The entire country has been living under the Movement Control Order (MCO) for more than a month now, and will continue to do so at least until 12th May. Most businesses have adjusted as best as they can, implementing working from home practices, negotiating a rebate of rental or suspension of contractual obligations, for the MCO period.
But what will happen once the MCO is lifted, and we emerge into what some are terming the “new normal”? The MCO has been a closed floodgate, temporarily suspending everyday life and business – once lifted, the full-blown commercial effects of the pandemic will no doubt come flooding.
Unlike jurisdictions like Singapore, Malaysia has not enacted any legislation to deal with the fall-out.
Businesses must thus take the initiative to prepare themselves to face the post-MCO, coronavirus-stricken world as best they can. To assist, we set out below a few key matters that our clients can direct their mind towards:
- Relook your contractual obligations and renegotiate as necessary
From being unable to meet payment obligations to disrupted supply chains, the pandemic can no doubt affect a business’s ability to meet its contractual obligations. Businesses are advised to cast their minds some way down the post-MCO road, to all contractual obligations coming up, whether one month, 6 months or 12 months from now. An honest review of its ability to comply and to deliver on these obligations will need to be made.
In the event a business finds itself unable to fulfil its upcoming obligations, it should assess the implications and its next move carefully – is what is needed merely an extension of time to perform? Or merely a suspension or loosening of the conditions? Or has the contract become impossible to perform, or simply no longer commercially viable to proceed with?
The terms of the respective contracts will have to be assessed. Some contracts contain what is know as the “force majeure” clause which may excuse or suspend contractual obligations in situations beyond the control of the parties. Much will depend on the specific wording of such clauses. The doctrine of frustration of contracts (Section 57 of the Contracts Act 1950) further allows a contract to be discharged and voided where there is a change in the circumstances supervening or subsequent to the formation of the contract which renders it legally or physically impossible to be performed.
Where the contractual terms or the circumstance do not favour the outcome aimed for, it is always open to quickly enter into open discussions and negotiations with the counterparty to find a win-win solution beyond the written contract, with reasonableness and commercial sense prevailing. Any amendment to the contractual obligations as a result of such renegotiations can then be formally captured.
- Consider your workforce needs moving forward
Employment issues have been rife throughout the MCO period when most non-essential business premises are required to remain close whilst still maintaining their employees on the payroll. Even once the MCO is lifted, given the adverse economic situation, many businesses may find it difficult to continue to sustain a payroll that remains unchanged.
As recognized by the Ministry of Human Resources (MHR), retrenchment is the prerogative of the employer. Businesses who are facing genuine financial strain can retrench its employees, however this will need to be done in accordance with the law, and alternative measures to avoid retrenchment should first be exhausted.
Possible alternative to retrenchment may be a reduction of salaries or of working hours (and thereby, a corresponding reduction in salaries). However, in order to avoid any disputes, businesses would be cautioned against carrying out such reductions unilaterally and should first consult and discuss with its employees to obtain their consent, explaining the reasons and needs for such cuts. In the present circumstances, it is not unusual that employees agree to take a pay cut or reduced working hours in order to ease their employer’s burden and to safeguard their own jobs moving forward.
It is reminded however that where relief has been obtained under the Government’s PRIHATIN wage subsidy program, the employee cannot be laid off for at least 6 months i.e the 3 months period covered by the program (April, May and June), and another 3 months thereafter.
- Ensure compliance to providing a safe and healthy workplace
Yes, post-MCO, your business premises can be opened and your employees return to work. However, the pandemic is still ongoing. Employers are under a common law duty to ensure a safe and healthy workplace for its employees, as well as possess obligations under the Occupational Safety and Health Act 1994. What do businesses now have to do, to protect its employees’ health and safety?
Business can consider the Ministry of Health’s (“MOH”) FAQ regarding the MCO dated 20 March 2020, which listed steps to be taken to avoid the spread of Covid-19 in the work place i.e.:
- Ensure a clean and germ-free work place – surfaces and equipment should be wiped down with disinfectant regularly;
- Encourage employees and customers to wash their hands (for at least 20 seconds) more often. Hand sanitizers should be placed at accessible places in the work place and refilled regularly;
- Face masks and tissues should be provided for employees who are coughing or have the flu;
- Appropriate places to dispose of used tissues should be provided;
- Advise employees to seek travel advice before attending for work at affected areas;
- Advise employees to exercise self-quarantine at home if they are unwell;
- To comply with the Covid-19 prevention procedures prescribed by MOH from time to time;
- Perform the necessary sanitization and cleaning process;
- Ensure that the best practice guidelines on social distancing are in place and implemented;
More recently, the Ministry of International Trade and Industry issued SOPs for the respective additional sectors allowed to operate during the MCO period (from third phase), imposing stringent conditions such as a reduction of number of employees attending at the premises, mandatory Covid-19 screening of workers, maintenance of a register of workers, body temperature screening and recording of temperature.
It is unclear at this point in time whether the MCO will be lifted fully, or in stages, or whether requirements or SOPs such as those presently in place for the additional sectors will continue to apply in some form or other.
Regardless, businesses are cautioned to keep in mind that the end of the MCO does not equal the end of the pandemic, and thus the necessary measures to ensure a safe and healthy work place should be put in place (if not already done prior to MCO) and/or continued post-MCO. This would include steps such as:
- regular disinfection
- encouragement and enforcing of social distancing e.g. physical meetings to be replaced by video or conference calls
- provision of hand sanitizers and face masks
- suspending or avoiding travel for work
- monitoring employees for symptoms, and ensuring a system where employees that display symptoms or have been exposed, can be promptly identified and quarantined away from the work premises to prevent further transmission.
