Help for small and micro-businesses shackled by pre Covid-19 contracts
The Covid-19 pandemic has required “all hands to be on deck” to provide tangible help to fellow Singaporeans.
Within a relatively short period of time, our Government not only introduced 5 budgets, it also filed 4 bills on certificates of urgency to provide the decisive support needed in the fight against Covid-19 for individuals, families, workers and businesses. To me, it is a matter of pride that our country has this capability; not many do!
Last week, I spoke in favour of 4th urgent bill which will allow small and micro-businesses to renegotiate their pre-Covid-19 contracts with their counter parties (eg. landlords, vendors, etc) if they have suffered a significant drop in their revenue. If the renegotiation is successful, they will be able to reduce the hardship on their businesses. If the renegotiation fails, the bill will allow for termination of the original contract. An assessor will be appointed to decide how much is a fair amount to be paid arising from the termination.
This provides much relief to small and micro-businesses and may make the difference between survival and liquidation for them.
Speech as follows:
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 realign 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 realign 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 counter parties 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 realign 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 realign 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.
