Out-Law News 1 min. read

Small firms in Singapore can start renegotiating some contracts


Small businesses significantly affected by Covid-19 can start renegotiating certain types of contracts since the 're-align framework' became effective from 15 January.

The framework was passed in Parliament in November 2020.

According to Singapore’s Ministry of Law (MinLaw), the framework will provide firms a “fast and fair way” to bring their contracts into line with current commercial conditions by allowing certain types of contracts to be renegotiated by mutual agreement with counterparties. They have six weeks for renegotiation.

Firms should meet the criteria that have suffered at least 70% decrease on monthly average gross income from July to December in 2020 compared with 2019. Some certain commercial contracts that signed before 25 March 2020 could be renegotiated.

Firms must send a notice of negotiation to the other parties of the contract by 26 February if they want to renegotiate, together with documents proving their qualification for entering renegotiation.

The other party to the contract is allowed to raise an objection to the registrar within two weeks of end of the negotiation if it thinks the counterparty is not qualified. The contract will remain in force till a decision is made by an independent assessor appointed by the MinLaw.

Contracts can be terminated early two days after the objection period ends if there is no objection from either side. Firms which entered renegotiation will still have contractual obligations till the contract is terminated.

Firms which entered renegotiation that are not able to reach agreement but want to readjust their contract can seek an assessor to decide on detailed terms, which should be done within two weeks after the end of objection period. They cannot appeal against the decision.

Mark Tan of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, the law firm behind Out-Law, said: ”The re-align Framework was passed to assist small and micro businesses, which have been severely affected by the ongoing Covid-19 pandemic, by providing them with an opportunity to conduct discussions with their counterparties regarding certain types of contracts that they have entered into. As a counterbalance however, it appears that the six week limit for allowing such renegotiations appears to have been deliberately designed to avoid protracted uncertainty for the various counterparties and the market in general. Ultimately, this appears to have been done with the aim of encouraging parties to have open and frank discussions, and hopefully coming to a mutually beneficial compromise through such renegotiations.”

Additionally, under the framework, qualifying small landlords will get compensation in the case of early termination of tenancy by the tenant. The MinLaw will appoint an assessor to determine the compensation amount.

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