors and stakeholders alike. The purpose of this Bill is to create such a framework, tailored for the micro and small companies.

We already have in place, Sir, a progressive and modern insolvency framework in the Insolvency, Restructuring and Dissolution Act or IRDA. This is the fruit of a multi-phase process that has taken about five years to put in place to strengthen our insolvency framework and enhance our position as an international centre for debt restructuring.

In 2015, the then-Bankruptcy Act was amended. This introduced a new differentiated discharge framework that promotes a more rehabilitative regime by giving bankrupts clear targets to work towards so that they can become eligible for discharge. It puts in place also, a requirement for institutional creditors to appoint private trustees in bankruptcy when making a bankruptcy application. This encouraged greater engagement by such creditors and also drives creditors to exercise greater financial prudence when granting credit.

In 2017, we introduced ground-breaking amendments to the Companies Act to strengthen the framework even further, introducing super-priority for rescue financing, encouraging fresh funds to assist the debtor through the restructuring proceedings. We enhanced moratoriums to provide breathing room for distressed companies and also put in place pre-packaged schemes of arrangement to fast-track pre-negotiated, pre-agreed restructuring plans.

On 30 July 2020, just a few months ago, the IRDA was commenced and incorporates the relevant provisions from the Bankruptcy Act and the Companies Act, into a single new statute. The Act also builds on the earlier phases of amendments that I have outlined.

Our legislation provides the best features of the world's leading regime. It also seeks to strike a balance between the different competing stakeholders' interest, enabling companies to restructure successfully whilst at the same time, protecting creditors' rights. The touch stone of any Singapore restructuring remains the support of its creditors. In any insolvency, it is the creditors who own the company.

A recent restructuring example that I would like to highlight to Members is Swee Hong Limited, a civil engineering contracting firm.

In February 2020, the High Court granted Swee Hong an order to give super-priority status to over US$2 million worth of rescue financing. This allowed them to continue the business whilst it attempted to restructure.

Seven months later, the proposed scheme of arrangement was approved by more than 90% in number of creditors, representing more than 80% in value, higher than the requisite statutory threshold, and if sanctioned by the Court, the restructuring would allow Swee Hong which was insolvent to continue as a going concern and avert a winding up. This in turn helps to save the business, keeps jobs not only for Swee Hong but also for many of its counterparties and subcontractors.

Whilst the IRDA has facilitated positive results such as Swee Hong, it was not designed with the effects of a global pandemic like COVID-19 in mind.

As a result of the COVID-19 pandemic, researchers have forecasted global business insolvencies to increase by 35% in 2021.

In Singapore, in 2018, there were over 250,000 micro and small enterprises. These are enterprises with annual revenues of less than $1 million and $10 million respectively. So, micro is $1 million, and "small" would be $10 million.

Together they form about 95% of Singapore's enterprise framework. Thus, it is likely that a significant number of financially distressed companies, as a result of the COVID-19 pandemic, are likely to be micro and small companies.

We have received feedback that these companies, in particular, may still find it financially challenging to apply the provisions under IRDA. Applying tailored processes to these micro and small companies however could help these companies get back on their feet in the same way as Swee Hong, which has benefited from IRDA.

This Bill, Sir, therefore, introduces a Simplified Insolvency Programme comprising two bespoke temporary processes to better suit the needs of micro and small companies:

First, to restructure the debts of viable companies to rehabilitate their businesses. For example, where there is a ready investor prepared to come into the business, or alternatively, where the company is in a position to renegotiate with its creditors.

Second, to wind up the company, where the business has ceased to be viable but in a quick, efficient and low-cost manner.

The proposed amendments seek to provide temporary processes that fit these purposes and benefit stakeholders of the company such as employees and, of course, also the trading counter-parties, creditors and shareholders by reducing the time it would take to either do a restructuring or a liquidation and maximising potential recoveries.

The new processes were developed in consultation with public agencies and stakeholders from the private sector. This ensures that the framework is able to meet the needs of small and micro businesses.

Separately, the Bill also has one miscellaneous amendment which I will cover at the end, in relation to the licensing framework.

Sir, let me take the Members now, very briefly, through the key features of the Bill.

The Simplified Insolvency Programme comprises the restructuring programme and the liquidation programme. In some ways the process and the formulae for determining who qualifies for both have similarities so I will cover them very briefly.

In relation to the application processes for both programmes, the new sections 72B and 250B of the IRDA Bill, the programmes will open for application by eligible companies for a “prescribed period”. Subject to further consultation and review, we intend for this at first instance to be six months. This may be shortened or extended for a period to be determined by the Minister. Overall, this window for application will be shorter than the overall lifespan of the proposed provisions, which is three years after its commencement.

Where any company applies to the Official Receiver under the new sections 72E or 250D under the relevant “prescribed period”, and the Official Receiver assesses the eligibility requirements and are satisfied on the face of the application, then the Official Receiver under the new sections 72G or 250G, will send a notice of the application to the applicant company and all creditors named in the application and, in the case of section 250G, which is for liquidation, also to every contributory or officer named in the application, and publish the notice on the designated website.

The requirements are intended to ensure that only cases that are suitable for this simplified process are accepted. These requirements include a limit on the total liabilities of the company, not exceeding $2 million; limits on the number of creditors and employees, not exceeding 30 employees and 50 creditors respectively; the amount realisable in the winding up, not exceeding $50,000 and the company is not in the midst of any other debt restructuring or, otherwise, some other form of insolvency process.

To provide flexibility, the figures that I have mentioned to Members may be substituted by the Minister abd prescribed by way of an Order in the Gazette.

Where there is any objection to the acceptance of the applicant into the relevant programme, the Official Receiver must consider the objection and decide whether or not that particular company qualifies. If not, to exclude; if so, then to allow the company to avail itself of the process.

The applicant company has to pay a fee and a deposit and this will be used in a way which would defray the costs of the Official Receiver.

In order to provide flexibility to address companies that merit assistance under the programme even if they might miss out on the eligibility requirements, the Minister may direct the Official Receiver, under the new sections 72H or 250H, to send and publish the notice of application and then to accept the applicant into the programme.

Part 5A of the IRDA Bill establishes the simplified restructuring programme and I will just quickly take Members through the most salient provisions.

This, as Members might appreciate, is modelled on the existing pre-packaged scheme in section 71 of the existing IRDA. Under the pre-packaged scheme process, a proposed compromise or arrangement is worked out among the company and its creditors but done out of Court, without having to invoke the Court process. You come to an arrangement with your creditors, which is then subsequently submitted to the High Court for approval. Instead of two applications to the Court required in a typical scheme of arrangement, the pre-package only requires one application.

Upon the acceptance of a company into the simplified debt restructuring programme and before the company is discharged, the company enjoys a statutory moratorium under the new section 72K(1), and amongst others, it restrains the commencement or continuation of any proceedings against the company.

The company is also restrained from disposing of its property under the new 72K(3), unless it is done in good faith and in the ordinary course of its business. This is to ensure that the assets are not dissipated whilst there is a moratorium in place.

Creditors are also prohibited from exercising certain contractual rights under an ipso facto clause under the new section 72T, which applies section 440 which is the ipso facto clause of IRDA. This is done with modifications, as appropriate, for smaller companies.

This framework balances the interests of the various stakeholders by providing, on the one hand, breathing room via the moratorium to the company but, at the same time, preserving the rights of creditors to have access to the company that has not wrongly and unfairly dissipated its assets.

Sir, there will be a Restructuring Advisor appointed for the company to assist the company to formulate a proposed compromise or arrangement. This Restructuring Advisor will be available to advise the company to prepare its papers and generally to guide the company through this process.

The company may make an application under the new section 72M(1) for approval of the proposed compromise or arrangement an,d the Court may only approve the compromise or arrangement if there is an agreement of a majority of two-thirds in value of creditors. So, two-thirds in the value of the debts that are owed by the company must approve this scheme.

There is no specific number of creditors required to assent to the scheme, unlike a traditional scheme of arrangement. So, the thresholds are slightly more relaxed than in the usual scheme of arrangement under 210 of the Act.

Sir, it is worth noting that this reduced threshold takes into account feedback that we received that it will typically be too onerous as a condition to be fulfilled by micro and small companies especially in this current business environment.

In looking at whether the threshold is met, the Court must disregard the agreement or disagreement of any related party of the company. So, you cannot have a company which has several creditors who are related to officers of the company come together and decide on an outcome and use that consensus or agreement to bind the other creditors. There will be three classes in the scheme: secured creditors, preferential unsecured creditors and unsecured ordinary creditors.

This is intended to provide certainty to the company on the default approach towards classification of creditors, given the simpler nature of the debt structure of these micro and small companies and, of course, to avoid potential litigation which sometimes happens in relation to the way in which the company classifies its creditors.

Nevertheless, the Court retains overriding discretion under the new section 72M(5) to take into account the agreement or disagreement of any related party, and if the circumstances so require and the result of doing so would be fair and equitable to all creditors. So, the Court still retains an overriding discretion to do so.

The Court may, under the new section 72M(6), without hearing all arguments, grant or dismiss an application, as the case may be; and instead of having the company required to engage counsel, a duly authorised officer of the company may represent the company in the relevant court proceedings without the leave of court. This is provided for under the new section 72N.

Section 72Q provides that the programme will have a shelf life in the first instance of 90 days. This is not uncommon in many other jurisdictions around the world even for the usual restructuring process. This keeps the process on an even keel and if more time is needed, an application for extension can be sought. But in the first instance 90 days is being given to enter into the arrangements, and also the limited timeframe is designed not to unfairly prejudice creditors because during that period of time, whilst this is being looked into, there is a moratorium.

Under the general framework, Sir, typically at least three applications are required. First, for the moratorium itself; second, for leave to convene a meeting; and third, for the sanction of the proposed compromise or arrangement and then oftentimes, a financial adviser will also be required. This simplified process brings it into one single application and, if accepted, the company will enjoy the benefits of the moratorium early on and really only one application would be needed.

Sir, let me now quickly touch on the simplified winding up. Part 10A of the IRDA Bill establishes a simplified winding up programme, which a company may resolve to be wound up voluntarily under. Under this voluntary winding up, a company is wound up without the need for a Court application to place the company into winding up. This is modelled on the existing creditors’ voluntary winding up process that is already found in the Act.

Before making an application, the company must pass a special resolution, authorising the making of the application and so on. And upon acceptance of a company into the simplified winding up programme, the voluntary winding up of the company commences at that stage. The Official Receiver is the liquidator of the company under the new section 250K(3). The Official Receiver may also appoint a qualified person to act as a special manager under section 250M.

The winding up is treated as if it were a creditors’ voluntary winding up, as I mentioned earlier, under section 250K(2). The provisions that therefore apply to the creditors' voluntary winding up will also apply in relation to the company, unless they are modified under section 250L and the conditions are set out in section 250L.

A company is discharged from the simplified winding up programme under section 250N – when the company is dissolved; or an order is made by the Court to wind up the company, stay the proceedings or terminate the winding up.

Lastly, the new section 250O sets out the non-exhaustive circumstances in which the Official Receiver, as the liquidator, may apply to the Court under section 124 of the IRDA to wind up the company. Such circumstances include where the Official Receiver is satisfied that the company either did not meet, or could not meet, or no longer meets the eligibility criteria for the programme. The provision is not intended to affect the rights of any person entitled to make an application under section 124 of the IRDA for the company in simplified winding up to be wound up under a Court order. And that also includes the Official Receiver as liquidator.

Sir, the proposed winding up in this form, under the simplified regime, provides a simpler and more streamlined framework for the winding up of micro and small companies relative to the usual process. Currently, one would have to apply to Court or pass a special resolution and convene the necessary meetings, the company would have to seek a liquidator who would have to agree to being appointed, and the creditors may also then appoint a Committee of Inspection to act in respect of the winding up.

In comparison, under this simplified process, the process is commenced once an application is made to the Official Receiver. If the Official Receiver accepts it, the winding up commences without more. The Official Receiver becomes the liquidator and there will not have to be a Committee of Inspection. These are in addition to the other features and modifications that I have outlined earlier.

The simplified winding up process is really designed for companies who have taken the view – small and micro businesses who qualify – that it is no longer sustainable to remain in this business. Rather than have a protracted process where more time, more effort, more costs are put into managing the exit from the business, those companies can avail themselves of this mechanism.

Sir, let me now touch briefly on the licencing of insolvency practitioners.

This is an amendment that is separate from the Programme. It is a miscellaneous amendment introduced under the existing section 50 of IRDA and it seeks to empower the Minister to exempt any individual from the requirement of being a qualified person in order to be a licensed insolvency practitioner.

This power will be exercised judiciously, on a case-by-case basis. It is not intended to allow a person to circumvent the general requirements but it is intended to be used in exceptional cases, where the exemption is justified. Members who have been in Court and argued this or seen this applied, will know that there have been insolvency professionals who act for companies or creditors in cross-border transactions, cross-border restructurings, and those are one type of professionals that we envisage would come under these exemptions.

