Navigating loan obligations amidst the Singapore Covid-19 (Temporary Measures) Act 2020

9 April 2020 | Applicable law: Singapore

In a bid to support businesses impacted by the COVID-19 pandemic, the Singapore Parliament has enacted the COVID-19 (Temporary Measures) Act 2020 (the "Act"), while the Monetary Authority of Singapore ("MAS") has set out certain support measures. It is crucial for both lenders and borrowers to understand the impact of both the Act and MAS' support measures on loan repayment obligations and insolvency regimes, in order to navigate the legal landscape in the short to medium term.

The provisions of the Act discussed herein will be in force for six months commencing on 20 April 2020, which period may be extended for up to one year by the Minister of Law (the "prescribed period").

Moratorium protection for scheduled contracts

Identifying loan facilities which are scheduled contracts

The Act provides moratorium protection against legal action for certain "scheduled contracts" entered into or renewed before 25 March 2020. Lenders and borrowers must therefore consider whether their loan facilities are scheduled contracts.

The first question concerns the identity of the parties to the loan facility, under which both of the following have to be satisfied: (a)The lender is a bank licensed under the Banking Act or a finance company licensed under the Finance Companies Act; and (b)The borrower is an "enterprise" which: (i) had no more than S$100 million turnover in the latest financial year as a group; and (ii) has 30% of its shares or ownership interest held by Singapore citizens and/or permanent residents.

If the answer to the above is affirmative, the loan facility will be a scheduled contract if it is secured (whether partially or wholly) against: (a) Commercial or industrial immovable property (i.e. real estate); or (b) Any plant, machinery or fixed asset located in Singapore and which is used for manufacturing, production or other business purposes.

Loan facilities are not scheduled contracts if they are: (i) unsecured loans; or (ii) loans secured over other assets which do not fall into the above description (e.g. security over shares, deposit bank accounts, account receivables, residential properties such as good class bungalows). The Act's moratorium protection does not apply to these loan facilities.

Invocation and scope of moratorium

The borrower will first have to serve a notification of relief on all the other parties to the scheduled contract and the borrower's guarantors (if any), upon which a moratorium will apply in respect of: (i) obligations which are to be performed on or after 1 February 2020 which (ii) the borrower is unable to perform, such inability being to a material extent caused by a COVID-19 event.

Unless the lender successfully applies to an assessor to determine that the moratorium does not apply, the moratorium will last until the borrower withdraws the notification or until the expiry of the prescribed period.

The moratorium prohibits lenders from commencing or continuing a broad range of legal actions, including Court actions, domestic arbitral proceedings, enforcement of security (including appointment of receivers or managers), execution processes, and insolvency proceedings.

Lenders are however not prohibited from calling defaults and accelerations, issuing demand letters, resorting to self-help contractual set-off with other deposit accounts held by the borrower, and charging fees and interest for non-payment or late payment of loan obligations. MAS has therefore reminded borrowers seeking the Act's protection that they may end up paying more in the future (see here).

Directors of borrowers do not have carte blanche to deal with the borrower's assets during the prescribed period. The Act extends the lookback period for a period corresponding to the length of the moratorium, in respect of avoidance actions such as unfair preference, undervalue transactions and creating of floating charges without fresh consideration.

Temporary modifications to insolvency regimes

The Act also modifies insolvency regimes during the prescribed period, whether the claims arise from a scheduled contract or not. These include:

  • Extension of time to satisfy statutory demands for payment (from 21 days to 6 months)
  • Increase of threshold amounts for insolvency actions
  • Providing a defence under certain conditions to officers from insolvent trading claims (for corporate insolvencies)
  • Providing a defence under certain conditions to bankrupt individuals from the offence of incurring a debt without expectation of being able to pay it

Statutory demands served before the prescribed period commences still have to be satisfied within 21 days of service.

Lenders of loan facilities which are not scheduled contracts may consider the following alternative actions:

  • Commencing insolvency proceedings without issuing statutory demands – the downside is that the lender will lose the benefit of the presumption of insolvency invoked by an unsatisfied statutory demand, and will have to produce direct evidence of the borrower's insolvency which may be difficult to obtain.
  • Pursuing debt recovery claims in civil proceedings, which lead up to execution processes against the borrowers'/guarantors' assets.

Lenders should also be aware of possible delays in legal action. The Singapore Courts have directed that all hearings from 7 April 2020 to 4 May 2020 shall be adjourned, except for hearings of essential and urgent matters. Debt recovery claims and insolvency proceedings (save for specific extension of time applications) are not listed as essential and urgent matters.

MAS and financial industry support measures

Lenders and borrowers should also be cognisant of MAS' support measures, which include allowing eligible corporate borrowers to: (i) defer payment of principal on their loan and pay only interest up to 31 December 2020; and (ii) extend the loan tenure by up to the corresponding principal deferment period.

Corporate borrowers can apply for this measure if the following conditions are fulfilled:

  • The borrower has to be an "SME", which would at least include companies with (i) an annual turnover not exceeding $100 million; or (ii) not more than 200 employees.
  • The loan has to be (i) a term loan which is (ii) fully secured at the time of application for relief. The type of collateral does not matter, but whether the loan is "fully secured" is subject to the lender's internal haircuts to determine the value of security.
  • The loan cannot be more than 90 days past due as at 6 April 2020.
  • There is no need for the borrower to demonstrate impact from COVID-19 to be eligible.

More information on MAS' support measures may be found here.


Both lenders and borrowers should keep themselves well advised of the reliefs provided under the Act and MAS' support measures. The measures in the Act are targeted and temporary, and its application differs from facility to facility, each with its own distinct loan and security structure as well as factual circumstances. Please reach out to the undersigned for specific and fact-sensitive advice on how to navigate the legal landscape in the light of the Act and MAS' support measures.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.


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