COVID-19 and Related Legal Developments

Temporary Measures for Reducing the Impact of COVID-19 Bill 2020

The much-awaited COVID-19 Bill has finally been tabled in Parliament.

It proposes to make amendments to a large number of laws, including the Limitation Act 1953, Insolvency Act 1967, Hire-Purchase Act 1967, Consumer Protection Act 1999, Distress Act 1951, Housing Development (Control and Licensing) Act 1966, and Industrial Relations Act 1967.

The Bill when passed by Parliament will become enforceable on the date of publication of the Act (“publication date”) and for a period of 2 years (“operation period”), though the Prime Minister will have the power to extend the operation period and make such extension more than once.

The proposed statutory amendments aside, there is a general provision to excuse a party or parties to a contract from liabilities resulting from their inability to perform any contractual obligation arising from certain specific types of contracts, including: construction-related contract, performance bond or equivalent granted pursuant to a construction contract or supply contract, professional services contract, lease or tenancy of non-residential immovable property, event contract, and tourism contract. The effect of such excusal is such that the other party(s) shall not be able to exercise his or their rights under the contract. The Minister concerned may enlarge or reduce the types of contracts. This part of the law will have retrospective effect from 18 March 2020 to 31 December 2020, and the Minister concerned may extend its validity period more than once subject to the operation period of the Act. Notwithstanding the statutory excusal, any contract terminated, any performance bond or deposit forfeited, any damages received, any legal proceedings, arbitration or mediation commenced, any judgment or award granted and any execution carried out in the period from 18 March 2020 to the publication date of the Act shall be deemed to have been valid.

In respect of the proposed amendments to the Insolvency Act 1967, the statutory debt threshold has been further uplifted to RM100,000.00 from the previous RM50,000.00. The changes to the bankruptcy threshold will come into force on the publication date and last until 31 August 2021. However, any existing bankruptcy proceedings or matters before the publication date of the COVID-19 Act shall proceed as before.

The proposed amendments to the Distress Act 1951 propose to exclude distress for arrears of rent for the period from 18 March 2020 to 31 August 2020. It will apply to any premises. However, any existing warrant of distress for the recovery of rent of any premises that has been issued before the publication date shall remain valid under the Distress Act 1951.

The proposed amendments to the Housing Development (Control and Licensing) Act 1966 (“HDCLA 1966”) will make several amendments, including late payment charges imposed by a developer on a purchaser in respect of unpaid instalments, delivery of vacant possession and liquidated damages arising therefrom, and the defect liability period. The period from 18 March 2020 to 31 August 2020 will be excluded from the computation of time. A purchaser (in respect of late payment charges or defect liability period) and a developer (in respect of delivery of vacant possession) may apply to the Minister concerned for an extension of time up to 31 December 2020. A purchaser who was or is unable to take vacant possession during the period from 18 March 2020 to 31 August 2020 shall not be deemed to have taken such possession. Notwithstanding the proposed amendments, any late payment charges or liquidated damages paid before the publication date shall be deemed validly paid, and any legal proceedings commenced or judgment or award obtained to recover late payment charges or liquidated damages during the period 18 March 2020 to the publication date shall not be affected.

As for the Industrial Relations Act 1967, the chief amendment excludes the period from 18 March 2020 to 9 June 2020 from the computation of time for filing representation for unfair dismissal.

Any Minister concerned may by Order published in the Gazette provide for alternative arrangements for any statutory meeting which was supposed to have been held between 18 March 2020 and 9 June 2020 but could not. These meetings include presumably company and society AGM. Any such meeting held not in accordance with the manner provided for in any Act on or after 18 March 2020 and before the making of the Order shall be deemed to have been validly held.

Civil and commercial matters aside, there is a provision which will empower any Minister concerned to retrospectively extend the time for any statutory authority to perform any of its statutory act or obligation which was supposed to have been performed in the period from 18 March 2020 to 9 June 2020. With such extension, no authority will be liable for any damages.

The COVID-19 Bill, when passed, will supersede any conflicting or inconsistent law.

13 August 2020

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Economic Stimulus Package

ETCoLaw will release a three-part series on the economic stimulus package announced by the government recently. The focus is on the incentives for doing business in Malaysia.