Sir, let me now conclude. I have taken Members through the two new measures in both Bills. At the level of individual contracts – business to business, party to party – the Re-Align Framework will allow businesses to have a basis to renegotiate and re-base their contracts to adapt to substantially changed circumstances. At the corporate level, the simplified insolvency framework will allow eligible companies an easier route to restructure or rehabilitate, or to exit in the way I have just outlined. These are necessary as a part of a suite of measures that the Government is providing to help businesses and our workforce and, fundamentally, people and jobs emerge stronger from the pandemic.

Sir, let me end off with a few words about the process of preparing the Re-Align Framework.

In some ways, it is significantly more complex than the earlier "COVID 1" and "COVID 2" in terms of the concept and its scope of application. We also did not have the luxury of time as a Bill like this would typically have taken some months up to a year to conceptualise and make workable. It was only possible because of the outstanding contributions of many of those who worked very closely and very hard with my Ministry to put this together.

Sir, we are indebted to the various agencies who have worked for many months, over the last few months, with meetings, turning this around, draft after draft, giving valuable input, going out to the ground, importantly, taking soundings from the different stakeholders in the business community and reflecting those views in our meetings.

MTI and ESG, in particular, were always ready to help with ground sensing, with the data, making helpful suggestions to refine our proposals, to scope them carefully and appropriately. MAS, too, did the same, contributing their own domain expertise and helping to bring stakeholders on board in explaining the process, explaining the intent.

We are indebted to our other colleagues from the other Ministries and agencies like MOT, MCCY, MND, HDB, JTC, MHA and SLA, and of course, MOF, too. Besides paying for the Bill, they also attended all our meetings and helped us to work out a solution, especially when it came to dealing with contracts of national interest.

Sir, a few more. I wish to thank in particular, Mr Sushil Nair and Mr Patrick Ang – two private sector lawyers on the committee who have been working with us since "COVID 1". They gave of their time very generously and they also helped us to not just conceptualise but also draft and redraft the Bill. Along with a judge of the High Court, Justice Kannan Ramesh, their years of legal experience and insights were very much invaluable and a pivotal part of the way in which we were able to produce this Bill in short order.

Sir, we also have an industry resource panel. We consulted with them very closely and we scoped the provisions based on the views that they gave us and the feedback that they gave us, honing our policies and our thinking. I will put their names on record without having to mention them individually. There is an Annex which will be put into the transcript. [Please refer to Annex 5.]

Finally, I think, perhaps, to our Attorney-General Mr Lucien Wong and his team at AGC – Lee Yean-Lin, Leong Kit Yu and Ng Jun Yi. This Bill is the product of not just legal solution but indeed legal innovation that they have helped us with in difficult, complex times.

I wish to thank all of them and place on record the MinLaw's gratitude to all of them for their framework. Because of this, we believe that we will have a better chance at emerging stronger from this pandemic, ready to overcome the challenges ahead of us in the mid to longer term. Thank you, Sir, I beg to move.

Question put.

Mr Speaker: Mr Vikram Nair.

The Minister for National Development (Mr Desmond Lee): Mr Speaker, I think Minister Lawrence Wong and myself will speak before the Members.

Mr Speaker: Okay. Minister Desmond Lee.

4.21 pm

Mr Desmond Lee: Mr Speaker, Sir, the built environment sector builds our homes and our workplaces, lays our roads and rail, creates our recreational spaces such as parks and sports facilities and much, much more. But the sector, especially construction, has been hit very hard by the COVID-19 pandemic.

Construction ground to a complete halt during the circuit breaker period. After the circuit breaker, projects could not restart immediately as the dormitories took some time to be cleared. Without any work done, payments were delayed and consultants and builders faced serious cash flow problems. Border restrictions also disrupted supply chains and some workers being stuck outside Singapore.

Within Singapore, many of our migrant workers were locked down in their dormitories due to COVID-19. Home buyers and business owners were also impacted as their premises under construction were delayed and many had to make alternative arrangements meanwhile.

As the impact of a total shutdown of construction activity was unprecedented and the situation was evolving very rapidly, we had to have very frequent meetings between agencies and industry associations and ground visits. This allowed us to better understand ground realities and adjust our restart measures accordingly.

To prevent a collapse of the entire industry, we had to intervene very significantly – through providing financial assistance, foreign worker levy waivers and rebates and putting in place legislation.

This Bill seeks to provide further support to stakeholders to ensure that no one in the built environment sector has to bear a disproportionate share of the burden brought about by the pandemic.

So, please consider the measures being proposed today not in isolation but as part of a whole series of interventions and trade-offs along the length and breadth of the entire built environment value chain, affecting but at the same time also supporting buyers, developers, consultants, builders, sub-contractors and suppliers.

With these and other measures in place, we hope the sector can adapt and adjust to the new operating environment, recover quickly from the pandemic and preserve industry capacity.

Before diving into the provisions of today's Bill that are pertinent to the built environment sector, let me first sketch out the measures that we have already put in place to support main contractors, sub-contractors and suppliers.

Beyond supporting salaries of local employees through the Jobs Support Scheme and providing significant foreign worker levy waivers and rebates, we have extended a $1.36 billion construction support package to construction firms.

Through the COVID-19 (Temporary Measures) Act, firms also have temporary relief against stipulated legal action. In addition, the Act also provides a defence against breach of contract and damages due to COVID-19 for the construction and supply contracts that they are parties to. This means that developers cannot claim damages from their contractors for a delay that is assessed to be due to COVID-19.

Part 8 of the Act also provides a mechanism for firms to seek relief from additional rental costs that are incurred due to construction delays caused by COVID-19. This means that contractors who had rented equipment during the circuit breaker but who were unable to use this equipment as no work was on-going can apply for an equitable adjustment of the rental costs that they must pay to the suppliers.

Sir, the built environment value chain is very much interconnected and the impact to our construction sector has a cascading effect on the entire value chain.

Developers have to deal with project delays and the increased costs for their projects. As projects are delayed, home buyers and businesses may have to incur additional rental and other costs while waiting for their new homes and premises to be ready.

Hence, the Government has also provided relief to developers and purchasers. For developers, we provided an extension on the project completion period and additional buyer's stamp duty remission timelines. To protect purchasers, we prohibited developers from withholding or forfeiting any part of the booking fee paid by purchasers under the option to purchase during the relief period unless determined otherwise by an assessor.

Developers could not terminate agreements for sale and purchase of property with the buyers on the basis of the buyer's non-payment nor increase interest rates or impose new charges without buyers' agreement during the relief period. We also capped the late payment interest or charges under agreements for sale and purchase of property.

Together, we have made progress in restarting construction. Almost all construction works have restarted.

We completed the clearance of the dormitories in August this year and since then, COVID-19 infection among our workers in dormitories has come down significantly. On a daily basis, there are very few infection cases, if any. But to prevent a resurgence, we have also taken measures to strengthen our defence against COVID-19. In October 2020, we completed the cohorting of workers in dormitories so they stayed together with colleagues from the same firm instead of mixing with workers from other firms.

We are also giving out 450,000 BluePass tokens, which will allow us to better conduct contact tracing of COVID-19-positive cases and to more surgically quarantine those who have been in close contact instead of casting an overly wide quarantine net. We have implemented the BuildSG-COVIDSafe Platform for better worksite access control and data-driven audit and inspection.

While we have made progress, the construction sector is far from being out of the woods. The threat of resurgence continues to loom and the sector will grind to a halt again if we are not careful.

We also continue to receive feedback that the sector is still facing challenges. Labour cost has increased due to a lack of supply of new migrant construction workers. Projects continue to face delays as productivity has dropped due to the necessary safe management measures in place at construction sites.

Mr Speaker, Sir, it is in this context that we need to provide further support to the built environment sector so that no one segment of the value chain bears a disproportionate portion of the overall burden. Let me briefly run through the proposals in turn – in Parts A, B and C of the Bill.

First, Part 8A of the Bill will provide a universal extension of time, or EOT, of four months for construction contracts.

Members may ask, why four months? Why this number? First, from 7 April to 1 June 2020, construction works stopped for approximately two months due to the circuit breaker period. Second, works were further delayed by at least two months as all dormitories were only cleared in early August 2020. This universal extension of time will reduce the administrative burden for contractors so that they can focus on restarting and ramping up work quickly and safely and adjusting to the new measures required.

For contractors who wish to seek a longer EOT beyond the four months, they can negotiate with developers or rely on contract provisions. Alternatively, contractors can also serve a Notification for Relief on the developer as a defence under section 6 of Part 2 of this Act, to disregard any liquidated damages payable under the contract due to delays.

Next, let me go through Part 8B of the Bill, which will require the built environment value chain – from builders to contractors to sub-contractors, to co-share additional costs due to delays in the project caused by COVID-19. For example, some contractors will need to rent machinery like tower cranes for a longer period, as works have been delayed.

The Bill will allow contractors or sub-contractors to claim part of these costs from their clients through regular progress payment claims. The amount will either be 50% of the total qualifying cost for anything done for or provided to or enjoyed by the clients in the specified period or 0.2% of the contract sum whichever is lesser. But the total amount that may be claimed under this mechanism is capped at 1.8% of the contract sum. This will ensure contracting parties co-share a fair amount of these additional costs.

In cases of disputes, contractors can submit an adjudication application under the existing Building and Construction Industry Security of Payment Act or SOPA framework.

The appointed SOPA adjudicator will be able to determine whether the relief applies, and if it does, he will then determine the amount to be co-shared between the parties.

Mr Speaker, Sir, finally, let me move on to Part 8C. As I described earlier, developers are also facing difficulties on their end. Even as they are required to provide the EOT to contractors and to co-share additional costs of the delay in Parts 8A and 8B respectively, they remain liable to deliver the units to purchasers according to the deadlines set in their sale and purchase agreements entered into prior to the pandemic.

It is in the interest of developers for projects to be completed in a timely manner and they have been working closely with contractors to do so, while ensuring compliance with COVID-safe measures.

However, there may be some instances where they are unable to meet the committed delivery date due to unexpected delays caused by the COVID-19 situation.

We have been encouraging developers who are unable to meet the date of delivery to first discuss with their purchasers and come to a workable and mutually agreeable arrangement.

For developers who are unable to come to an arrangement and require help, the Bill will allow them to seek relief on the date of delivery of possession.

Under Part 8C, developers who have faced construction delay due to COVID-19 and require relief may serve a notice for an extension of the delivery date by up to four months, in line with the EOT for construction projects that I described earlier.

Should the developer need relief of more than four months, they will be required to seek an assessor's determination of the length of construction delay materially due to COVID-19.

Let me assure this House that as we provide relief to developers, we recognise that purchasers face challenges on their end as well.

Hence, we want to support purchasers who have had to incur out-of-pocket expenses and costs due to the delay in delivery of the units.

For example, some purchasers may have had to rent accommodation or find alternative premises during the period of delay. As such, purchasers may seek reimbursement from the developer for these actual costs, up to a cap of 70% of the original liquidated damages that would have been payable to the purchaser for the delay, based on the terms in the agreement for the purchase of the property.

For HDB flats, purchasers can similarly claim up to 70% of the prescribed LD formula, which will be aligned with that of the formula stated in the Housing Developers Rules for private residential properties. This allows for co-sharing of such costs between the developer and purchaser. And if there are any disputes, parties can seek an Assessor’s determination.

Mr Speaker, Sir, to sum up, COVID-19 has been an unprecedented challenge to the entire built environment sector. The sector has been brought to its knees and is slowly standing up again, adjusting to a totally new operating environment.

In this regard, stakeholders of this sector continue to face significant financial, possibly legal burden due to COVID-19. Parts 8A to 8C of the Bill will help alleviate the hardship faced by these stakeholders. The aim of the amendments is to share the burden amongst the stakeholders while providing relief, to allow us to get through the crisis together.

Beyond this Bill, MND will continue to work with the stakeholders to help the built environment sector recover and preserve industry capacity for us to continue building and improving Singapore.

Mr Speaker: Minister Lawrence Wong.

4.35 pm

The Second Minister for Finance (Mr Lawrence Wong): Mr Speaker, let me touch very briefly on the provisions in this Bill pertaining to the remission of property tax.

Members will recall that to help businesses affected by the COVID-19 pandemic, the Government introduced a Property Tax Rebate for Year 2020 for non-residential properties, in the Unity Budget on 18 February 2020. This was later enhanced in the Resilience Budget on 26 March 2020.

Depending on the category of non-residential property, owners are granted a Property Tax Rebate of 30% to 100%. For example, a shop is granted 100% Property Tax Rebate, which is equivalent to approximately 1.2 months of rent.

Property owners are also required to fully pass on the benefit of the Rebate to their tenants within the prescribed timelines. This obligation is provided under Part 6 of this Act and the COVID-19 (Temporary Measures) Regulations 2020, or the PT Rebate Regulations, which came into force on 13 May 2020.

