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COVID-19: Governance: Impact of Malaysia’s Movement Control Order on your business (Malaysia)

14 April 2020 | Kuala Lumpur
Legal Briefings – By Peter Godwin, Rebecca Pang, Aaron Ong and Nicole Ong

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Updated as at 14 April 2020

Prompted by a rapid increase of COVID-19 cases in the country, the Malaysian Government issued the Movement Control Order (MCO) effective 18 to 31 March 2020,  later extended to 14 April 2020.

On 10 April 2020, the Prime Minister announced that the MCO would be further extended to 28 April 2020 (Phase 3 of the MCO), but also widened the list of industries able to operate during the MCO with government permission.

The MCO implements a series of precautionary measures to curb further outbreaks of COVID-19 in the country, including shutting down all government and private premises except for those involved in “essential services” and some sectors with government permission, and travel bans on all foreigners entering Malaysia and on Malaysians leaving the country.

Prevention and Control of Infectious Diseases (Measures within the Infected Local Areas) Regulations 2020 was gazetted, together with guidelines and FAQs from various ministries to assist the public and provide further clarification for the sectors affected. As regulations are constantly updated to meet the evolving situation, we aim to keep this information as up to date as possible but do contact us to confirm any particular point.

In this article, we discuss some of the key points of the MCO and the key considerations for businesses dealing with the impacts of MCO.  

Key points of the MCO

As its name suggests, the MCO aims to control the movement of people in order to reduce infection through personal contact through three main actions:

1. Shutting down government and private premises

As of 18 March 2020, all government and private premises are to be closed and all operations are to cease, except for those that come under “essential services”.

Essential services include, amongst others, banking services, transportation (air/land/sea), telecommunication services, electricity and water services, food supply and preparation services, and e-commerce. The complete list of “essential services” can be found in Schedule 2 of Prevention and Control of Infectious Diseases (Measures within the Infected Local Areas) Regulations 2020.

During Phase 3 of the MCO, the government has allowed several additional economic sectors to resume operations on the condition of strict adherence to health and safety guidelines.

These sectors include:

  • the automotive industry (limited to exports of Complete Build Up (CBU), parts and components, and after-sale services);
  • machinery and equipment industries;
  • the aerospace industry;
  • and certain construction projects and services.  

The complete list of additional sectors now allowed to operate under the MCO can be found at Appendix 1 of Frequently Asked Questions (FAQ) On Movement Control Order No. 3 issued by the Ministry of International Trade and Industry (MITI FAQ No.3).

2. Travel ban

During the MCO Period,  Malaysians are not permitted to leave and non-citizens are not allowed to enter the country. Malaysians overseas may return, provided that they undergo medical examinations upon their arrival and subject themselves to a 14-day quarantine.

For non-citizens wanting to enter Malaysia, only those with diplomatic status, permanent residents and expatriates with working visas involved in essential services will be permitted to do so on a case-by-case basis and will also be subject to a 14-day quarantine upon entry.

No land travel is permitted, except for those transporting essential goods and food. Ports will continue operations, except for those managing cruise ships. Domestic and international air travel will continue during this period subject to the travel bans in place. The operations of local and international cargo companies which involve scheduled and non-scheduled cargo movements are also permitted.

3. Restriction of movement within the country

As mentioned above, all government and private premises have been ordered to close and cease operations temporarily. No public gatherings, including religious meetings, recreational activities and social gatherings are permitted throughout this period.

The MCO has stipulated that journeys from one place to another are permitted only in the following circumstances:

  • to perform any official duty;
  • to make a journey to and from any premises categorised under “essential services”;
  • to purchase, supply or deliver food or daily necessities;
  • to seek healthcare or medical services; or
  • any other special purposes as may be permitted by the Director General. 

Key considerations for businesses during the MCO Period

Employment implications

The obvious impact for companies is that all employees are prohibited to report to work at their designated workplace, though working from home is allowed.  Only employees who are involved in essential services are allowed to attend work at their designated workplace. Even then some steps must still be taken by the employers, such as reducing the number of employees to a minimum or at least 50% of the total normally present. Employee temperatures must be taken and recorded daily; hand sanitisers must be provided in the workplace; and necessary sanitation and cleaning must be carried out whilst also ensuring social distancing guidelines are prepared and enforced.

Employers are also required to continue to pay their employees their full salaries and are not permitted to insist that their employees take annual leave or unpaid leave during the MCO Period. If this occurs, the employees may lodge a complaint with the Department of Labour.

In light of the MCO situation, it would be prudent for employers to consider action plans for business continuity such as working-from-home arrangements. In most circumstances, it would be lawful and reasonable to instruct the employees to work from home, even in the absence of express mobility clauses in employment contracts.