Part 3: Tax Implications

Newly established SMEs will be given income tax rebates up to RM20,000 every year for the first 3 assessment years. The tax rebates apply to new companies that are established and operate between 1 July 2020 and 31 December 2021. The tax rebates are, however, subject to unspecified conditions.

SMEs are encouraged to pursue mergers and acquisitions (M&As) among themselves. For M&As that are completed between 1 July 2020 and 30 June 2021, the relevant legal documentation will enjoy stamp duty relief.

To encourage sale of houses, there will be stamp duty relief for property value between RM300,000 and RM2.5m. The stamp duty relief applies to both the sale and purchase agreement as well as loan agreement. For the sale and purchase agreement, the relief is limited to the first RM1m value of the house, while full stamp duty will apply to the loan agreement. The relief applies to sale and purchase agreements signed between 1 June 2020 and 31 May 2021, subject to discount of at least 10% given by the developer.

To complement the stamp duty relief, Malaysian individual citizens who dispose of their houses between 1 June 2020 and 31 December 2021 will enjoy RPGT exemption for the disposal of 3 properties.

If you have any queries, you may wish to CONTACT ETCoLaw.

11 June 2020

Part 2: SMEs

If you have any queries, you may wish to CONTACT ETCoLaw.

9 June 2020

Part 1: Foreign Investments

As a move to promote foreign investments, foreign companies are encouraged to relocate their business to Malaysia. Among the tax incentives that such foreign companies will enjoy include:

Zero tax for 10 years for new investments in manufacturing with investment in fixed assets between RM300m and RM500m.
Zero tax for 15 years for such new investments with investments in fixed assets more than RM500m.

To enjoy such tax rate, the foreign companies must relocate to Malaysia and begin operations within 1 year from the date of approval and the amount of investment must be incurred within 3 years.

For existing companies in Malaysia which move their manufacturing facilities from overseas to Malaysia, they will enjoy 100% tax allowance for investment for a period of 5 years.

The above two sets of tax reliefs apply to applications received between 1 July 2020 and 31 December 2021.

6 June 2020

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Are Companies “Exempted” from Winding Up?

ETCoLaw wrote about this topic a few weeks ago (see below). However, there are still many questions asked by businesses, whether their companies are really protected from winding-up. The answer is definitely “No”. you may wish to read further to understand why.

There have been 3 instruments involved in the whole saga: the Minister’s Direction gazetted on 21 April 2020 to raise the statutory threshold sum for winding-up pursuant to s 466(1)(a) from RM10,000 to RM50,000 (“Direction”); the Companies (Exemption) Order 2020 gazetted on 21 April 2020 (“1^st Order”); and the Companies (Exemption) No.2 Order 2020 gazetted on 23 April 2020 (“2^nd Order”).

As for the Direction, it was probably intended to save SMEs as most of them tend to be cash-strapped and their debts tend to be in that kind of range. While it was within the power of the Minister concerned to determine the statutory threshold sum (whether RM10,000, RM50,000 or another figure), it is debatable if the proper process was followed.

The Direction was followed by the two Orders. The 1^st Order (on the same day as the Direction) was rather unintelligible and no wonder it was swiftly revoked by the 2^nd Order (two days later).

The 2^nd Order purports to exempt all companies from s 466(1)(a). The blanket exemption is, however, subject to a so-called “condition” that ‘[a] company shall be deemed to be unable to pay its debts under paragraph 466(1)(a) of the [Companies] Act if the company neglects any notice of demand by any creditor to pay its debt or to secure its debt or to compound its debt to the satisfaction of the creditor within a period of six months after the notice of demand is served on [the company]’. It is unclear why s 466(1)(a) could be subject to this kind of “condition”, when s 466(1)(a) merely provides a statutory deeming definition of the so-called “inability to pay”.

Whether it is called a “condition” or “amendment”, by lengthening the statutory period from 21 days to 6 months, it would require an amendment of s 466(1)(a). That, however, is beyond the power of the Minister. It would require an amendment by Parliament, unlike perhaps the Direction to raise the threshold sum to RM50,000. The reason the 2^nd Order (and possibly the 1^st Order as well) was made was presumably because Parliament was not in session and would not be in session until May 18 the earliest, whereas the businesses could not wait any longer. Even the government would table a Bill to amend s 466(1)(a), there is no assurance that it would be passed by the House, and any defeat of the Bill would spell disasters.