Later on, to further support tenants, the Government introduced the rental relief framework. And that came into force on 31 July 2020. Specifically, if the tenant-occupier is an SME or a specified Non-Profit Organisation or NPO, the rental relief framework effects rental waiver for the period from April to at most July 2020, depending on the type of property. For example, the owner of a shop is required to waive up to four months of rent for his eligible tenants, for the period April to July 2020. And the Government co-shares in this mandated rental waiver, by providing support through the Property Tax Rebate and a Government cash grant. For example, for a shop, the support by the Government, through the Rebate and the grant, is about two months, or about half of the four months of rental waiver which the shop owner is required to waive for his eligible tenants.

The issue that arises is that the existing PT Rebate Regulations do not take into account the rental relief framework, and this could result in unintended consequences, such as when there is a change of tenants during the year and the property owner is subject to the rental relief framework.

So, this Bill and the provisions in this Bill enables the Minister for Finance to make new or revised regulations, so as to ensure that the obligation to pass on the benefit of the Property Tax Rebate will take into account the rent waived under the rental relief framework.

These regulations are needed to ensure that the property owner will not become unduly worse off by having to pass on the benefit of the Property Tax Rebate to his tenants, on top of the rental waiver that is effected under the rental relief framework.

To give an illustration of how such an inadvertent consequence may arise, let us assume that there is a change in tenants during the course of the year, with Tenant A occupying the shop premises until July 2020, and then Tenant B comes in, occupying the premises from August 2020 onwards. If Tenant A is a SME, the shop owner is to waive up to four months of rent for Tenant A, from April to July 2020, under the rental relief framework. The owner should have then fully satisfied his obligation to pass on the benefit of the Property Tax Rebate of about 1.2 months of rent as well as some of the cash grant and he would have satisfied the obligation.

But under the existing PT Rebate Regulations, the owner is also required to pass on the benefit of the Property Tax Rebate to Tenant B, pro-rated at about 0.5 month. And this is not the intended outcome because the owner had already waived four months of rent for Tenant A under the rental relief framework and passed on the benefit of the Property Tax Rebate to Tenant A. So, the owner should not need to pass on any benefit of the Property Tax Rebate to Tenant B.

That is why the Bill provides regulations to be made retrospectively, to ensure that this position is maintained. And if the owner has already passed on the benefit of the Rebate to Tenant B, this Bill will also allow regulations to be made to allow the owner to recover the excess amounts from Tenant B in such circumstances. So really, the provisions are here just to ensure that the intended policy outcomes are effected and there is no undue burden on property owners.

Details of the regulations will be provided through subsidiary legislation and on IRAS' website when ready.

Mr Speaker: Order. I propose to take a break now. I suspend the Sitting and will take the Chair at 5.00 pm.

Sitting accordingly suspended

at 4.38 pm until 5.00 pm.

Sitting resumed at 5.00 pm.

[Deputy Speaker (Ms Jessica Tan Soon Neo) in the Chair]

COVID-19 (Temporary Measures) (Amendment No 3) Bill

Debate resumed.

Mr Vikram Nair (Sembawang): Mdm Deputy Speaker, I rise in support of both Bills. I declare my interest as a dispute resolution lawyer who handles insolvency matters in the course of my work.

The Insolvency, Restructuring and Dissolution Act or IRDA which came into effect in July this year is an important reframing and harmonising of the insolvency regime in Singapore, which was previously found largely in the Companies Act and the Bankruptcy Act.

The general principles governing the insolvency regime have been to ensure that all interested parties will have a say in the insolvency process, depending on their interest in the company. So, for solvent companies, the winding up process can be commenced by shareholders. For insolvent companies, typically, it is the creditors that commence the winding up process. This process, generally, requires public notification and an order by the Court. Interested parties can appear in Court and either object to or be heard in the process if they wished.

While many envision insolvency as a creditor-driven process, the insolvency process also provides important protections for debtors, including protections like moratoriums on enforcement actions and, in some cases, this will even permit the companies to operate. So, the current insolvency regime includes schemes of arrangement or judicial management systems which allow companies to continue to be run. This has the important benefit of preserving jobs for employees while also allowing creditors better recovery than a fire sale of assets.

The main downside of this process is that it can be costly and, for many small companies, especially those that have financial difficulties, the cost of such a process can be prohibitive. So, for small companies, they generally do not commence the debt restructuring process themselves and are often led into winding up or insolvency when one of their creditors finally decides to wind-up the company. Before that, it is likely that the creditors would have seized and sold whatever assets they could to satisfy their debts. So, what would be left may well be a rump company.

So, these latest amendments provide a more efficient and cheaper insolvency process. These amendments permit a company with the support of a special resolution – 75% of shareholders and two-thirds of its creditors in support – to apply to the Official Receiver to come under this regime. This should not be difficult to do if the company has a few creditors and only a few shareholders, which is the case for many smaller companies. Once these parties agree, it can go into this process and get a moratorium on its liabilities. Additionally, if the business is viable, it would be able to enter into a process similar to a scheme of arrangement which allows the management to stay in place and operate the company with a view to repaying creditors through operating the company.

This process may seem "rough and ready" compared to the insolvency process in the Courts. But I think it is a fair trade-off for lower costs and efficiency. The onus will be on company officers to ensure proper disclosures have been made in the course of the application process and all creditors will receive notification of the process and can participate if they wish. This, to me, is a very practical solution and I think it will work well. Of course, for this process to work effectively, the OA must have enough capacity to meet a caseload that would previously have been handled by the Courts and make decisions quickly as a moratorium can make the difference between life and death for small companies.

One last point, as I note that the main driver for these amendments is the COVID-19 pandemic and the need to put in place urgent measures to help businesses survive during this period. I would suggest that if this process proves efficient and effective, we should consider making these amendments a permanent feature of our legislation rather than just a temporary measure for these times.

In the second part of my speech, I will address the COVID-19 (Temporary Measures) (Amendment No 3) Bill. This is actually the fourth Bill in relation to COVID-19 put forward by MinLaw. COVID-19 has had a devastating impact on our economy, and industries like aviation, tourism, oil & gas and retail continue to remain under water. Our national carrier, Singapore Airlines, is on life support and, recently, Robinson's, once our flagship retail store, announced its plans to close its remaining stores in Singapore.

While many sectors have reopened, some do not have clarity on the horizon. This includes sectors like tourism, aviation and nightlife-related businesses. One of the features in the new latest COVID-19 amendments is a mechanism under section 42, which actually allows businesses to terminate obligations they would not otherwise be able to. But before doing that, they can actually trigger a process to renegotiate contracts and, in particular, paying slight rental obligations.

This, to me, is actually a very powerful mechanism, if we look at it from the prism of businesses that are affected. So, businesses may be locked into long-term contracts and this may be difficult for them to get out of. So, on the one hand, they cannot terminate the contracts if they are locked in, say, a two-year lease. But on the other hand, because their business is completely impacted, they have no way of making those payments. So, what this amendment does is that it actually gives companies like that an option to terminate the lease if they want to, an option they do not otherwise have. But what the Bill also hopes to for is that giving companies this option to terminate will allow them to renegotiate their existing obligations. I think this is a very powerful mechanism to help what we expect will be the weaker party in the contract, the one that is locked into unfavourable terms. I hope that all businesses act in the spirit of this legislation and actually renegotiate their obligations, rather than end up at the default termination if they do not.

But I should also mention while this mechanism is likely to give many smaller operators greater leeway in negotiations, it is also important that we do not forget that landlords, too, are likely to be affected by this range of measures. There is a whole spectrum of landlords. You may have big landlords all the way to small landlords. While we may not look at big landlords very favourably, it is also important to understand that many big landlords, especially the corporate ones, may have obligations to lenders who are financing their operations, they have employees to pay for. So, they would also have obligations. Of course, for smaller landlords, it is far easier to understand their plight. Some of them may have heavily leveraged to pay for properties and may require rentals to pay off their loans. So, these landlords may also be facing difficulties. Retirees are another group of people who may have investment properties and rely on rental income to pay for their retirement.

Related to this, I have two questions for the Minister. How will the framework ensure that landlords are not unfairly burdened by the termination of leases? Second, businesses will have six weeks to decide whether to invoke the framework and parties will have four weeks to negotiate, failing which the contract may terminate. Is it envisioned that landlords will face a sudden increase in vacant properties within a short timeframe? If so, what should landlords do in this situation?

Notwithstanding the questions I have raised, I believe this is a well thought through and necessary Bill that helps many businesses to continue or at least exit with less difficulty. I support the Bill.

5.10 pm

Mr Kwek Hian Chuan Henry (Kebun Baru): Mdm Deputy Speaker, I declare my interest as Advisor to the Federation of Merchant Association, which represents SMEs and micro-SMEs.

I stand in support of both Bills. The amendments are essential refinements in our response to the pandemic.

The COVID-19 Temporary Relief Act was described by Minister Shanmugam as a Noah’s Ark, with many moving parts to bring as many as possible to higher ground. The points I would like to raise today are on the temporary provisions regarding bankruptcy and insolvency.

With the “COVID-19 Temporary Relief” set to expire on 19 November, a large number of lawsuits are being prepared as a consequence. Similarly, the Moratorium which ended on 19 October will likely lead to a large number of bankruptcies and insolvencies through legal actions.

I would like to make two suggestions.

One, for some of the worst hit sectors, I propose restoring Part 2 of the Temporary Relief Bill, namely, the prescribed measures relating to bankruptcy and insolvency, for at least several more months.

Two, for these same badly hit sectors and, hopefully, even beyond, I also propose temporarily removing some of the penalties for directors of insolvent companies affected by the pandemic, so that they can meaningfully contribute to the re-birth and restart of their sectors.

Let me speak on my first suggestion. I applaud Part 2 of the Temporary Relief Act because it gives individuals and businesses breathing space. This was done by increasing the bankruptcy and insolvency limits as well as to extend the minimum number of days, from serving of a statutory demand, to serving notice of bankruptcy.

As of today, we have made excellent progress in controlling the pandemic. More and more of our economy is operating closer to normal, and Part 2 has largely served its purpose. However, there are compelling reasons to restore Part 2 for our worst hit sectors. Let me give a few reasons.

One, as we move towards Phase Three, many of these badly hit sectors could become financially viable again as safe-distancing measures get redefined. With support, many insolvent companies in these sectors may not need to go down that path.

Two, while the past six months have created a valuable breathing space, a large amount of effort and time was spent on clarifying the terms, such as the rental relief details and on refining the powers of the assessors. It is only until recently – based on my conversations with the SMEs – that creditors and debtors are better able to work together to support SMEs through this crisis. So, extending the runway will be beneficial and in Singapore’s best interests.

Three, for the badly hit sectors, our economic agencies will need more time to identify the way forward, to find higher ground for companies in those sectors. As an example, a clear way forward for some well-managed companies in these sectors would be to re-capitalise or to pivot to a new direction. But we have to ask ourselves are we giving the present Government schemes sufficient time to take effect, to allow them to make this happen? Is the equity funding part of our business eco-system ready to step up? Do investors or white knights have enough time to complete their due diligence? I believe that more time is needed for the Government to work with these sectors to reinvent themselves.

Four, we have a moral obligation to do even more to support these sectors. Even though we now have low number of local infections, we have extensive safe distancing measures because we need to keep our economy open. That means running the risk of imported cases as the situation deteriorates in many parts of the world.

To counter balance the risk, we are continuing with strong curbs in the events, entertainment and high-end F&B activities. Firms in these sectors are paying the ultimate price of our collective efforts to fight COVID-19. They deserve more time to work with creditors to find a way forward.

Five, many of our national retraining and reskilling efforts are under strain from the recent spike in unemployment and we need to give them more time to ramp up. By forestalling bankruptcies and insolvencies, we can buy MOM, WSG and E2I more time to help displaced workers find new opportunities.

Let me now focus on my second suggestion – temporarily removing some of the penalties of bankruptcy for the directors of badly hit sectors, so that they can meaningfully contribute to the re-birth and restart of their respective sectors.

The rise and fall of companies are part of any economic downturn and restructuring. In a normal downturn, when old firms fade away, new firms will seek new opportunities funded by new capital and the economy will rise again. But for the badly hit sectors, what we have is not a normal downturn. This is a mass extinction event, especially for SMEs – a global killer so to speak.

Of course, many of these sectors, especially the SMEs, will need to do things differently, or at least continue operating with restrictions for a prolonged period of time.

But when conditions allow for re-emergence of these sectors, when the green shoots emerge, Singapore could face a shortage of our top entrepreneurial and managerial talent, namely top business leaders who serve as the directors of businesses.

The personal consequence of insolvencies to the directors are severe. This is because bank loans to SMEs generally require a personal guarantee and it is frequently born by the directors.

Personal consequences include: (a) not being able to serve as a director of another company for a period of three years; (b) not being able to borrow more than $500; (c) not being able to travel without permission; (d) credit bureaus also to keep the bankruptcy records for three years.

The sum is greater than the parts. The result is that for several years at least, directors of many firms – the leaders of these badly hit industries – will not be able to raise funds and take an active role to transform their sector again.

