On 25 August 2020, the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Bill 2020 (Bill) was passed by the House of Representatives (Dewan Rakyat) of Malaysia, the lower house of its bicameral Parliament.
The Bill seeks to provide temporary measures to mitigate the financial and social impact of Covid-19. These measures will be introduced by way of amendments to sixteen existing laws. Most of these measures aim to provide reliefs for the period during which the movement control order is in force in Malaysia i.e. 18 March 2020 until 31 August 2020 (MCO Period).
Once the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Act 2020 comes into force, it will remain in operation for a period of two years from the date of publication (Publication Date).
This article will explore five key areas addressed in the Bill.
1. Inability to perform contractual obligations
The Bill prohibits contract counterparties from exercising their rights under a contract against parties whose inability to perform any contractual obligations is due to measures prescribed, made or taken under the Prevention and Control of Infectious Diseases Act 1988 (which is the statutory framework under which Malaysia’s movement control order was introduced) to control or prevent the spread of Covid-19 (MCO Measures).
This temporary relief is only available for specified categories of contracts, including construction-related contracts, professional services contract, property leases, event contracts, tourism-related contracts and religious pilgrimage-related contracts.
Once it comes into force, this provision will have a retrospective effect from 18 March 2020. This measure will remain in operation until 31 December 2020, unless further extended by the Minister of Law. Notwithstanding this, any contract terminated, legal proceeding commenced, or judgment or award granted prior to the Publication Date will be deemed to have been validly terminated, commenced or granted.
Mediation has been proposed as a dispute resolution mechanism for any disputes arising out of the inability to perform any contractual obligations arising from any of the specified contracts. However, the Bill does not make mediation the mandatory dispute resolution mechanism for such disputes.
2. Relief from bankruptcy proceedings
The current threshold amount which an individual must owe to a creditor before a bankruptcy petition can be filed is RM50,000. The Bill increases this threshold to RM100,000 until 31 August 2021, with the Minister being granted the power to extend this period. Any proceedings or actions which are pending immediately before the Publication Date remain unaffected.
It should also be noted that the Insolvency (Amendment) Bill 2020 (Insolvency Amendment Bill) was passed by the Dewan Rakyat on 25 August 2020. The Insolvency Amendment Bill seeks to amend the RM50,000 threshold to RM100,000 by amending the Insolvency Act 1967, the principal legislation which prescribes such threshold. Once the Insolvency Amendment Bill is passed and comes into operation, a creditor may only present a bankruptcy petition against a debtor if the debt owed is more than RM100,000.
3. Protections for individuals and consumers
The Bill also introduces certain temporary measures for individuals and consumers:
- Hire purchase agreements: The Bill prohibits owners of goods in a hire-purchase agreement from exercising its right to repossess the goods for any default of payment of instalments during the period from 1 April 2020 to 30 September 2020.
- Credit facility agreements: The Bill also deals with defaults under credit sale agreements. Where there is a default in two consecutive instalments, credit facility providers are required to issue a notice to the purchaser in respect of the settlement of the overdue instalments. Upon receipt of the notice, the purchaser may, within 21 days, elect to either:
- pay the overdue instalments;
- make an early settlement by paying the total amount payable; or
- terminate the credit sale agreement and surrender the purchased goods.
Even if the purchaser fails to make the election, the credit facility provider will be prohibited from commencing any legal proceedings to recover the outstanding amount payable if the credit sale agreement was entered into before 18 March 2020 and if the purchaser had no overdue instalments before 18 March 2020. Legal proceedings commenced between 18 March 2020 and the Publication Date remain unaffected.
- Tenancies: Currently, where there is a default in rent, landlords may apply for a writ of distress (a court order for movable properties of the tenant to be seized and sold to recover the arrears in rent). The Bill does not affect the right of the landlords to apply for a writ of distress. However, arrears of rent during the MCO Period are not to be included for the purposes of such writ of distress.
4. Housing development
The Bill also deals with the rights and obligations of property developers and purchasers during the MCO Period. These measures apply to sale and purchase agreements entered into before 18 March 2020 which are based on the forms prescribed in Schedules G, H, I and J of the Housing Development (Control and Licensing) Regulations 1989.
Firstly, property developers are not permitted to charge late payment charges in respect of unpaid instalments during the MCO Period as a result of the MCO Measures.
Secondly, the MCO Period shall also be excluded from the calculation of
- the time for delivery of vacant possession of a housing accommodation;
- liquidated damages, for the failure of the developer to deliver vacant possession;
- 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 any defects in a housing accommodation.
5. Extension of statutory limitation periods
Where statutory limitation periods for bringing certain common claims or actions (such as actions founded on contract or tort) expire during the MCO Period, the Bill extends such limitation periods to 31 December 2020. The statutory limitation period for actions against public authorities or other persons acting in the execution of public duties has similarly been extended for the same time period.
6. Court proceedings
The Bill also grants the power to the Chief Justice to issue directions relating to the business of all levels of courts in Malaysia where the Chief Justice is of the opinion that it is necessary in the interest of the dispensation of justice, public safety, public health and public security.
Notably, the Dewan Rakyat had on 26 August 2020 also passed legislation permitting the conduct of court proceedings through virtual means.
Various suggestions on the Bill have been made since its first reading in Parliament. A key observation relates to the savings provisions which appear in a number of the measures. The savings provisions preserve the validity of any actions taken prior to the Publication Date, notwithstanding that such actions are contrary to the provisions of the Bill. The concern then, is that there will be a rush in actions taken by creditors and contract counterparties before the Publication Date, defeating the very purpose of the measures proposed in the Bill.
The Bill will now be tabled in the Senate (Dewan Negara), the upper house of the Malaysian Parliament. It remains to be seen whether the Dewan Negara will make any amendments to the Bill to address this issue.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2020