Recovering Debts Owed to You During COVID-19 in Singapore

Bank book showing financial decline due to COVID-19

To deal with the economic fallout from the COVID-19 pandemic, the Singapore Parliament enacted the COVID-19 (Temporary Measures) Act 2020 (the “COVID-19 Act”) to grant relief to affected businesses. The COVID-19 Act temporarily postpones claims for certain kinds of debt, while altering the rights of creditors for other debts.

This article aims to inform Singapore creditors about their rights during the duration of COVID-19 and about the actions they may take to recover their debts.

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For Debts Owed Under Contracts Covered by the COVID-19 Act

As a start, the COVID-19 Act grants protection against creditors for parties to certain contracts. It does so by temporarily preventing creditors from suing those parties when they fail to perform their obligations under the contract.

Creditors are also temporarily prevented from commencing proceedings for winding up (for businesses) or bankruptcy (for individuals) against such parties.

This prevention lasts for the entire prescribed period, which at the time of writing is for 6 months from 20 April 2020, or until 19 October 2020.

Creditors will not be able to take legal action to recover debts for a contract if the contract satisfies all of the following requirements under the COVID-19 Act:

(a) The contract is covered under the COVID-19 Act

Only debtors under very specific kinds of contracts will be granted temporary protection against creditors under the COVID-19 Act. These types include:

  1. Certain kinds of secured loans from a licensed bank / financed company
  2. Performance bonds under a supply / construction contract
  3. Hire-purchase agreements for commercial vehicles, or plants/machinery/fixed assets for manufacturing, production or business purposes and located in Singapore.
  4. Events contracts
  5. Tourism-related contracts
  6. Construction / supply contracts
  7. Commercial leases

Debtors under contracts that do not belong in any of these categories, for instance, residential leases or contracts for general services (for example, financial or book-keeping services), are not entitled to such protection.

(b) The contract was entered into before 25 March 2020

The contract in question must have been entered into before 25 March 2020. This means that creditors will be able to take legal action for debts incurred under contracts entered into on or after 25 March 2020.

(c) The contract had to be performed from 1 February 2020 onwards

The COVID-19 Act postpones legal consequences for failures to perform obligations arising only on or after 1 February 2020. If the obligation arose before that date, it will not be covered by the COVID-19 Act.

(d) The contract could not be performed for COVID-19 related reasons

The COVID-19 Act provides relief only if the party was unable to perform the obligation in question because of COVID-19 or any legal/regulatory order relating to COVID-19. For example, the COVID-19 Act would protect an event planner who was unable to carry out scheduled events due to the circuit breaker measures.

(e) The debtor has served a notification for relief on the creditor

Finally, to qualify for relief, the party seeking postponement of their legal obligations must serve a notification for relief on the other parties (i.e. the creditors and any other debtors) to the contract, as well as any guarantor or surety for his obligations.

Options for creditors whose contracts are covered by the COVID-19 Act

A creditor thus has two options in cases of contracts covered by the COVID-19 Act:

1. Wait until the expiry of the prescribed period

Once the prescribed period expires, parties can once again be sued, so the creditor can recover his debt from them.

However, it should be noted that the Singapore government may choose to extend the prescribed period if the COVID-19 pandemic does not show sufficient signs of easing up by 19 October 2020.

2. Apply for an assessor to determine if all the above requirements are truly satisfied and if the contract truly falls within the COVID-19 Act

The application can be made online with your SingPass or CorpPass account at the Ministry of Law’s standardised form. The assessor’s determination is final and neither side can be represented by a lawyer at the proceedings.

If the assessor considers the contract to fall outside the scope of the COVID-19 Act, then the creditor can sue the debtor for the debt as per usual.

For Debts Not Owed Under Contracts Not Covered by the COVID-19 Act

It should be noted that all contracts not explicitly stated to be covered by the COVID-19 Act, or determined by an assessor as not being covered by the COVID-19, would generally not qualify for relief under it.

In such cases, a creditor is free to sue his debtor to recover his dues as per normal, as well as to commence winding-up / bankruptcy proceedings against him if he cannot pay.

However, COVID-19 has created extraordinary economic conditions. For example, businesses are running into cash flow difficulties due to the circuit breaker measures. As a result, the law has prescribed a higher threshold for the conditions which must be met for the filing of bankruptcy and winding up applications during the COVID-19 period.

Filing a bankruptcy application during COVID-19

Under ordinary conditions, the court will not entertain any bankruptcy application against an individual where his outstanding debt payable immediately is not at least S$15,000. Such an individual must also have been served a statutory demand and have failed to comply with it for 21 days before the application can proceed.

However, these thresholds have been raised for the entire duration of the prescribed period to S$60,000 and 6 months respectively.

Filing a winding up application during COVID-19

Similarly, the requirements for a winding up application against an incorporated business have also been raised. Under ordinary conditions, the court will not entertain any winding up application against an incorporated business where its outstanding debt payable immediately is not at least S$10,000 and it has failed to comply with a statutory demand for payment for at least 3 weeks.

These thresholds have been raised for the entire duration of the prescribed period to S$100,000 and 6 months respectively.

Feasibility of filing a bankruptcy or winding up application during COVID-19

It is therefore clear that the requirements for filing a successful bankruptcy or winding up application are now more onerous and will remain so for the entire prescribed period.

On top of that, it may also not be worthwhile to commence such applications under the present circumstances even if the legal requirements are met.

This is since many individuals and businesses are presently facing cash flow problems and thus may not have the assets or cash to repay their debts even if successfully declared bankrupt/wound up.

Recovering a debt may also require various legal procedures and strategies, especially in cases where the debtors’ assets are unclear or not easily available. A winding up application would also incur further substantial costs of its own (the starting deposit for a winding up is by itself already $10,400, for example) and thus reduce the assets available for distribution to creditors.

We therefore strongly recommend consulting a lawyer to obtain legal advice if you plan on recovering a substantial debt, especially in light of the present uncertain times.