Given that COVID-19 was something that was thrust upon these sectors, I hope our Government can, at least on a temporary basis, reduce the consequences for the directors of these badly affected sectors.

In conclusion, Mr. Speaker, we can and must do more to give more time for our badly affected sectors to work out the crisis.

In business, insolvency is always a distinct possibility. But in these worst hit sectors, what we are seeing for SMEs is a mass extinct event, an unpredictable collective disaster not easily foreseeable.

There will be a whole lot of hurt coming our way.

For the business leaders facing imminent personal bankruptcy, it can be a soul-crushing process, a destruction of a lifetime of hard work. For their families, it could mean changed lives forever, not to mention many years of financial distress. For their workers, it may mean a period of hardship until new jobs can be found.

It is our duty, as Members of this House, to do more, to prevent and reduce the pain. Notwithstanding my points, I give my full support for both Bills.

5.19 pm

Assoc Prof Jamus Jerome Lim (Sengkang): Mdm Deputy Speaker, I will speak about the proposed amendments to the COVID-19 (Temporary Measures) (Amendment No 3) Bill, calling it the realignment framework of 2020 and the Insolvency, Restructuring and Dissolution Act or IRDA of 2018, in tandem.

The underlining objective of both amendments to offer streamlined procedures for renegotiation, restructuring and potential termination of contracts, especially for smaller businesses, is well founded and both timely and pertinent in light of the disruptions introduced by the COVID-19 pandemic. I only wish to raise a few points – mainly on the scope of each Bill's coverage but also wish to take a step back and highlight the key big picture issues on the implications of a less onerous bankruptcy resolution regime for entrepreneurial culture, that the IRDA amendment Bill inevitably identifies.

The realignment framework stipulates that contracts signed prior to COVID-19 be made available to possible renegotiation or termination with a moratorium period pertaining to affected agreements. This is eminently sensible given the forced stoppage to economic activity imposed by the circuit breaker and other COVID-19 containment measures.

Construction contracts, in particular, are afforded a stay of up to 122 days for delivery. Madam, while I am certain that this duration was chosen carefully, it is unclear to me why the period is 122 days. Following Minister Desmond Lee's speech, my rusty Math now sees that it is basically four months. But by my count, the circuit breaker and Phase One lasted for 73 days; while that of Phase One to the start of the Bill is 136 days.

One is left to wonder how this cap of four months was actually chosen, given that it is not closely related to the specific phases and disruption periods that were identified by policy.

Perhaps more relevant, it is not so much the maximum number of days for which a delay is allowed but rather why there is no equivalent minimum. Here, I am keenly aware that I always seems to be harping about minimums these days.

Since the circuit breaker period coincided with a forced cessation of a wide range of economic activity, it strikes me that the moratorium should afford a default of a 55-day floor, which is consistent with the circuit breaker period. Importantly, while larger firms may well be able to accelerate their work schedules to meet or exceed unanticipated delays, smaller firms simply do not possess the economies of scale or scope to do so.

Of course, if delivery is possible within a shorter window so much the better. But allowing for a default, returns some bargaining power back to the small businesses which were forced to disrupt activity due to no fault of their own.

The other benefit of such a default is that small and micro businesses that possess limited understanding of the realignment framework can easily grasp the principle that an automatic extension of the contract terms for the duration of the circuit breaker period applies via this default.

This brings me to the related issue of how small firms will navigate the complexities of revised legislation. In particular, sections 68 and 69 simultaneously remove the right of appeal while limiting the ability of assignees to obtain informed advice in the Adjustment Relief Assessment process. While this stipulation can expedite what could well be a flood of assessments, it also presumes the accuracy of the official Assessor.

This introduces a clear asymmetry in the power dynamic between the two relevant parties. Perhaps a potential route of appeal with an alternative, independent Assessor, applicable to special cases, could be considered. At the very least, the circumstances by which the Adjustment Relief Assessor may permit the presence of legal representation should be spelled out.

As written, the IRDA Bill currently concurs significant discretion to the Executive to alter jurisdictional parameters by which the Act applies. In some instances, such discretion is well justified and increases operational flexibility. For instance, section 250F details specific eligibility criteria for firms' acceptance into the simplified winding up programme, but also allows for these values to be substituted by the Minister by order in the Gazette. Since it is difficult to ascertain whether these values, such as the threshold for sales turnover is set at $10 million, are optimal, the added flexibility is most welcomed.

However, in other instances, the discretion affords a very wide berth without clear justification for such leeway. In particular, section 72H and 250H allows the Executive to freely overturn acceptance and eligibility requirements. This could open up avenues for potential error, thereby, undermining confidence in the application of the Act.

Moreover, the language of the Bill does not limit the authority only to the Minister but also to all political officerholders, such as the Second Minister, Minister of State or Senior Minister of State and the Parliamentary Secretary or Senior Parliamentary Secretary. While I understand this allows secondary officeholders to act in the stead of the Minister should he or she be otherwise predisposed, we should be mindful that it also raises the risk of potential inconsistencies, as I have just shared.

I would like to suggest that we allow an independent institution such as the Courts, to be the adjudication authority instead. Alternatively, the Minister could provide a clear public explanation for every waiver that is granted.

As I alluded to previously, it is difficult to be certain ex ante whether the specific parameters used to define micro and small enterprises – the beneficiary targets of the IRDA Bill – are reasonable. I appreciate that the existing qualification criteria were not chosen in an arbitrary fashion, but it is also useful to recognise that the definitions for what constitutes a small enterprise differs worldwide. The 30-employee threshold specified in the Bill, for instance, would encompass medium sized businesses in Australia but constitute only small firms in the EU and US. And it would be a micro enterprise in Somalia.

That said, my point is not so much that definitions differ. Rather, given the inherent difficulty of establishing what constitutes a micro and small enterprise, and by extension, the nature of the firms which may be able to endure more complex restructuring and dissolution procedures, it may be valuable to consider the possibility of a tiered set of bankruptcy rules that apply to micro, small, medium and large enterprises, consistent with the likely complexity of the operations. Relatedly, it may be worthwhile considering qualifications subject to simply just satisfying one or two, rather than the set of all criteria.

Mdm Deputy Speaker, I believe that the aim of these series of simplified bankruptcy procedures and resolution mechanisms is to reduce the burden that small business owners face at a time where they may be facing significant distress due to COVID-19. While it is important that such firms be allowed to fail when the economy is operating far below potential, as is likely the case in Singapore today, over zealous persecution could wipe out the income of the firm's erstwhile workers which would otherwise have been available to spend on the economy, which may end up in turn, prolonging the recession.

However, it is also equally important that we understand what the trade-offs we are making are. Excessively forgiving bankruptcy procedures can delay foreclosures on non-performing loans, enabling firms that would otherwise fail to keep operating. Such zombie firms, as Minister Edwin Tong clarified, can be detrimental to economic vibrancy and can inhibit the growth of other non-zombie firms, as the experience of Japan in the 1990s amply demonstrates.

On the flip side, there is substantial evidence that appropriately designed restructuring procedures can encourage entrepreneurship, especially for small business owners who would otherwise assume their firms' debts as personal liabilities.

Less onerous insolvency legislation can also promote opportunity-seeking and innovation orientation. As we transition our economy towards a knowledge and information-driven one, the continued refinement of IRDA would play an important role in cultivating a culture that is more willing to take on calculated business risks.

Whether we decide on permanently codifying the temporary measures introduced by the IRDA amendment Bill, then lies in our assessment of whether these reforms are deemed to have fulfilled their objective of improving the business climate for small and medium enterprises – not just during this COVID-19 period, but beyond.

To that end, it is imperative that we embed the tools to evaluate the efficacy of the law even as we begin to roll it out in earnest. At the simplest level, this would entail complimentary collection of relevant data on firms that avail themselves to the simplified regime versus those that decline it. In a similar spirit, more systematic sector-by-sector tracking of the performance of small firms deploying further provisions should also be undertaken.

Notwithstanding these additional points of feedback, I do support both Bills.

Mdm Deputy Speaker: Mr Derrick Goh.

5.31 pm

Mr Derrick Goh (Nee Soon): Mdm Deputy Speaker, I would like to thank the Second Minister for Law for the swift action taken on the amendments to the Insolvency, Restructuring, and Dissolution (Amendment) Bill and the courage to introduce the COVID-19 (Temporary Measures) (Amendment No 3) Bill.

The amendments taken together is a holistic approach as the Bills are complementary and reinforce each other to assist small and micro businesses. However, we must keep in mind the reality that some micro and small businesses will never recover.

The good part, Mdm Deputy Speaker, is that my understanding is that these Bills are essentially for these entities to elect. So, I am a bit confused when the hon Member Jamus Lim spoke about the challenges in terms of the use of independence and additional lawyers to support the move to essentially recover from the challenges posed by the pandemic for these small and micro businesses. In fact, the Simplified Insolvency Programme or SIP seeks to help businesses that need to recover quickly, restructure their debt obligations to keep the businesses going or to have a simplified and orderly exit if there is no better alternative.

The existing insolvency process today, while useful, takes time and is expensive. And in this case, the amendment allows more than micro businesses that are already struggling and cannot afford more costs. As such, the SIP is a welcome response to meet the urgent needs under this pandemic condition. That is why I said, it is an option and Small and Micro businesses that do not feel that it benefits them, need not move and elect for these remedies in this Bill.

I now turn to the COVID-19 (Temporary Measures) (Amendment No 3) Bill. The intent is to help eligible businesses impacted by this pandemic to focus on the future and not be stuck in unproductive positions is a positive move. On this, I wish to raise three areas: two on the eligibility criteria and the third on how the current Bill works with the rental relief framework, that will impact the effectiveness and execution of the Bill, for Minister's consideration and clarification.

On the eligibility criteria, the use of (a) revenue drop to identify businesses impacted and (b) business size to ringfence this remedy for smaller companies is logical. However, I would request the Minister to ensure that such interventions are well calibrated to ensure a balanced and fair approach to all businesses.

The reason for this is that our Government must advocate for our businesses that sit on both sides of the contract. A clear example would be in the area of leases, where there is a clear need to take care of not just tenants, but also landlords. So, there is a need minimise interference in the risk-taking between parties that is at the heart of business activities and the spirit of entrepreneurship.

Further, for this amendment Bill to be helpful, the criteria for the revenue drop should not be too conservative, else it would only cover companies that are already deeply in the red, facing imminent solvency issues.

In the example of a successful small businesses in the F&B industry, with a healthy 30% profit margins last year, this means that with a 30% drop in revenue this year, the business would already be bottom-line break-even. Under this pandemic situation, small businesses operating at half of its previous turnover is not uncommon. This means that a high revenue drop eligibility criteria requirement would be of little assistance to businesses that are already struggling.

Further to the above, I also seek the Minister's consideration on calibrating reliefs for certain agreements. I believe that for example, tenants that are stuck in fixed rental lease agreements are in greater need of the present reliefs tabled compared to those leases which vary with the turnover of the tenant.

Regardless of what the eligibility criteria might be, this amendment Bill might potentially have a negative impact on some businesses that narrowly miss the threshold. I think Minister gave some examples earlier on and these examples are not unlikely to happen, where in the case of a tenant-landlord relationship, as an example, it is probable that the position of a landlord of a non-eligible business might harden. He may be emboldened not to negotiate as the landlord would be aware that the tenant will not be eligible to terminate his lease without incurring sizeable penalties. This can potentially happen, which runs contrary to the good intentions of this Bill.

I now turn to the last part, which is my query on the interoperability of the earlier rental relief framework and the present framework.

I understand that there have been businesses that have availed themselves to the rental relief framework but have continued to perform poorly and have been incurring substantial financial losses. Such businesses now may wish to then invoke the reliefs under the present framework to exit their businesses notwithstanding the previous assistance they had benefited from. Can Minister clarify whether such entities can still benefit from this Bill?

In concluding, Mdm Deputy Speaker, the Bills represent a proactive step by the Government, which I believe will be welcomed by the public. It is tough to find the exact balance to avoid under or over-correction. Under-correcting will lead to helping fewer deserving entities, while over-correcting will distort the market. But we cannot fear to act, to do the right thing. Hence, the courage that I spoke about earlier of the Government and Second Minister for Law for tabling these Bills.

For the policy intent of these Bills to be effective on the ground, the various criteria need to be calibrated appropriately where a conservative starting point ought to be held without being too conservative should be considered and sufficient latitude be given to the expert assessors to achieve a just and fair outcome for deserving cases. Mdm Deputy Speaker, I stand in support of these Bills.

Mdm Deputy Speaker: Mr Louis Ng.

5.39 pm

Mr Louis Ng Kok Kwang (Nee Soon): Madam, the IRDA Bill aims to alleviate difficulties that may be faced by micro and small companies or MSCs during COVID-19.

