The Act is meant to give temporary relief to financially distressed individuals, firms and businesses who are facing challenges imposed by COVID-19 but who are otherwise viable and profitable.
It is unsurprising that many of the Act's sections expressly refer to the relevant provisions of the personal and corporate insolvency legislation applicable in Singapore. In this regard, it is noteworthy that the Act refers expressly to the Insolvency, Restructuring and Dissolution Act ("IRDA"). This warrants some explanation.
The statutory regime governing Singapore's insolvency and restructuring laws is currently in a transition phase. The existing regime is governed by several acts but the two main ones are (a) the Bankruptcy Act (Cap. 20), for personal bankruptcies; and (b) the Singapore Companies Act (Cap. 50), for corporate insolvencies.
The IRDA is not yet in force. It is contemplated that the IRDA may come into force sometime this year, 2020. This is the context for why the Act, which is meant to apply for 6 months at first instance (a period which can be further extended), makes reference to the IRDA as well as the existing legislation.
In the short term, the Act will provide temporary relief to individuals and businesses who are hard hit by the COVID-19 pandemic. The Act shelters them from bankruptcy and winding up application and with the safe habour provisions, gives them a chance to try and "trade out" of their current financial difficulties.
The Act does not protect individuals and businesses from the longer term effects of COVID-19 that arise from changes in consumer habits and commercial practices. For example, as a result of COVID-19, there has been an almost total halt on air travel. During this period, businesses are finding ways of working and connecting remotely. This may have a long-term impact on airlines, hampering them from being able to "trade out" of their current situation. Physical marketplaces may find that their customers have switched to purchasing goods online, and even after the COVID-19 crisis has passed, may not be able to regain their market share. On a more micro-scale, a hawker stall forced to shutter its doors because of COVID-19 may never regain the patrons that it lost and so, even after the current crisis has passed, will not be able to find its way back onto its feet.
Therefore, although individuals and companies may take immediate refuge behind the Act, it would be naïve to expect that after the current crisis passes it will be business as usual. There should be a careful consideration of the long term impact of COVID-19, and whether changes to a company's business models are needed so that it can survive in the post-COVID era.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.