Malaysia: Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Bill 2020

In brief

On 12 August 2020, the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Bill 2020 ("Bill") was tabled for and passed the third reading in the Lower House of Parliament.

The Bill provides for temporary measures to reduce the impact of COVID-19 pandemic on businesses and individuals in Malaysia. Oce the Bill is enacted into law, the Bill will have retrospective effect from 18 March 2020.

Conclusion

The scale of the COVID-19 pandemic means that no business has been spared from the fallout. The unprecedented restrictions under the MCO has had a significant impact on economic activity in Malaysia. The stimulus initiatives introduced by the Government have helped but more assistance is required by disrupted businesses to perform their contractual obligations.

The Singaporean COVID-19 (Temporary Measures) Act 2020  was passed in April 2020. It is imperative that the Bill is urgently enacted into law in Malaysia to give businesses the necessary tools for recovery and renewal.


Contents

Key Highlights of the Bill

1.      Relief from Contractual Obligations

The Bill sets out a list of contracts ("Scheduled Contracts") where a party can seek relief due to an inability to discharge its contractual obligations arising from the prescribed measures set out under the Prevention and Control of Infectious Diseases Act 1988 ("COVID Measures"). COVID Measures include the Movement Control Order ("MCO") event, which required the closure of all business premises save for those providing essential services, and the implementation of the guidelines and SOPs issued by the relevant Ministries on various sectors such as retail and construction.  

Scheduled Contracts

  • Construction work contract or construction consultancy contract and any other contract related to the supply of construction material, equipment or workers in connection with a construction contract.
  • Performance bond or equivalent that is granted pursuant to a construction contract or supply contract.
  • Professional services contract.
  • Lease or tenancy of non-residential immovable property.
  • Event contract for the provision of any venue, accommodation, amenity, transport, entertainment, catering or other goods or services including, for any business meeting, incentive travel, conference, exhibition, sales event, concert, show, wedding, party or other social gathering or sporting event, for the participants, attendees, guests, patrons or spectators of such gathering or event.
  • Contract by a tourism enterprise as defined under the Tourism Industry Act 1992 and a contract for the promotion of tourism in Malaysia.
  • Religious pilgrimage-related contract.

The Bill is drafted widely to provide temporary relief to all obligations under the Scheduled Contracts to be performed for the period commencing 18 March 2020 up to and including 31 December 2020 ("Relief Period"). The Bill temporarily suspends actions for contractual breach, where the non-performance was due to COVID Measures.

The contractual rights of a party to the Scheduled Contracts is generally not affected. The Bill simply prohibits a party from exercising its rights during the Relief Period against the non-performing party. For example, the ability to charge interest for non-payment or late payment during the Relief Period is not affected if the right was provided in the Scheduled Contracts, and can therefore be exercised on 1 January 2021 (assuming the Relief Period is not extended). Seeking protection under the Bill may therefore result ultimately, in higher late payment charges.

Disputes may also arise from arguments that a party's inability to perform its contractual obligation is not due to COVID Measures. For example, a landlord may dispute that its tenant's inability to pay rent during the Relief Period is not due to COVID Measures as compliance with the SOPs did not cause the tenant to default on its payments obligations under the tenancy agreement. The Bill provides that such disputes may be settled by way of mediation, with the appointment of a mediator and its role being determined by the Minister of Law. 

It is to be noted that:

  • loan or facility agreements do not fall within the list of Scheduled Contracts. As such, the Bill does not extend the existing loan moratorium set to expire at the end of September 2020;
  • the Minister of Law is empowered to amend the list of Scheduled Contracts to add (or take away) from the existing list. The Minister may also extend the Relief Period to a date past 31 December 2020; and
  • the Bill, when passed will have retrospective effect. However, any contract terminated, deposit or performance bond forfeited, damages received, legal proceedings commenced or judgment or award granted after 18 March 2020 but prior to the date on which the Bill will come into effect ("Effective Date"), shall remain valid ("Saving Provision"). To take advantage of the Saving Provision, parties may look to enforce their rights under the Scheduled Contracts by terminating them or claiming for damages before the Bill comes into force.

2.      Extension of Limitation Periods

Limitation periods (i.e. the period of time within which a party to a contract must bring a claim) for contract and tort under Section 6 of the Limitation Act 1953 which had lapsed during the Relief Period shall be extended to 31 December 2020. This provision has been drafted to also apply to the laws of Sabah and Sarawak.

3.      Bankruptcy Proceedings

Creditor(s) cannot commence bankruptcy proceedings against a debtor under the Insolvency Act 1967, unless the aggregate amount of debts due and owing equals to or exceeds RM100,000 ("Bankruptcy Threshold"). This is an increase from the previous threshold of RM50,000. The Bankruptcy Threshold will come into force on the Effective Date and remain in force until 31 August 2021 (unless further extended).

Bankruptcy and winding up proceedings filed prior to the Effective Date will not be affected. There is a likely possibility that creditors will want to quickly bring claims against debtors before the Bill comes into force.

4.      Relief from Hire Purchase Obligations

Between the period of 1 April 2020 to 30 September 2020, owners will not be able to exercise their rights to repossess goods under a hire-purchase agreement arising from a default in instalment payments. However, owners who have exercised their rights before the Effective Date may continue to pursue their claims.