Many businesses, including our MSCs, may not be able to weather this storm. If they are to survive, they may need significant restructuring. The Bill recognises the reality that the experiences of MSCs facing restructuring or winding up are going to be very different from that of companies with more substantial assets. I commend the effort to streamline the processes for MSCs that are in this position. I also support the COVID-19 (Temporary Measures) (Amendment No 3) Bill which addresses difficulties faced by another group – companies in our construction sector.

I have three points of clarification for the IRDA Bill and one point on the COVID-19 (Temporary Measures) (Amendment No 3) Bill.

First, the IRDA Bill lowers the threshold vote from creditors required to commence restructuring. Currently, approval from a majority of creditors holding 75% in value of the debt owed must be obtained to approve a Scheme of Arrangement. This Bill lowers the threshold from 75% to two-thirds.

The threshold is important because a company that is able to continue without intervention should not be forced to undergo restructuring at the whims of a small number of creditors. Restructuring may also compromise the rights of creditors, including those that vote against approving it.

To ensure that we strike a correct balance, will Minister share what further safeguards are in place to help businesses in the face of potentially overzealous creditors? Related to this, can Minister share what guidance is provided to MSCs and their creditors in deciding whether and when to undertake restructuring? For instance, I understand that Credit Counselling Singapore will administer the restructuring assistance scheme for sole proprietorships and partnerships. Can Minister share if the Simplified Insolvency Scheme will be complemented by programmes that provide closer guidance for MSCs and their creditors through the restructuring process?

Second, the new subsection 50(1A) allows exempted individuals to hold an insolvency practitioner’s licence without being "a qualified person." The licensing regime for insolvency practitioners was introduced in the Insolvency, Restructuring and Dissolution Act 2018. It was a welcomed move to increase professional standards in this area.

However, allowing exemptions to basic qualifications required of insolvency practitioners, so soon after the new regime is in place to raise standards, might send a contradictory message on the expected standards of insolvency practitioners.

Can Minister clarify in what situations does the Ministry intend to use this exemption clause? What checks and balance will be in place to ensure that exempted individuals perform to the standards expected? For example, will exempted individuals be required to hold any basic qualifications? Can Minister clarify if this exemption is intended to cope with the short-term increase in case-load from the fast-track process or is this intended to be a general longer term exemption? Can Minister also share if exempted individuals will be provided with any guiding principles on how to apply the relevant insolvency principles in relation to winding up or restructuring?

Fourth, although the fast-track process introduced by the Bill is limited to just six months, it is very possible that the effects of COVID-19 on small- and medium-sized MNCs will exceed this duration. Will Minister explain what factors were taken into account when stipulating this specific duration of time? Will there be any possibility of the fast-track process being extended and what are the factors that determine this extension?

Further, the intention behind the Bill of allowing smaller companies to avoid the increased costs and time associated with the usual court process should continue to apply after we have emerged from this crisis. Will Minister therefore share if the Ministry will consider adopting the provisions of this Bill on a permanent basis for MSCs and possibly even all SMEs in the future?

For my final point, I turn to the COVID-19 (Temporary Measures) (Amendment No 3) Bill.

The universal extension of time is a welcomed move. I understand there are currently some uncertainty on whether an extension of time automatically applies once a contractor has applied for relief from liquidated damages under Part 2, section 6 of the current Act. As a practical safeguard, some contractors may be legally advised to continue applying for an extension of time pursuant to the contract provisions.

However, this gives rise to its own set of issues. Importantly, an extension of time under the contract may be discretionary. Further, condition precedents for the extension of time stated under the contract may not have been fulfilled. I understand this is a common defence raised.

The universal extension of time of four months addresses this uncertainty. However, contractors who require relief for a longer period of time may still have to seek recourse under part 2, section 6 or negotiate under their contract provisions.

In this event, can the Minister clarify whether an extension of time automatically applies where a contractor applies for relief and serves a Notification for Relief? If so, can the Minister clarify how this extension of time beyond the four-month period interacts with the contract provisions on extension of time?

Madam, notwithstanding these clarifications, I stand in support of both Bills.

5.45 pm

Mr Patrick Tay Teck Guan (Pioneer): Mdm Deputy Speaker, I rise in support of the Insolvency, Restructuring and Dissolution (Amendment) Bill which will establish a simplified insolvency programme.

The intent of this programme is to provide a simplified process for eligible companies that require support, to: restructure their debts to rehabilitate the business, or wind up the company as the business has ceased to be viable.

The programme focuses on assisting small companies by providing simpler, faster and lower cost proceedings for eligible companies, for example, for simplified debt restructuring, requiring one Court application, instead of two Court applications in a typical scheme of arrangement. In respect of a simplified winding up, the process is based on the voluntary winding up process, instead of a Court-ordered winding up, and removes the necessity of a Court application to place the company into winding up.

The simplified proceedings may help to reduce the time and costs involved in conventional insolvency processes which, in turn, may help to somewhat increase the overall pool of assets and monies to be eventually used to satisfy a company’s debts.

For simplified debt restructuring, it may help certain businesses rehabilitate and survive this economic downturn which, in turn may help to preserve certain jobs.

However, as the primary intent of the programme is to assist troubled companies, it, therefore, means that the programme does not significantly improve the position of workers with owed salaries or retrenchment benefits. This is something I have raised on several occasions in this House. In the event that a company has to wind up, even though there is a priority of debts provided in the Act, workers’ outstanding wages and salaries remain unsecured debts, which may result in a situation where there are little assets left to pay these workers’ salaries and benefits, including those provided in their collective agreements, after all the company’s secured debts have been satisfied.

In the event the company survives and continues its operations, an unpaid worker may still need to go through a protracted enforcement process against the company to recover unpaid salaries and retrenchment benefits where provided and applicable. Even then, there is no guarantee that the worker would be able to recover all his outstanding salary, retrenchment benefits or benefits under their collective agreement. This is further exacerbated during recent times when companies undergo insolvency or other related proceedings, such as judicial management and receivership. In any event, there is little or no recourse for both workers and unions as a moratorium of sorts prohibits the enforcement of rights under a collective agreement or any other due process. Although a leave of Court could be obtained, this has to be done through legal processes which may be too onerous, involve costs and, sometimes, beyond the reach of workers and unions.

A good example would be the latest announcement of the closure of Robinson's Department Store last Friday. Robinson's is a branch of the Singapore Manual and Mercantile Workers’ Union for which I am their Executive Secretary. The union is in talks with the management and the liquidators. In fact, in this latest Robinson's saga which caught many unawares by the sudden closure, there are broadly three main groups that will be impacted.

First, for the 175 workers, a number long-serving and loyal, their fate remains uncertain, as they are unsecured and, as such, rank low in the priority of debts if the liquidation goes ahead. It is disconcerting that workers who stay on to help the company out of loyalty may be left with little or nothing at all.

Second, the SMEs and vendors that are in business with Robinson's. Over the past few days, there have been several news reports quoting vendors who have come out to state that they have been unpaid for months. This is worrying, as it also signals a possible snowball effect, where a company not duly paid and, therefore, has its business viability threatened which, ultimately, may lead to unintended impact and consequences on the livelihoods of workers employed in these SMEs.

Third, not to forget the many Robinson's customers who have bought and paid for items but have yet to receive those items, who now have to deal with the liquidators and left in the lurch.

It is laudable that the Bill seeks to help companies and businesses by simplifying and expediting relevant insolvency proceedings during these difficult economic times.

However, in the same vein, many workers have had their livelihoods impacted in this period of economic uncertainty. Hence, there should also be more direct assistance provided to support workers who seek to recover their unpaid wages, salaries or benefits by simplifying and expediting the enforcement of recovery proceedings. This is especially pertinent where the employer companies are experiencing financial difficulties and there are limited assets to satisfy all creditors. By the same token, vendors that have business with the company as well as consumers should also be accorded some form of protection in such scenarios.

Madam, suggestions notwithstanding, I stand in support of the Insolvency, Restructuring and Dissolution (Amendment) Bill.

Mdm Deputy Speaker, I will now speak on the COVID-19 (Temporary Measures) (Amendment No 3) Bill which I am also in support of. We are in challenging times and the introduction of this No 3 Bill and its attendant initiatives are laudable.

This new Bill provides for contracts already entered into, to be renegotiated. This is something novel amidst these unprecedented and uncertain times. Renegotiation would aid businesses to survive the brunt of this downturn, as many of them had entered into contracts when the outlook was very different. The pricing model and assumptions as to costs were also quite different. Forcing them to continue with those terms or face liquidated damages would cause severe hardship to many SMEs and micro-SMEs, especially those who just started business before COVID-19. The survivability of companies and businesses also has ramifications for jobs and workers. As such, this ability to renegotiate will go some way to help many of these SMEs and micro-SMEs stay in business and re-balance themselves. In this regard, can MinLaw consider outlining certain set parameters for renegotiation which can help as many of these companies as possible?

Notwithstanding – although this renegotiation sounds plausible – I submit that we need to tread carefully and with caution and limit the scope of what we can and are able to do. This is to ensure that the fundamental principle of contractual sanctity is upheld and not undermined.

Finally, I would like to raise an issue on the decisions of assessors which is provided in the Act. I have residents as well as fellow practitioners who have given me feedback and raised questions and eyebrows over some of the decisions made by the assessors where a claim or dispute is brought before them under this Act. I am aware the decision of the assessors is final but is there any other recourse which can be taken in the event where a decision is manifestly prejudicial against a non-offending or innocent party?

Madam, clarifications and suggestions notwithstanding, I stand in support of the COVID-19 (Temporary Measures) (Amendment No 3) Bill.

5.53 pm

Mr Edward Chia Bing Hui (Holland-Bukit Timah): Mdm Deputy Speaker, it is universally accepted that COVID-19 qualifies as a “black swan” event with significant consequences. Since April, we have been responding well to these consequences and must continue to do so because the months ahead will continue to be challenging for our country and economy.

MinLaw has made strategic changes to our laws, thereby enabling Singapore to be highly adaptable and flexible, which is essential for our businesses. Many of these contracts were signed in one particular context. Now that this context has changed, we need to provide a fair and transparent way to redesign these contracts that leads to a win-win situation for all contracting parties.

This provision of the Re-Align Framework in COVID-19 (Temporary Measures) (Amendment No 3) ensures that these contracts entered earlier do not allow one party to subject the other to a disproportionate financial and legal distress arising from COVID-19. In other words, the framework allows affected businesses to renegotiate and rebase their contracts, failing which the contracts may be terminated with prospective obligations extinguished. This approach is extremely practical to ensure that Singapore’s legal framework for businesses continues to be responsive and competitive.

I strongly believe that Singapore needs to support our businesses by giving them the opportunity to re-start and the Re-Align Framework is certainly a tangible effort in that direction. I hope that “Re-Align” signals the continuation of contracts with new commitments, rather than an immediate termination of contracts. We hope that these renegotiations lead to a continuation of the existing contract with new and acceptable obligations so that businesses grow with certainty, thereby protecting jobs and livelihoods of our Singaporeans.

Earlier in my maiden speech, I also spoke on how the rental relief framework for SMEs have been beneficial, providing peace of mind for our businesses. I propose an extension of the categories within the current rental relief framework to include other debts so that it provides businesses with a longer runway to pay their debts while attempting to restart their businesses. The simplified insolvency programme in the IRDA Bill provides this process for the restructuring of debts to any eligible company that seeks to enter into a compromise or an arrangement between the company and its creditors or any class of those creditors. This offers mental wellness for our entrepreneurs that old debts are managed. They can focus quickly on restarting their businesses, creating jobs and contributing to the overall economy.

Regarding the amendments made to both Bills, I have two considerations and two clarifications that I would like to put forward to MinLaw. One of my considerations is to urge the Ministry to set evaluation criteria that would cover a large majority of companies, so that the intent of the amendment is broadly achieved. On my second consideration, I would like to recommend providing other types of qualifying criteria other than aggregate group revenue, such as EBITA, as companies in the same industry may have different cost and margin compositions. For example, a $4 million revenue grossing furniture retail company will have different profitability and employment sizes, compared to a $4 million grossing electronics retail company.

Adding to this point, I would like to further propose having a different qualifying criteria for different industries, as businesses in different industries have varied margins and the ability to withstand shocks. For instance, a $50 million grossing company in pharmaceuticals is very different from one in services. Therefore, additional evaluation criteria, other than revenue, recognises intra-industry nuances, and an industry-specific approach to recognise inter-industry differences, will help to save businesses and jobs effectively.

On my clarifications, firstly, I would like to ask if the framework could include sunk costs by tenants, such as exhaust system, M&E systems, fire suppression systems to offset outstanding obligations. This is because such fixtures could eventually benefit the landlord in the event of a contract termination. The landlord in this case would have a fitted-out unit to lease.

Secondly, I would like to ask what would be the approach used to compare revenue differences between financial periods in 2019 and 2020. Would this be audited accounts? If so, most companies would not have audited accounts for the period in 2020.