By purporting to add a “condition” to s 466(1)(a) when it involved essentially an amendment to the section without an amendment passed by Parliament, the legality of the 2^nd Order is highly debatable. It is probably more likely than not that the 2^nd Order (and so too the 1^st Order) is illegal, and null and void. If so, what is left (if at all) is the Direction (which is also debatable)[1] to raise the threshold sum to RM50,000. If, in the worst situation where the Direction is also invalid, everything is back to square one.

Winding-up under s 466(1)(a) aside, there are other means to compel a debtor company to pay. Hence, whether the 2^nd Order (and possibly the Direction) is invalid so as to provide no assistance to companies in financial trouble, is merely the tip of the iceberg of all sorts of legal troubles that may hit such companies.

In summary, companies are not likely to be exempted from winding-up, whether pursuant to s 466(1)(a) or otherwise. Companies in financial trouble may wish to seek alternative solutions.

If you have any queries, you may wish to CONTACT ETCoLaw.

[1] If the Direction were itself valid at all, one wonders why the same Minister would issue the 1^st Order on the same day to effectively “undo” the Direction issued by him by exempting all companies from the same section.

12 May 2020

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All Companies Are Shielded from Winding Up…For Now?

Further to ETCo’s write-up on the Companies Commission’s “initiative” to raise the debt threshold from RM10,000 to RM50,000 and to lengthen the statutory notice period for winding up from 21 days to 6 months (see “Revision of Winding Up Threshold” below), the Minister concerned had the Companies (Exemption) (No.2) Order gazetted on 23 April 2020.

The Order “exempts all companies from…the [Companies] Act which provides that any company shall be deemed to be unable to pay its debt if the company neglects any notice of demand by any creditor to pay its debt or to secure its debt or to compound its debt to the satisfaction of the creditor within a period of twenty-one days after the notice of demand is served on him.”

However, the exemption is subject to a so-called condition which provides that “any company shall be deemed to be unable to pay its debts…if the company neglects any notice of demand by any creditor to pay its debt or to secure its debt or to compound its debt to the satisfaction of the creditor within a period of six months after the notice of demand is served on him.”

If you have any queries with the Companies (Exemption) (No.2) Order, you may wish to CONTACT ETCoLaw.

25 April 2020

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COVID-19 – Infectious Diseases, Uncertainties in Life, and Inheritance

The outbreak of COVID-19 has demonstrated again the power of the nature to strike at humanity. However, COVID-19 is not the first and will not be the last to strike at humanity.

For those who have lived long enough, they will remember how HIV AIDS terrorized the world population in the 1980s. It is estimated that about 32 million people have died from AIDS-related illnesses since the outbreak of the epidemic until 2018. While many people have probably forgotten about AIDS, the more recent outbreaks of highly-infectious diseases such as the SARS in 2003, H1N1 in 2009, the MERS in 2012 as well as Ebola in 2014 would certainly ring some bells.

COVID-19 demonstrates to humanity the power of infectious diseases: the speed and extensiveness of infection, not to mention the fatality rate. As of the day of this writing, it has caused nearly 2 million confirmed infections, and more than 123,000 deaths, and that is probably excluding more than 15,000 deaths incorrectly diagnosed in the US prior to the identification of the COVID-19 virus.

COVID-19 is, however, one of the many uncertainties we are faced with in our day-to-day life. We don’t know when, for example, one will fall off the staircase and hit the wall and lose all consciousness from that moment onwards. We can’t foresee when a car accident will happen, or the plane one takes will have mechanical failures and dive into the sea. Is there going to be another contagious disease, that is more infectious and more lethal than COVID-19, and when will that strike? This is not intended to create a gloomy picture, but more to send a message about the reality of modern life—where people are mobile and so are the diseases.

When the unexpected happened, how would one take care of his or her loved ones? How would one cater for the lives of his or her family or extended family in his or her afterlife? What would one do with his or her houses, cars, cash savings in the banks and so on? As such, it would be a good idea to plan ahead for such uncertainties.

If you would like to know how to make such planning, how to ensure a smooth transition and transfer of your property to your loved ones after you have passed away, how to have a better control before you pass away so as to ensure a smooth process and no dispute, please do not hesitate to CONTACT ETCoLaw.