For companies with expatriates based in Malaysia in non-essential services, companies may consider whether they wish to relocate them temporarily to their home jurisdictions.

Electronic contracts

With businesses continuing to operate, the need to enter into new contracts – and addendums to amend pre-existing contracts to take COVID-19 into consideration – remains.

While printing hard copies and signing in counterpart remains an option, companies may wish to consider the alternative option of electronic contracts, if the law permits.

In general, the majority of jurisdictions worldwide accept the validity of electronic contracts and signatures with varying degrees of legal formality when it comes to the types of contracts allowed and electronic signature thresholds to be met. 

The typical contracts excluded from electronic contracting include powers of attorney, wills and other documents relating to succession or personal affairs, documents transferring an interest in real property, etc.

When it comes to electronic contracting, the practical tips to follow include:

  1. Consider the type of contract being entered into and whether a wet-ink signature is required in the particular jurisdiction.
  2. If electronic contracting is acceptable, consider whether a higher threshold is required to be met for the electronic signature such as the use of digital signatures. Note that even if not expressly required, consider whether digital signatures should still be used, especially if the validity is likely to be challenged.
  3. Finally, consider engaging the use of a third-party contract management platform to manage the business’ electronic contracts.

Click on the link to read our briefing on COVID-19 Global: Smart Legal Contracts – Shoring up supply chains in a time of crisis.

M&A deals

For companies with proposed (or current) M&A deals in the pipeline, certain additional practical factors will need to be considered.

  1. Factor in delays from regulators especially on obtaining approvals, for example merger control, regulatory approvals on foreign equity ownership.
  2. Factor in logistical/operational delays from teams involved in the transaction owing to country lockdowns.
  3. Conduct a market analysis on the target and re-evaluate its valuation and market position in light of the outbreak.

For a more comprehensive analysis of the possible impact on M&A, please visit our briefing on “Possible impacts on M&A”.

On-going construction projects

The FAQ by the Malaysian Ministry of Works dated 18 March 2020 stated that construction and maintenance works were to cease all activities during this period, except for those infrastructure projects that affect public safety and security.

The exceptions covered those works deemed “critical” such as traffic management control, and inspection and repairs of critical mechanical and electrical equipment. Even so, permission from the Department of Public Works and Department of Safety and Health is required before continuing any works.

Further construction works are now allowed in Phase 3 of the MCO (subject to approval by the Ministry of International Trade and Industry), such as:

  • projects where main contractors are G1-G2;
  • projects that have achieved physical progress of 90% and above;
  • tunnelling works;
  • slope works; and
  • emergency works that are consequent to contractual obligation.

See Appendix 1 for the complete list of activities now permitted.

Once approval for the additional works has been obtained from the relevant authorities, changes are likely to the suspension or force majeure position of their contracts. Companies should look at the terms in the contract and recognise the positions of parties under the contract in dealing with the MCO, especially during this fast-changing situation.

More information on dealing with the impact of COVID-19 on construction contracts is available in our previous briefing here.

International arbitration

Although the Asian International Arbitration Centre has closed its Kuala Lumpur premises to comply with the MCO, the operation of the case management team remains available online. Registrations of new arbitrations are allowed but not for adjudication. Other leading arbitration centres in Asia, such as the Singapore International Arbitration Centre and the Hong Kong International Centre, are offering virtual meetings options to aid parties affected by COVID-19

From a global perspective, we have seen hearings cancelled or postponed due to COVID-19, but it is possible to conduct hearings virtually or through documents-only arbitration.

We expect international tribunals will discuss the situation with the parties and exercise their judgement on the practicality of a virtual hearing. The possibility of holding virtual hearings depends on the complexity of the case, the number of people involved, location and language, and numerous other practical issues. There is no great difficulty in holding virtual hearings for straightforward arbitrations involving minimal witnesses, say one or two factual witnesses and one expert witness only. It would be materially more difficult to hold a virtual hearing for a bilingual arbitration proceeding where instant translation is required.  

Companies with ongoing international arbitrations should recognise that, realistically, it is not the time to push for business as usual, particularly when government restrictions such as the MCO are in place. As a global business community, the arbitration sector will be affected and parties’ willingness to compromise and collaborate will be crucial to keep proceedings going.

Conclusion

In the next two weeks, we will continue to keep abreast of the latest developments within the country. We hope that the MCO will indeed help flatten the curve and see a reduction in the number of cases in Malaysia.

As COVID-19 is a fast-moving crisis and things may change quickly, do reach out to the authors or your usual Herbert Smith Freehills contacts and we would be pleased to assist.

For more information, visit the COVID-19 hub on our website for a range of global and regional legal insights.

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