Mdm Deputy Speaker, notwithstanding the considerations and clarifications I have raised, I rise in support of both Bills and the broad principles of the amendments made to provide opportunities for businesses, especially SMEs and even micro ones, to discover potential solutions, given the unique circumstances. When both parties approach with such a rational and progressive mindset, the amendments to these Bills can be very successful in helping all parties navigate through these tough times.

I would like to end my speech by reiterating the famous saying, “tough times do not last, tough men and women do”. With such adaptable and flexible approaches by the Ministry, I believe tough businesses will outlast tough times.

Mdm Deputy Speaker: Ms Hany Soh.

6.00 pm

Ms Hany Soh (Marsiling-Yew Tee): Mdm Deputy Speaker, thank you for allowing me to speak on the two Bills.

I would first like to declare that I am a practising lawyer, a director in a law practice involved in dispute resolution work, a member of the Law Society of Singapore and the co-chairperson of the Law Society's Pro Bono Services' Community Legal Clinics' Committee.

Over the past few months, we have witnessed how the COVID-19 pandemic has wrecked economic devastation on our people. It would be an understatement to say that many Singaporeans are badly affected by these economic difficulties and that it would be a long cold winter ahead for many more.

The small and micro businesses are the backbone of our economy, many of which have the potential to continue their businesses despite the on-going pandemic by adopting new practices. However, there are still more that are suffering. For instance, the night-life industry and travel and tourism-related businesses are still struggling due to their inability to resume operations, causing them to experience a tremendous drop in revenue while their financial obligations continue unabated.

The owner of one of the buffet restaurants that catered mainly to tourists during pre-COVID-19 days had shared with me recently that while he is appreciative of the Government's grants and support systems that we have offered, his business continues to suffer and struggle with revenue as his customer pool has dwindled. Yet, his business operation costs have only gone up while the arrears in rental fees continue to accrue.

Mdm Deputy Speaker, I have previously shared with this House about my "GEL" mission in Woodgrove. "G" pertains to green living, "E" is about embracing parenthood and "L" is about law awareness.

For the past few months, many residents have either written to me or met me at the Meet-the-People Sessions to enquire about the legal issues that they are facing. There are two relevant scenarios that I would like to take this opportunity to share with this House.

Firstly, a business partner of a travel agency. She wrote to me expressing her concern about the debts that she has been owing as a result of the failing business. Secondly, an elderly couple who rely on collecting rental income from their shophouse came to my Meet-the-People Session and shared with me that their tenant, who runs a restaurant, has not been paying their rental promptly.

It is clear that the persons in both scenarios continue to suffer from the pandemic's effects, whether it be worrying about one's business or how to enforce their rights as a landlord in this trying time.

Upon perusing the Bills, I am heartened that these situations stated therein are applicable to the two scenarios concerning my residents, which I have shared earlier and will, hopefully, put them at great ease.

The Simplified Insolvency Programme SIP under the Insolvency Restructuring and Dissolution (Amendment) Bill can assist financially distressed small and micro companies to restructure their debts, rehabilitate their business or to wind up the company when the business has ceased to be viable. At the same time, the Re-Align Framework, as provided for in the COVID-19 (Temporary Measures) (Amendment No 3) Bill, will assist businesses to re-negotiate and re-base their contracts, failing which, the contracts may be terminated with prospective obligations extinguished. The Re-Align Framework will also enable the smaller landlords in financial hardship to have additional compensation for early termination of contracts.

With that said, I would like to ask a few questions about the execution of the two Bills.

Just like SIRS, I anticipate that the Re-Align Framework will invite much interest and many applications by business owners whose businesses have been adversely affected as a result of this unexpected COVID-19 pandemic. How will the Ministry ensure that the assessor panels are adequately staffed so as to be responsive to the applications made within a short time period?

While the realigned framework and SIP are beneficial, we need to raise awareness to ensure that those eligible will know how to apply and are encouraged to do so. In this regard, what assistance, including legal assistance, will be provided to help these businesses understand their options and to advise them on whether and how to invoke the right framework or programme?

One suggestion that I have is to consider introducing an informative flow chart – something similar to the handout tool issued by MinLaw to the House earlier – a navigation guide to enable businesses to better understand whether they are eligible and the steps to take to invoke the framework or SIP.

I would also like to seek the following clarifications pertaining to section 69 of the COVID-19 (Temporary Measures) (Amendment No 3) Bill, which states that "no party may be represented by an advocate and solicitor at proceedings before an adjustment relief assessor, except with the permission of the adjustment relief assessor". Under what circumstances will permission be actually granted by the assessor?

The general perception is that engaging a lawyer equates to hefty costs and protracted proceedings. However, legal representation actually has its benefits. In recent years, at the Courts' encouragement and with the support of the Law Society of Singapore, the role of lawyers have begun to shift towards facilitating disputes to be resolved amicably between parties without resorting to lengthy litigious Court proceedings.

I take the position that we should recognise that lawyers should still be allowed to play a vital role in the execution of the two Bills. Lawyers can advise and ensure that both the applicant and respondent follow the correct rules and procedures and draft the necessary documents required – and not just pertaining to what Assoc Prof Jamus Lim has suggested earlier in the House to include a course of appeal and for legal representation to be granted for the appeal proceeding.

One suggestion I have after taking into consideration the concern of my Parliamentary colleague, Mr Derrick Goh, which he has shared earlier – that small and micro businesses affected are already struggling and cannot afford more costs – is for the Ministry to consider collaborating with the Law Society of Singapore to establish an enabling framework akin to what the Community Justice Centre has done for smaller claim cases, like the Primary Justice Project (PJP), where a volunteer lawyer would charge a flat rate for consultation and another flat rate if further assistance is required to file the necessary papers or prepare for the assessment hearing. The flat rate will be less than the normal market rate, taking into account what will be deemed as affordable and fair for both the client and the lawyer. In addition, a Community Legal Clinic can also be set up specifically to assist those who are unable to afford this discounted flat rate.

In conclusion, Mdm Deputy Speaker, notwithstanding my request for clarifications and suggestions, I stand in support of the two Bills.

Mdm Deputy Speaker: Mr Xie Yao Quan.

6.08 pm

Mr Xie Yao Quan (Jurong): Mdm Deputy Speaker, I have led medical operations in purpose-built dormitories to support migrant workers during the height of infections in the dormitories. I have also had the privilege to speak to contractors and sub-contractors and visit construction sites that are in the midst of restarting construction activities. So, I have had a first-hand glimpse into the extent of disruption that the COVID-19 pandemic has caused to the construction and property sectors.

With regard to MND's proposed amendments to the COVID-19 (Temporary Measures) Act to provide further relief to the built environment sector, I would like to raise three points.

Firstly, on the co-sharing of non-manpower-related additional costs. While I welcome the move, anecdotally, it has not been easy in the first place for contractors and other players to fully account for the additional costs caused by the pandemic. For example, movement restrictions mean their supervisors who are on S Pass and with lodging outside the dormitories now have to take private transport. These incremental costs are hard to capture fully but these things add up.

Secondly, on the universal extension of time, I would like to suggest that the proposed amendment be extended beyond contracts between developer and main contractor to cover contracts between contractor and sub-contractor. This would provide further support for a larger portion of the value chain – support sub-contractors who would otherwise have to negotiate with main contractors under current provisions of the COVID-19 (Temporary Measures) Act.

Thirdly, also on the universal extension of time, I would like to recognise that for most industry players, the disruption caused by COVID-19 has gone well beyond four months. Indeed, there may yet be further disruption, the extent to which remains highly uncertain as rostered routine testing for construction workers continues and the possibility remains that groups of workers would continue to be quarantined from time to time. But a four-month universal extension of time strikes a practical balance and gives contractors a legal option besides negotiating for relief, a legal option that offers more certainty.

I hope the Ministry has consulted the industry widely for this proposed amendment and has achieved broad buy-in. It would also help the industry if potentially disruptive safe management measures like the quarantining of workers could be applied more consistently. There has been feedback about apparent inconsistencies on the ground whereby some workers get quarantined but others in similar circumstances do not. These inconsistencies add to the frustration.

That said, I know our officers implementing these measures have been working very hard and trying their level best. In this respect, I hope the BluePass tokens for targeted contact tracing amongst the construction worker community will be a game-changer.

Ultimately, these measures, while potentially disruptive, reflect a new normal that the industry must adapt to in order to resume construction activities safely. The additional pain will persist but our construction industry is rising to the occasion. As long as everyone continues to play its part and share the burden, we will get through this together.

Mdm Deputy Speaker, in Chinese, please.

(In Mandarin): [Please refer to Vernacular Speech.] COVID-19 has dealt a severe blow to the construction and the property sectors. The numerous measures introduced by the Government have prevented a total collapse of these sectors. The immediate challenge will be to help businesses recover slowly under the new normal.

Under this new normal, project arrangements will be more complex, operating costs will rise and the supply of foreign workers may be interrupted from time to time. Hence, I support the Government's proposed amendment to the COVID-19 (Temporary Measures) (Amendment) Bill to provide more certainty and fairer protection for contractors, developers and the individual businesses along the entire value chain.

At the same time, I would like to urge the Government to continue to improve the testing regime and safety measures such as quarantining and complement with legal measures. By adopting this two-pronged approach, the Government will help businesses tide over this difficult time and emerge stronger.

(In English): Mdm Deputy Speaker, the above notwithstanding, I support the Bill.

Mdm Deputy Speaker: Mr Murali Pillai.

6.14 pm

Mr Murali Pillai (Bukit Batok): Mdm Deputy Speaker, the COVID-19 (Temporary Measures) (Amendment No 3) Bill was presented in this House on a Certificate of Urgency for First Reading just yesterday. It would be good to recount that in this crisis year, not only did we have five Budget Debates, through which we infused an extraordinary sum of money and implemented decisive measures in the fight against COVID-19, we also passed three Bills on Certificates of Urgency dealing with the economic impact of the COVID-19 pandemic on businesses. This is the fourth urgent Bill.

This is a testimony to the intense efforts that have been put in by the whole-of-Government to help Singapore and Singaporeans as well as Singapore businesses navigate through this crisis. This is a point that the hon Member Mr Edward Chia just made a few minutes ago.

The fact that we have been able to move speedily to consider and, if found appropriate, implement these legislative measures to provide the adaptation and scaffolding necessary for our businesses to climb out of the economic difficulties they face is commendable and sometimes can be taken for granted, but it should not be so.

In his speech, the hon Minister outlined the reasons why he believes the economic outlook is not likely to change in the near term. This means that small and micro businesses are particularly vulnerable.

It is against this context that I fully support the Re-Align Framework introduced in this COVID-19 Bill to help small and micro-businesses as we transition from the "resuscitate" phase to the "rejuvenate" phase, in the strategy that the hon Deputy Prime Minister Mr Heng Swee Keat articulated in his Ministerial speech last month.

Amongst the potential beneficiaries under the framework would be Mdm Prabha who is one of my residents. She runs a mini-mart from a rented premise. She informs that before COVID-19, she was already impacted by dropping profits brought about by changing habits of residents. Since COVID-19 struck, she has not made a profit because the footfall dropped even further. She now has a serious cash flow problem arising from her commitments to her vendors and landlord based on pre-COVID-19 contracts.

Another resident of mine who may potentially benefit from this framework is Mr Andrew Neoh. He is a blind masseur who rented premises to run his business. His business ceased during the lockdown period. He benefited from the rental relief introduced under "COVID 2". However, his business continues to decline and he is unable to meet his financial commitments under pre-COVID-19 lease.

For businesses run by people like Mdm Prabha and Mr Neoh, if we do not do anything, many small and micro businesses will fold and a lot more Singaporeans will be out of jobs. This will exacerbate an already rising unemployment figures. No doubt, there will be a knock-on impact on families and society too. That would not be a correct move.

Also, there are implications for the future when SMEs fold leaving behind only the big players.

The hon Senior Minister Mr Tharman Shanmugaratnam identified this in an illuminating article entitled "The Global Jobs Crisis & Why We Should Think Longer Term" that was published in Straits Times on 31 October 2020. He said, and I quote, "We need strategies to ensure that the SME sector survives and adapts to the new post-pandemic normal, to avoid much larger job losses in time as well as greater wage inequalities...While a churn of businesses is inevitable and needed, there is a real risk of a diminished SME sector as a whole, compounding the increases in industry concentration seen over the last few decades in many economies. That trend if it continues will have implications for future economic vibrance. It will likely also have an intangible impact on social capital."

Currently, it would be difficult for small and micro-businesses to be able to lawfully terminate the pre-COVID-19 contracts without adverse consequences. As the hon Minister pointed out, firstly, they need to go to Court. This would mean that they have to raise funds to instruct lawyers. This is, in itself, a bridge too far for many of them.

Secondly, from a legal standpoint, their cases are not straightforward. They would have to invoke the doctrine of frustration. Under this doctrine, a contract may be discharged if an unexpected supervening event makes it impossible for the contract to be performed. As the hon Minister pointed out, whilst the COVID-19 pandemic is an unanticipated supervening event, the economic consequence and significance on each individual contract is likely to differ. Given that the Courts apply this doctrine strictly, it would be difficult to predict whether it can be raised successfully.