16 April 2020

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Revision of Winding Up Threshold

The Companies Commission of Malaysia (SSM) has raised the threshold for winding up a company under the Companies Act 2016 from RM10,000 to RM50,000. In addition, the statutory period to respond to a statutory notice of demand has also been lengthened from 21 days at present to 6 months. The changes are to remain in force till 31 December 2020. In a press release, the SSM made the announcement among its other initiatives, taken presumably in concert with the government’s relief measures in response to the economic impact brought about by the MCO.

The raising of the threshold is more likely to benefit incorporated SMEs that are registered with the SSM, which tend to be faced with cash crunch in this extraordinary time.

If you have any issue with the financial standing of your company, you may wish to CONTACT ETCoLaw.

April 14, 2020

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COVID-19 Pandemic and Its Effects on Commercial Contracts and Employment

Most of the business executives who have wondered what to do in the current economic situation—much impacted by the ongoing COVID-19 pandemic—and who have googled about it would have invariably come across certain words like force majeure, loss of jobs, salary cut, and so on. While loss of jobs and salary cut are more to do with employment, the legal concept of force majeure is widely found in the commercial context.

Force majeure clause is commonly found in commercial contracts. Practice is such that it is simply inserted into every single contract. Whether the clause applies in a particular situation is a separate question. Is the clause applicable in the current economic situation? What is the effect of having such a clause in the current economic situation? What reliefs does it afford to the party seeking to rely on it? What if their commercial contracts are international? What if the buyer in another country is pressing the seller to meet the supply timeline, notwithstanding the MCO imposed in Malaysia? These are invariably the kinds of questions that many businesses have in their minds. While most commercial contracts drafted by solicitors tend to incorporate such a clause, the same may not be said for most of the day-to-day trade, of whatever value. What would happen in the current economic situation, if there is no force majeure clause?

As for employment, it is mostly governed by the national laws. Most companies—be they MNCs or SMEs—must have come across the various guidelines or FAQs issued by the Ministry of Human Resources (MoHR) in the past two weeks. From the mandatory wording of ‘the employers must pay full salaries to the employees’ to ‘the employers are advised to discuss and offer…to the employees,’ the employers in this country must be wondering what to do in the circumstances. There are various questions in the minds of the employers: Are the MoHR guidelines or FAQs law? Must we follow the MoHR guidelines or FAQs? What will happen if we don’t follow them? Employment law is not a static piece of legislation. It does evolve with times. While the employment law had developed, evolved and been applied up to the onset of COVID-19, whether the same legal principles are or will be applied in view of the current situation is a novel question. Only the courts—armed with the power to develop the law—are able to tell. Hence, it is advisable for the employers to consider taking their employment issues to the court.

While other countries have legislated certain laws to deal with the current economic situation, including enhancing the effects of the force majeure clause in commercial contracts, or providing the employers and employees with more flexibilities, such legislative interventions are not forthcoming in Malaysia—at least not until Parliament resumes sitting in the middle of May. In the meantime, businesses have the only resort to the courts.

In summary, if businesses have any doubt, they should seek legal advice to ensure that their legal and commercial positions are well protected.

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Covid-19 and Business Supply Chain

The recent outbreak of the Covid-19 has sparked anxieties across many countries, almost the entire world. While its impacts on healthcare and disease control have caught the prime attention, as far as businesses are concerned, they have other issues to worry about.

For manufacturers, they have to be concerned not only with the supply of the input materials, but also the supply of their output products. They have to ensure that the input materials will continue to be delivered to them, without any disruption in the supply chain. On the other hand, they have to ensure that their output products will be produced and delivered to their customers in time. It is of particular importance to them if they are in an international supply chain. Should they be late in their delivery, causing losses to their customers, they are likely to be held liable, unless they have pre-empted that.

In the unfortunate event when they are liable to their customers, not due to their own fault but the fault of their suppliers, they will have to find a way to pass on their liabilities to their suppliers.

If you find yourself in that kind of unenviable situation, please do not hesitate to CONTACT ETCoLaw.

NB. Legal updates are intended for general exposition of the law. They are not intended to be, nor should they be taken as, legal advice whether in form or in substance. The reader should seek specific legal advice pertaining to their legal problems.

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