5.      Consumer Protection Act / Credit Sale Agreements

Under the Consumer Protection Act 1999 ("CPA"), where there is a default in payment of two consecutive instalments by a purchaser under a credit sale agreement (i.e. an agreement to purchase goods pursuant to a credit arrangement), the credit facility provider is entitled to issue a notice to address default in such payments ("Notice").

The Bill amends the CPA to give more flexibility to the purchaser to deal with the debt. Specifically:

  • Within twenty-one (21) days from receipt of the Notice, the purchaser may elect to:
    • pay the overdue instalments (without any late payment charges as per the current law);
    • make an early settlement by paying the total amount payable; or
    • terminate the credit sale agreement and surrender the purchased goods to the credit facility provider.
  • Even where the purchaser fails to elect an option set out in paragraph 5(a) above, the credit facility provider is not allowed to commence any legal proceedings to recover the amounts payable by the purchaser under the credit sale agreement, if:
    • the credit sale agreement was entered into before 18 March 2020; and
    • the purchaser had no overdue instalments before 18 March 2020.

Legal proceedings commenced before the Effective Date will continue to subsist.

  • If the limitation period under the CPA had expired 18 March 2020 to 15 June 2020, the date shall be extended until 31 December 2020.

6.      Recovery of Rent Due and Payable to a Landlord by a Tenant

Where a tenant fails to pay rent, the Bill restricts the ability of a landlord to apply to the Courts to issue a warrant of distress to seize and sell the tenant's goods in satisfaction for any arrears of rent payable by the tenant for the period between 18 March 2020 to 31 August 2020.  

This does not however disqualify any warrant of distress already issued before the Effective Date. The provision will provide some relief to tenants as a result of the temporary suspension of the statutory rights of the landlord, particularly given that the list of Scheduled Contracts does not include residential tenancies.

7.      Amendments to Housing Development (Control and Licensing) Act 1966 ("HDA")

The Bill protects the rights of both purchaser and developer by proposing the following amendments to the HDA:

  • no late payment charges to be imposed on purchasers who fail to make instalment payments for the period 18 March 2020 to 31 August 2020 ("Prescribed Period") due to COVID Measures;
  • the Prescribed Period shall be excluded from the calculation of:
  • the time for delivery of vacant possession of a housing accommodation;
  • liquidated damages arising for the failure of the developer to deliver vacant possession of a housing accommodation;
  • the defect liability period after the date the purchaser takes vacant possession of a housing accommodation; and
  • the time for the developer to carry out works to repair and make good the defect, shrinkages and other faults in a housing accommodation;
  • where the purchaser fails to enter into possession of a housing accommodation during the Prescribed Period, the purchaser will not be deemed to have taken vacant possession; and
  • if the 12 months limitation period for the homebuyer to file a claim with the Tribunual for Homebuyer Claims has expired during the period between 18 March 2020 to 9 June 2020, the homebuyer is entitled to file the claim from 4 May 2020 to 31 December 2020.

The above only applies to the residential properties acquired pursuant to the prescribed sale and purchase agreements set out in Schedules G, H, I and J of the Housing Development Regulations entered into before 18 March 2020.

These provisions provide a welcome relief to and protection to purchasers of housing accommodation. It also protects developers given that construction work had to be stopped during the MCO period.

Note that purchasers and developers can apply to the Minister of Housing and Local Government for an extension of the Prescribed Period to 31 December 2020. It is unclear why the Prescribed Period expires on 31 August, and why the Bill cannot be drafted to extend it to 31 December 2020. Certainty would have been superior compared to the discretionary exercise of ministerial powers.

8.      Industrial Relations / Private Employment Agencies

The Bill excludes the period between 18 March 2020 to 9 June 2020 from the calculation of the timelines for the:

  • Industrial Relations Act 1967; and
  • Private Employment Agencies Act 1981.

The exclusion of this period from the timelines below is the address the disadvantages arising from an inability to travel and/or make the relevant applications or filings during the MCO and the Conditional Movement Control Order.

(a)    Employers

Obligation

Timeline

Notification of Recognition of a Trade Union / Notification of Reasons for Non-Recognition

 

Within 21 days after service of the claim for recognition from the trade union

(b)   Trade Union / Employees

Obligation

Timeline

Claim for Recognition of a Trade Union / Notification of Failure to Receive the Notification of Recognition

 

Within 14 days from the receipt of the Notification of Recognition or after the 21 day period in (a) has lapsed

Filing of unfair dismissal claims

Within 60 days of the dismissal

(c)    Private Employment Agencies

Obligation

Timeline

Application to renew private employment agency licence

 

2 months before expiry date

 

9.      Licensed Operators of a Public Service Vehicle / Tourism Vehicle

The Bill amends the Land Public Transport Act 2010 ("LPTA") and the Commercial Vehicles Licensing Board Act 1987. A licensed operator of a public service vehicle (e.g. bus, stage buses, charter buses under the First Schedule of the LPTA) or tourism vehicle (e.g. excursion bus, under the Second Schedule of the LPTA) may make an application to the relevant authority for authorisation to be used as a public service vehicle, tourism vehicle or goods vehicle of another category or class. For example, authorisation may be given for a tourism vehicle to be used for public transportation, subject to the fulfilment of certain conditions which includes additional insurance coverage.

These amendments give tourism and entertainment operators the ability to generate other means of income by repurposing their existing vehicles.

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