SME Company : How to take advantage of the Re-Align Framework

What is the Re-Align Framework and how does this apply to every SME Company in Singapore?

Are you at SME Company that is worried about the impact of COVID on your business? This article highlights a few key points that you would need to know to deal with this.

The Ministry of Law explains the provision which takes effect from 15 Jan 2021 as follows:

“The framework will provide a quick and fair way for businesses to realign and move forward by allowing selected contracts to be renegotiated by way of mutual agreement with the counterparties. If they are unable to agree, the contract may be terminated within the provided parameters. Businesses will remain liable for outstanding obligations but will not need to pay early termination penalties.”

Who is eligible to apply under the Re-Align Framework?

To be eligible for any type of relief under the Re-Align Framework (“the Framework”):

• A business’ annual revenue* must not exceed S$30 million at a global group level; and
• That business must have experienced at least a 70% fall in monthly average gross income for the period 1 July 2020 to 31 December 2020, compared to the period 1 July 2019 to 31 December 2019** .
• *The annual revenue of the business or group (if the business is part of a group) for the latest financial year that ended on or before 31 March 2020, will be assessed. For businesses or groups that do not have a financial year that ended on or before 31 March 2020, alternative periods for assessing annual revenue are set out at www.go.gov.sg/re-align-annualrevenue.
• **For businesses which have not commenced business by 1 July 2019, alternative periods for assessing the fall in monthly average gross income are set out at www.go.gov.sg/re-align-incomefall-comparison periods. A business must however have commenced business by 1 September 2020 to be eligible under the Framework.

Types of contracts that are covered by the Re-Align Framework?

The Framework applies to a contract (including Government contracts) which meet the following conditions:

(a) Is governed by Singapore law;

(b) Was entered into before 25 March 2020;

(c) Has at least one party who has a place of business in Singapore; and

(d) Falls within any of the following categories (“Specified Contracts”):

• Leases or licences for non-residential immovable property which have a term of 5 or less years
• Hire-purchase and conditional sales agreements for commercial equipment or vehicles (except agreements entered into with banks and finance companies regulated by the Monetary Authority of Singapore)
• Rental agreements for commercial equipment or vehicles
• Contracts for the supply of goods and services.

Every SME Company should note that certain contracts will be excluded from the Re-Align Framework, even if they fall within the list of Specified Contracts (“Excluded Contracts”). These are:

• Consumer contracts
• Employment contracts
• Insurance contracts
• Leases or licences for non-residential immovable property which have a term of more than five years
• Contracts made in connection with a financial transaction, or for the supply of financial services (e.g. loan agreements, insurance agreements, commodities contracts, derivatives contracts, factoring contracts), except hire-purchase
• Construction and supply contracts
• Contracts for the carriage of goods for freight by sea, land or air, including any contract for freight forwarding and logistic services
• Contracts for the supply, storage, transportation, collection, treatment or disposal of certain hazardous materials
• Contracts (or series of contracts) for the transfer for a business or part thereof as a going concern
• Contracts to which section 4 of the International Interests in Aircraft Equipment Act (Cap. 144B) apply
• Contracts to which the Sale of Goods (United Nations Convention) Act (Cap. 283A) apply

An eligible party to a Contract Affecting Essential Services and National Interest may not terminate the contract under the Re-Align Framework if certain conditions are met but may renegotiate the pricing of the contract. More information can be found here.

What is the process to apply to renegotiate contracts?

• Affected business serves notice of negotiation to counterparty;
• Parties negotiate during 4 week negotiation period;
• Other party serves notice of compensation/notice of objection;
• Registrar receives notice of compensation/notice of objection;
• Assessor conducts hearing and makes determination;
• Registrar informs parties of the outcome of the determination

If there is a pending lawsuit for the same matter, the process will need to be adjusted and you should seek legal advice and file the relevant notice to either the State Courts or the Supreme Court (as applicable).

In conclusion, every SME Company in Singapore is facing issues during the pandemic and these legislative measures are a good way to help such SMEs along to renegotiate their contracts with third parties.  A SME Company needs good legal advice to navigate through such uncertain times to avoid unknown legal risk (which you have not budgeted for). 

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