The Re-Align Framework offers small and micro-businesses suffering from serious drop in their revenue a ready option to re-negotiate their contracts with their counterparties within a contained period failing which the contracts may be terminated. Disputes arising from these matters will be referred to the assessor for final determination quickly. This is a much better option for small and micro businesses.

I do appreciate that some counterparties may feel aggrieved over this arrangement. The hon Minister dealt with this point in his speech. Apart from the point that he made that these micro businesses are already financially distressed, I would add further that the ability to negotiate a contract would actually provide a win-win situation or at least have a potential to provide a win-win situation, given these market conditions.

I have two questions and two suggestions for the hon Minister.

First, there is a need to properly categorise the SMEs that may invoke the relief measures under this Bill. And this is a point that a number of hon Members who spoke before me also raised.

In the proposed Second Schedule, Part 3 of the Bill, the eligibility criteria is to be based on the SMEs' revenue in the past and the revenue drop in the current situation. And this is proposed to be prescribed in subsidiary legislation.

May I ask the hon Minister what approach he will take to decide on these matters? As this is an important decision, I would imagine that the hon Minister would have already conducted some consultation with industry players before determining the figures.

The hon Member Mr Edward Chia suggested having bespoke figures for each industry. While I can understand his approach, my respectful counter is that we may not have the benefit of time. We cannot be debating on the figures because there are small and micro businesses suffering and they would appreciate these measures to be given as soon as possible.

Whichever way the hon Minister decides, it is inevitable that there will be SMEs which will fall out of the criteria. I wonder if the hon Minister could please recount relief measures that these SMEs may be entitled even though they may not directly benefit from this Bill.

Second, may I please ask whether, under this Bill, there is any provision that can be invoked to allow for the preservation of the status quo or restrain in exercising security rights whilst the process contemplated under the Bill is being played out? If not, may I ask why not? Would it not be consistent with the objective of the Bill for a hiatus to be built in so that the small and micro-businesses will not suffer further hardship through the exercise of security rights, for example, forfeiting deposits or security bonds? Otherwise, the re-negotiation may take place in circumstances where the bargaining position of the small and micro businesses will be further weakened.

I now come to my suggestions.

The first suggestion is this. I note that SMEs are encouraged to re-negotiate the contracts with the counterparties during the negotiation phase. To facilitate these negotiations, may I please suggest that MinLaw make available to these parties some model clauses that they can incorporate into their revised contracts? This will have an impact of promoting certainty and enforceability of these revised contracts.

Second, I wish to convey a suggestion mooted by my hon friend, Ms Nadia Samdin, in a pre-debate discussion.

Recognising that small and micro-businesses only have a six-week window to invoke the Re-Align Framework, it is important to publicise this framework widely especially through Trade and Merchant Associations. We should not assume that people who would benefit from this framework would be actively looking out for these matters. Such a proactive approach will augment the policy intent behind this Bill.

In conclusion, I think it appropriate to once again acknowledge and commend MinLaw, AGC, the various Ministries, private practitioners and industry associations for working together at almost "breakneck" speed to draft yet another Urgent Bill for presentation in this House within short notice. They have been working in overdrive for some time now, all with a view to ensure that Singaporeans get the best help possible whilst we navigate ourselves out of this terrible crisis.

The Re-Align Framework is unique and creative; a first in the annals of Singapore's legal history. To them, this House and fellow Singaporeans owe them a debt of gratitude.

Debate resumed.

Mdm Deputy Speaker: Minister Desmond Lee.

6.26 pm

Mr Desmond Lee: I would like to thank the Leader and this House for the dispensation.

Mdm Deputy Speaker, let me address some of the questions that have been raised in respect of the provisions in Parts 8A, B and C of COVID-19 (Temporary Measures) Amendment Bill.

First, Mr Louis Ng asked whether an EOT, beyond four months automatically applies when a contractor serves a Notification for Relief under Part 2 of the Act, and how this would interact with contractual provisions on EOT; while Assoc Prof Jamus Lim asked why we chose four months universal EOT instead of aligning with the two months circuit breaker or with Phase One, and Mr Xie Yao Quan asked if we had consulted the industry on the universal EOT proposal, and whether contracts between contractors and sub-contractors will also be covered.

First, let me assure the Members that our proposals were developed in close consultation with the industry and are supported by the industry associations.

Part 8A of the Bill provides for a universal EOT of four months to cover the period earlier this year when most construction projects were stopped.

As I mentioned earlier, two months account for the Circuit Breaker period, and two months account for the subsequent period when all dormitories were yet to be cleared. So, instead of aligning it with Phase One, we aligned it with the reality on the ground which is the duration for which most of the workers were still in the dormitories and the dormitories had not yet been cleared.

All contractors, including sub-contractors, were affected by these delays. Hence, the proposed universal EOT will also apply to contracts between contractors and sub-contractors.

Contractors seeking an EOT beyond the universal four months period provided by the Bill should negotiate with their counter-party, or rely on contract provisions. The intent is to arrive at an amicable resolution that is acceptable to both parties.

But if the matter cannot be resolved, then the contractor can serve a Notification for Relief under the existing Part 2 of the Act.

Once the Notification for Relief is served, the contractor will be able to rely on the defence under section 6 of the Act against any claims for liquidated damages payable under the contract in respect of delays that are materially caused by COVID-19 which occur beyond the four months EOT provided by Part 8A, and within the prescribed period.

In this respect, in response to Mr Louis Ng's question, the protection afforded under section 6 of the Act is similar in effect to an EOT but they are not exactly identical. For instance, depending on the terms of the contract, an EOT may clearly have an impact on matters such as defects liability period or DLP of a project.

Mr Xie Yao Quan also asked how equitable co-sharing between parties will be determined in respect Part 8B of the Bill. He suggested that we model the universal provision for co-sharing after the approach that has been adopted for public sector projects. I think he is referring to the prolongation cost that the Government procuring entities have provided to Government projects. That is indeed what we have done.

The proposed provision in Part 8B of the Bill will require 50% co-sharing of additional non-manpower-related costs between the contracting parties in all applicable construction contracts, whether public or private. This is subject to a monthly cap of 0.2% of the contract sum, with the total claimable amount capped at 1.8% of the contract sum.

Mr Xie also said that it may not be easy for contractors to fully account for additional costs such as incremental private transport costs, which may add up.

To clarify, the provisions under Part 8B of the Bill provide for co-sharing of additional costs due to delays arising from COVID-19. We have separately provided construction firms with substantial financial support to help with additional compliance costs associated with COVID-Safe restart criteria.

Debate resumed.

Mdm Deputy Speaker: Minister Edwin Tong.

6.31 pm

Mr Edwin Tong Chun Fai: Thank you, Mdm Deputy Speaker. I thank the various Members who have spoken in support of the Bill.

Let me just make three overarching points before I go into the specific questions that have been raised.

The first is to reiterate that these measures have to be looked at in the context of the broader schemes, measures, budgetary as well as non-fiscal measures that have been put in place to assist individuals, businesses and also to seek to rejuvenate the economy. And to the extent that Mr Henry Kwek has said what else can we do, and also whether we should keep and extend Part 3 of the earlier COVID Bill – please also look at this in the context of the fact that beyond these immediate measures, there are also measures implemented by MAS, by EDB. There is the Extended Support Scheme, both standard and customised for those who do not meet within this scheme. And then, also in relation to the insolvency thresholds, the IRDA has been revised recently so that the debt repayment scheme to ensure that individuals have a reason, have a basis on which to avoid bankruptcy had been extended, and that was implemented in July 2020. We moved the thresholds to $150,000 for those individuals.

Second, all three of these Bills need to be looked at in tandem. They provide different options. Some are complementary and, indeed, an individual or a business can use more than one of these measures. I believe it was Mr Edward Chia who asked whether these are in addition to the measures that have been put in place in the earlier rental relief framework. The answer is yes. They do support the businesses who may already have enjoyed the rental relief framework but now choose to decide that they wish to renegotiate the contract with parties; you can avail yourself of this but, obviously, to the extent that the rental relief framework also provides for a repayment period, if the repayment schedule for the outstanding amounts has not been fulfilled, then it could be unfair to allow you to exit from the contract.

So, that has to be taken into account. Those arrears should be discharged and then you can look at the termination provisions under this plan.

Third, the purpose behind these measures, as I said at the start, is to rejuvenate, not only to look at where we were six months ago which was to hold the line with a moratorium. That was the reason behind "COVID 1"; then with "COVID 2" we look at an additional injection to help tenants with their rental, one of the biggest cost components.

But we want to also look forward, in terms of rejuvenation so, for example, I mentioned we do not want to have zombie companies remain on the books, companies which are no longer sustainable as a business entity, but which remains alive because of financial and fiscal injection. That is not going to be viable in the long term. It ties up resources, manpower as well as assets.

We also want to move away from the thresholds that just hold the line. So, again, on Mr Henry Kwek's proposition as to whether we can go back to where it was before in ensuring that we assist parties to stay out of bankruptcy, for instance, or liquidation, I would suggest that those entities look at this framework in the SIP, decide whether you can restructure, if not to exit under the liquidation plan. So, the overall momentum and direction of these amendments is to take the economy, businesses forward.

Mr Murali raised several questions, one of which was whether there was going to be a moratorium within the framework of this Bill whilst the parties were working out their own renegotiations. The answer is yes, the Bill does provide. And service of the Notice of Negotiation will itself trigger an automatic moratorium on both legal as well as enforcement actions. So, if you have an outstanding judgment then there might also a moratorium on enforcement on those judgments. The list of prohibited actions, for Mr Murali Pillai's benefit is found in Part 2 of the Fifth Schedule of the Bill and this sets out the series of steps that would be covered by the moratorium.

Several Members – Mr Murali Pillai, Mr Derrick Goh, Mr Edward Chia, Mr Patrick Tay and Mr Vikram Nair – spoke about the thresholds and the concern that the thresholds that we set not to be set too high so that more entities could benefit from this.

I wish to reiterate our position that our overarching goal in designing the architecture of these two Bills is to help the economy for the long term. We are neither on the side necessarily of the landlord; we are not pro-landlord or pro-tenant or pro-hirer or pro-supplier. But we want to achieve a fair balance between the business entities and provide a framework for them to re-look at their operating assumptions, look at it in the context of what they know today about the economy, about the restrictions to the businesses and then, make a considered decision as to what the renegotiated terms ought to look like. It is in this context that we will be setting the thresholds.

I forget whether it was Mr Edward Chia or Mr Murali Pillai who asked where we would set the revenue cap. We would look at, as far as possible, helping the majority of micro and small businesses. We believe that those are the entities which would need assistance, the nudge that we spoke about, to give them a bit of leverage in initiating the renegotiation. So, it will cover a broad range, the majority of micro and small businesses.

And as far as the revenue drop is concerned, something that is of an order of magnitude that will make it quite clear that these are entities that have suffered,and it is a result of COVID-19. The drop between the comparable periods in 2019 and 2020 will demonstrate that. And I have explained earlier why we chose to use a number, as opposed to having each and every case come before the Assessor to undertake an individual forensic evaluation as to whether or not this factor is part of the COVID-19 or not part of COVID-19, and whether it is mitigation and so on.

We have consulted with the industry. We will continue to do so and those numbers will be prescribed in subsidiary legislation. And I assure Members that the moment we settle on the decision on this, we will make an announcement, so that as much notice as possible is given to the stakeholders.

Mr Edward Chia proposed several novel additional qualifying criteria and I do share his concerns as well. Remember that one of the objectives I outlined earlier was for this to not just be fair and thorough in how we apply it, but it has also go to be efficient in how it is administered. The last thing we want is for a scheme that is very well designed with many exceptions and many differentiated tiers, only for it to cause a problem in the administration and operationalisation of the scheme.

So, whilst I understand where Mr Edward Chia is coming from, I wonder whether the gains of that approach that he has suggested, would not be commensurate with the costs and the possible drag on the efficiency of the administration by costs.

To formulate the criteria with intra and inter industry differences would make it difficult to apply and would also raise questions as to what would be the appropriate differentiated levels between each industry.

Mr Edward Chia also asked whether the cost incurred by a tenant on fixtures such as fixed equipment, can be used to offset the outstanding obligations and I think the rationale Mr Edward Chia gave was that these fixtures when left behind could benefit the landlord. That is a matter that is within the discretion of the Assessor when the Assessor decides what the appropriate release terms ought to be following the termination. We recognise that the default consequences that have been sketched out in a fairly long and quite elaborate table in Part 4 of the Second Schedule, might still not fit every situation. But we believe that if you look through it, the relevant guiding principle behind how and on what terms the termination ought to be allowed would be quite clear.

Assessors, therefore, have a broad discretion to adjust the rights and obligations of the parties upon termination. An overarching intent is to achieve a fair and just outcome in each case. So, to give Members some further clarity as to what this might entail, the Assessor might well allow parties to pay sums, including the accrued obligations through instalments, having regard to the relative financial position and cash flow of the parties. They might also determine if additional compensation might be payable that is just and fair in the circumstances, one of which might be the value of the fixtures that have been left behind, as suggested by Mr Edward Chia.

