Contractors may face contract disputes, end of Covid-19 legal respite claims, property news and top stories

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SINGAPORE – Entrepreneurs in Singapore could face another hurdle next month, after the temporary assistance period expires protecting them from claims and other legal proceedings.

Lawyers told the Straits Times there were signs of legal action, with contractors bracing for contract disputes when the relief period under the Covid-19 (Temporary Measures) Act ended on September 30.

As a result, companies that are financially weak could go bankrupt, with many small and medium-sized enterprises (SMEs) likely to face financial difficulties, said attorney Keith Han, partner and co-head of the restructuring and practice. insolvency at Oon & Bazul. .

This will likely affect large construction projects and the sector as a whole, although the extent of the impact will depend on the degree of tolerance exercised by creditors such as banks and financial institutions, he added.

“At the very least, however, we could see delays in projects caused by the bankruptcy of key contractors,” Han said.

The construction industry has been hit hard by the Covid-19 pandemic, with many companies grappling with severe labor shortages, rising construction costs and reduced cash flow.

So far, the temporary legislative measures provided for in the law have given the industry some breathing space and largely prevented the domino effect of the winding-up of many prime contractors and smaller subcontractors, the lawyers interviewed said. .

The law provides, among other things, relief for the inability of a contractor to perform its contractual obligations due to the Covid-19 pandemic for contracts concluded before March 25 of last year.

It also puts a temporary pause on the call for performance bonds.

Performance bonds are a type of collateral commonly used in construction and construction contracts. They are issued to the client by an insurance company or a bank to guarantee the completion of a project on time by a contractor.

If the contractor does not complete the project or fails to meet his contractual obligations, the developer may seek to recover losses by calling on the performance bond.

“These performance bonds usually guarantee up to the value of the project, so a call for bonds will generally be financially detrimental to contractors and sub-contractors,” Han said.

Assuming the relief period is not extended, Han said there could be a significant increase in claims and legal proceedings brought by – and against – construction companies and more appeals for legal action. performance bonds.

Attorney Daniel Tay, a partner at construction law firm Chan Neo, said more developers and contractors could also file claims against each other, if disputes are not resolved privately.

“I wouldn’t call it a ‘legal tsunami’, but there are already signs that some litigation is coming up with contractors preparing for contract disputes when relief ends,” he said.

He added: “Payments may have already been withheld (by developers) from contractors in anticipation of such disputes. The same is true for a prime contractor and its downstream sub-contractors.”

On Thursday (September 23), Prime Minister’s Office Minister Indranee Rajah said the law is a temporary piece of legislation intended to address an immediate problem and that future contracts face uncertainties in the allocation of risk resulting from pandemic events.

A working group led by the Building and Construction Authority has reviewed standard provisions of construction and consultancy contracts and will soon announce recommendations and new procurement practices for construction tenders in the sector. public, said Ms. Indranee, who is also the second minister of finance and national development.

TSMP Law Corporation construction and engineering co-head Derek Loh said the need for early and swift action meant government aid had to be broad and would not be able to deal with all possibilities in an ever-changing pandemic environment.

“Therefore, the effects of the measures were always going to be subjective and could never have been sufficient to support all participants in the industry, especially those with bad business practices or bad financial management,” he said. added.

If the government had not intervened, many more companies would have gone bankrupt and this could have caused “a domino effect of widespread failure and put the whole industry at risk,” Loh said.

Lawyer Alessa Pang, a partner at Rajah & Tann’s international arbitration, construction and projects group, said a number of contractors could have avoided financial pressures or escalation to formal disputes.

“Without the protections offered by the law, in particular the protection against legal proceedings or insolvency proceedings, more entrepreneurs could find themselves in distress,” she said.

The government has thrown a number of lifelines for businesses in the built environment sector.

Businesses can take advantage of the $ 1.36 billion employment support program and construction support program, in addition to tax rebates and exemptions for foreign workers.

Contractors working on Housing Board projects will see the prices of steel frozen and additional supplies for some raw materials such as cement, sand and other aggregates, for local production of prefabs.

To alleviate labor shortages, a first pilot project to bring migrant workers from India is being extended. The pilot started in July and applies to the construction, marine and process sectors.

Going forward, companies facing financial difficulties might consider restructuring their debt in order to stay afloat, Han said.

Tee International Limited, listed on the SGX motherboard, along with its four subsidiaries, is one such company that recently requested a statutory moratorium and was granted an interim six-week moratorium.

Mr. Han said, “A statutory moratorium will suspend all legal and enforcement actions against the company, and give the company time and space to engage its creditors and agree on a restructuring plan.”

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