It is also noted that customer-facing businesses such as retail stores may additionally have to consider the safety and health of its customers and impose measures such as continuing to limit the number of customers in-store.
- Check your insurance coverage
If businesses have not already combed through their existing insurance policies, they would be well advised to do so as insurance could well be a source to mitigate losses arising as a result of the pandemic. For example:
- Business interruption coverage insuring loss of income – this is sometimes taken on by businesses as an add-on to existing policies. Whilst commonly tied to the requirement of physical damage to the business premises, broader coverage e.g. interruption due to contagious or infectious diseases at the premises, are sometimes seen;
- Supply chain disruption insurance to cover disruptions to your supply chain – depending on the specific wording, this can cover disruptions both downstream and upstream and can extend to cover non-physical damage “events”;
- Event insurance – event cancellation insurance can cover losses due to the cancellation of large events e.g. trade fairs, sporting events, concerts etc. due to the pandemic;
- Medical insurance coverage – if your business provides health insurance coverage for its employees, it would be prudent to check to ensure the scope of coverage – does it cover Covid-19 testing for your employees? What about related hospitalization, and to what extent?
Ultimately, whether the policy has been triggered and a claim will succeed, depends on the precise wording and scope of the policy. Businesses should nonetheless cast their eye over the terms of their existing policies and endorsements to assess whether any provisions can be of help during these difficult times. Having a clear picture of where your business is protected, and where it is exposed, will help in the formulation of a sound post-MCO strategy.
- Ensure regulatory deadlines which were suspended during the MCO period are met
Many regulatory and government bodies have allowed extension of time with regards to deadlines falling within the MCO period. Businesses are advised also to see to and to ensure that all filings and submissions are done in accordance with the extended deadlines as soon as the MCO is lifted. This includes:
- Statutory documents due to the Companies Commission of Malaysia (CCM) during the MCO period are to be filed 30 days from the last day of expiry of the MCO;
- An extension of time (of 3 months from the last day of the MCO period) for the filing of annual financial statements due to be filed during the MCO period, shall be applied for from CCM;
- Public companies can apply for an extension of time (of 90 days from the end of the MCO period) to hold their Annual General meeting;
- Tax filings are granted a 2 months grace period;
- EPF contribution for April has been extended to 30 April 2020;
- Documents which deadline for payment of stamp duty falling between 18 March 2020 and 30 May 2020, may be stamped by 31 May 2020 without penalty.
- Avail yourself of available programs, exemptions and financial assistance
To help businesses through this difficult period, various packages and assistance programs are available, and businesses should check if they qualify and avail themselves fully of the same. This includes:
- Wage subsidy program under PRIHATIN Economic stimulus package – depending on the size of your workforce, businesses can receive subsidies ranging from RM600 – RM1,200 per employee per month. This is applicable to employees earning RM4,000 and below only, and for businesses with more than 75 employees, a decrease of revenue of at least 50% from January 2020 must be shown;
- PRIHATIN Special Relief Facility for SMEs with reduced interest rate from 3.75% to 3.5%. Several commercial banks also offer specific relief facility to help businesses weather the effects of the pandemic;
- PRIHATIN Special grant of RM3,000 each for eligible microenterprises;
- Waiver of HRDF contribution for 6 months effective 1 April 2020;
- As what banks have done, 6 months moratorium on loans, including loans from TEKUN, MARA and cooperatives as well as government agencies, and financial services providers registered under Moneylenders Act 1951, that grant loans to SMEs;
- Deferment of monthly tax instalment payment for SMEs for 3 months commencing 1 April 2020;
- 25% reduction of levy on foreign employee permits expiring between 1 April 2020 and 31 December 2020 (not applicable for domestic helpers);
- Businesses who are landlords, and have offered rental rebates to SMEs of 30% or more shall be entitled to corresponding tax deductions;
- com.my, a one-stop portal for SMEs applying for loans under PRIHATIN, has also been set up by Credit Guarantee Corp with support from Bank Negara.
- Seek protection for restructuring or corporate rescue, if necessary
Post-MCO, the risk of insolvency for businesses sadly remains a real one. The law provides certain processes, such as the judicial management, corporate voluntary arrangement and scheme of arrangement provisions provided for in the Companies Act 2016, which can provide temporary safety from insistent creditors while a business restructures itself. The judicial management and corporate voluntary arrangements for example can afford an automatic moratorium upon the filing of the necessary papers whereby legal proceedings against the business can be temporarily prevented.
Should your business come into a situation where it is unable to meet its debts, you are adviced to seek legal advice as to the restructuring and rescue options available. This will allow you to assess the correct steps to take in order to ensure your business’s survival.
Whilst we wait out the rest of the MCO period, the realities of the post-MCO world lies on the other side. With the necessary preparation, advise and prompt action, businesses should be able to weather this coronavirus storm.
This article was written by:
Joshinae Wong (Partner)
Yvonne Chang (Associate)
CCLC regularly advises on a wide range of commercial contracts and corporate exercises including mergers and acquisitions, joint venture transactions, corporate restructuring, and banking and financing.
Feel free to contact us if you have any queries, and we would be happy to assist.
Disclaimer: This article does not constitute legal advice and is not intended to be used as a substitute for specific legal advice. Please contact us if you require legal advice or if you have specific queries.