One other scenario that might arise would be whether some of the property that was unutilised, that was not consumed should be returned to the other party, the counter-party upon termination. So, there is a fairly broad and flexible range of options that the Assessor would have regard to.

Mdm Deputy Speaker, let me turn to some questions Mr Derrick Goh had raised. I think I covered it earlier when I said that the rental relief framework and the Re-Align Framework were not mutually exclusive and tenants that had qualified under the rental relief framework can still qualify for the Re-Align Framework as long as they meet the Framework's criteria. I should point out, as I mentioned earlier, that one of the conditions of the SRS is that if the tenant terminates the lease during the repayment period with some amounts still outstanding, then that has got to be something that the Assessor would take into account. The Assessor will not be able to allow a tenant to walk away from a tenancy that is under SRS without the outstanding rental still due to be paid.

Mr Patrick Tay asked about appeals and raised some questions over outcomes of some of the earlier "COVID 1" and "COVID 2" Assessor decisions. Madam, in a limited situation, a party can seek a review of the determination by the Assessor for the Re-Align Framework that is set out in section 67 of the present Bill. One example of where this power could be invoked is where the party either did not or could not put in relevant evidence before the Assessor and in the context of the case it is just and fair for the Assessor to reopen the case and look at the evidence that is available and then make a decision based on the review.

To Mr Patrick Tay's point that there have been questions on the determination under "COVID 1" that has raised some degree of unhappiness with his residents, I would like Mr Patrick Tay to know that we engage with many of these individuals quite often. Indeed, we have been engaging with parties who give us feedback on the assessment process. And, in most cases, the relief is to grant the moratorium. But having said that, we do look at the cases very closely within MinLaw. I believe previously when I spoke about the earlier Bill, I mentioned that these Assessors are organised in a form where there is a district judge who heads each of the groups, and they discuss the outcomes across the different Assessor panels. In many cases, particularly when we first set up the Assessor panels, both Minister Shanmugam and myself were involved in reviewing each decision, making sure that there is parity across the different Assessor panels and to really discern the different issues that come through so that there is alignment and uniformity in the decisions.

That said, if Mr Patrick Tay is aware of any other outlier decisions that he wishes for us to look at, please do contact MinLaw and we will have that evaluated.

Madam, there are various miscellaneous and clarificatory amendments to Parts 1, 2 and 3 of the Act. These also come in to modify the process and to improve on the process as we learn more about it.

First, these amendments will clarify that the Minister may extend the prescribed periods under Parts 1, 2 and 3 or for description of the scheduled contracts under Part 2 of the Act by different periods of time.

Second, the Bill provides that applications pending at the end of the prescribed period will be deemed withdrawn. Apart from events and tourism related contract and construction and supply contracts, which I spoke about in my opening speech, the only relief available under Part 2 is really the temporary moratorium. And once the prescribed period expires, there is no need for any further determination by the Assessors. The rationale being the relief is in fact, the moratorium itself.

Third, to facilitate the smooth operation of Part 2 of the Act in relation to each scheduled contract, the Bill makes amendments to remove all the references to this section 3 prescribed period and instead have the provisions refer to the specific dates prescribed in the COVID-19 (Temporary Measures) (Rental and Related Measures) Regulations. This will facilitate necessary flexibility should there be a need to make further amendments subsequently.

Ms Hany Soh asked about assistance to help businesses understand the options how the Framework works and to whom it applies and the process. I think she made several very useful and thoughtful suggestions. My Ministry is getting ready to support the businesses and as I said at the outset, we know that as much as good intentions and thought have gone into designing the scheme, we do want it to be able to be operationalised and administered well and efficiently on the ground.

We have reached out to various industry groups, including the various chambers, trade organisations, associations – those who are in touch on the ground with the micro and small businesses – for help to disseminate information packages. I think Mr Murali also made that point.

We will also arrange for these organisations to set up legal clinics so that they can have a more direct port of call, more direct way of consulting with pro bono lawyers to assist in at least making a first triage of whether the case or the contract is something that they would wish to seek renegotiation for. And if so, what kind of terms will be appropriate for them; some kind of assistance. We have also been exploring with the Law Society to set up something on a broader scale for more outreach for these pro bono lawyers to assist parties on the ground. In doing so, we are very mindful that we have a limited six-week period. I have explained why it ought to be six weeks because of certainty but at the same time we also acknowledge that parties will need assistance on the ground in this six-week period and we will do so.

Apart from Law Society and the trade associations, we have also reached out to the law schools. As Members may know, law schools also run pro bono centres with the assistance of tutors and students. We have also reached out to the Singapore Mediation Centre or SMC for assistance where mediators can then help parties to break the impasse during the negotiation period. Because very often, when you have two individuals come together, the environment could be hostile in those situations where expert mediators can play a role, MinLaw officers will put them in touch with SMC mediators to try to facilitate the process.

All of that, done in the context of understanding that what we really want out of this, is for parties to renegotiate their positions, come up with something that both sides can live with, mutually workable and carry on from that position.

Mr Murali suggested that model clauses be looked at and I think that is a very good idea. We will work on some of those and maybe consult with Mr Murali as well. We have another pro bono source now. And we will tap on Mr Murali's experience and expertise to work some of these clauses into contracts upon renegotiation.

Ms Soh also asked if there will be enough Assessors with the right qualifications to ensure that the determinations are responsive. I think that is another very important point because much as we want the process to be resolved quickly with a six-week time period, we also want to ensure that the Assessors will be able to expeditiously, in the context of the case, reach a decision.

Our Assessors for the contractual moratorium period set up by "COVID 1", comprise mainly volunteers. I outlined that in a previous Parliamentary Question. For this framework, the six-week deadline as I mentioned, means that we must expect that most of the applications will coalesce and come together at around the same time. And so, the applications for the adjustments will also likely be more complex with regard to the schedule that we have set up and yet at the same time, need to be more timely.

So, the mechanism that we have set up, we will require more resources and hence, we have decided that the Assessors for this Bill, will first of all be a dedicated and separate pool of Assessors from the earlier COVID-19 Bills. Second, they will also be full-time Assessors, engaged by the Ministry to look into these cases and they will comprise experienced lawyers and accountants who will look at this on a full-time basis once the Bill is in force.

Ms Soh and Assoc Prof Jamus Lim also asked about legal advice and legal representation in relation to claims under the COVID-19 Bill for assessment. I just want to clarify that legal advice is always available. And legal advice in fact, will be available through the various pro bono options that I have outlined earlier. What we have not done is to allow for lawyers to represent the parties before the Assessors and there are good reasons for that.

First, if you have a lawyer represent one party, it is invariably going to be the stronger party to the negotiation. The whole purpose and raison d'etre behind this, is to assist the smaller micro and small enterprises to be able to take advantage of this Bill and to try and take a position before the Assessor. So, we do not want the two parties to be unequally represented before the Assessor.

Second, this process is not designed with legalities in mind, where rules of evidence, how you prove a case and so on will be the central feature of the assessment. It is really about looking at what is fair and just, in the context of the case, in the context of the two parties and the circumstances between the two parties.

As Members know, the Assessors' overarching objective is really to achieve that fairness. From that perspective, it is not an adversarial process with the Assessor in the middle. The Assessor is really trying to bring the parties together to find what is a fair and just outcome for both parties.

Madam, I turn now to the questions raised on the Simplified Insolvency Programme or SIP. Mr Chia also asked about the eligibility criteria and whether they could cover a large number of companies and whether we could include other qualifying criteria. I think for the earlier reasons I have set out, we would not want to differentiate the criteria. Because there is already a fairly clear criteria not only in terms of the size of the entity, but also as I outlined in my opening speech, we are also restricting qualification to number of creditors, number of employees, the size of the debt and in the context of liquidation, the amount of realisable asset. So, these criteria already scope the relevant cases and right-size the kinds of companies and corporates, who are entitled to take advantage of the SIP.

I think Assoc Prof Jamus Lim also sought to argue that there ought to be a differentiated tier for a small company, that is different from a micro company, that might be different from another company. I think what we wanted to do as its name suggest is to simplify it and not to over complicate the matter. As I said, these are the criteria that look at different touchpoints in the context of a restructuring or liquidation, and already right-sizes the corporates for the purposes of this Bill.

Mr Louis Ng made several comments and have some queries in relation to the lowering of the threshold for creditor approval. Mr Ng asked about the guidance and assistance provided to these companies and their creditors both at the initial stage and if accepted into the programme, during the restructuring process.

The viability and suitability of a micro or small company for the simplified debt restructuring will be continually evaluated. I outlined at the outset, in my opening speech, that not only does the criteria have to be satisfied at the outset but the Restructuring Adviser and the Official Receiver continually evaluates if the company can continue to maintain its eligibility criteria, and whether or not it is in a position to carry out with these functions as stipulated by either the restructuring plan or in the liquidation process.

Mr Ng asked about the licensing and regulatory framework behind IRDA, in particular section 50(1A) and the extent or scope to which the Minister intends to exempt and individual from being a qualified person. Allow me, Madam, to first clarify that the amendment is a separate one from the Simplified Insolvency Programme and the amendment will supplement the general powers of the Minister found in Part 3, Division 3 of IRDA and this relates to the licensing of insolvency practitioners.

The exemption may be granted to a professional who has accrued sufficient expertise and experience, so practical experience, undertaking insolvency work as an approved liquidator under the predecessor Companies Act, but who does not presently meet the qualified person requirement. Granting an exemption in such a situation would allow this individual to be considered for the insolvency practitioner's licence and to continue to undertake such work under IRDA. One other example, which I did allude to in my opening speech was for foreign practitioners who are involved in cross-border, multi-jurisdictional restructurings, to also be allowed to come into Singapore to practise to the extent that an aspect of the restructuring either touches on or involves Singaporean assets or Singaporean stakeholders.

Mr Tay had a series of questions on the employees and I would like to just briefly respond to those questions that deal with the position of employees and how they are protected in the context of both the simplified restructuring and the simplified liquidation. As Mr Tay would appreciate, the approach and treatment of claims under these two situations are quite different. One is for the continued rehabilitation of the company and the other is for the dissolution and liquidation.

In a restructuring scenario, the impetus is to facilitate the potential rehabilitation and for there to be a meaningful rehabilitation, the employees will be an important group of stakeholders. The Simplified Debt Restructuring programme, in fact, through its threshold requirements, expressly recognises this position. Hence, if a company proposes to compromise debts owed to employees and other unsecured creditors with preferential debts under section 203 of IRDA, then these creditors will, as a default, vote in a separate class under the proposed section 72M(4)(b)(ii). What this means is that, without the assent of this group of creditors, the scheme will not pass. Each of the classes have to, on their own, pass the two-thirds threshold before the scheme will be sanctioned.

To avoid doubt, this provision, however, is not intended to affect the existing principles that apply to classification in schemes of arrangements generally, outside of the current Simplified Debt Restructuring programme.

In relation to a situation where companies is in an insolvent liquidation, this is different because it is a terminal procedure and this is a scenario where there are insufficient debts to meet the creditors' claims, including the employees' claims. In this context, the existing priority of debt provisions under section 203 of IRDA already strikes the appropriate balance by giving priority to the varying claims in a descending order as Members might know. This is to facilitate an orderly and optimal distribution of the company's assets. The cost and expenses of liquidation and the expenses of the applicant for the winding up under section 203(1)(a) to 203(1)(c) are paid out first before any other debts. Removing priority for this type of categories of claims would undermine an orderly liquidation and also a distribution of dividends.

To Mr Tay's point, that ranks in priority to the employees' claims and after that, those priority claims are paid off, the employees claims would then be paid next, thereafter.

Assoc Prof Jamus Lim had one other point about section 72H and section 250H. This relates to the criteria for admission into the Simplified Insolvency Programme, both for restructuring and liquidation. And I think Assoc Prof Jamus Lim had some comments about how this is a broad use of Executive discretion.

I wish to assure Assoc Prof Jamus Lim that, first of all, this is not meant to overturn the Official Receiver's decision to admit a company into the programme. This allows the Minister some discretion at the margins where, if a company might, say, have 51 employees instead of 50, in all other respects, you satisfy the criteria, the Minister has the discretion to allow this company into the programme.

This is no free pass because all the other criteria to the programme, including the continued satisfaction of the eligibility criteria, still apply to these companies. It is not as if it is a broad discretion, or at least that is how I heard it to be, which seems to turn the criteria upside down. It does not do that and it only allows, out of fairness, for some corporates who exist at the margins, who may not have made it into the criteria, to be considered by the Minister.

Mdm Deputy Speaker, I believe I have covered most if not all of the queries raised by Members. With that, I beg to move.

Mdm Deputy Speaker: Any clarifications? Okay.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Edwin Tong Chun Fai].

Bill considered in Committee; reported without amendment; read a Third time and passed.