You or your Chinese clients may have investment in Malaysia (for example, subsidiaries (“MY Sub”)) and this serves as a guide for your reference.

Pursuant to the Movement Control Order (“MCO”)[i], all business activities (save for essential services) in Malaysia must be suspended from 18 March 2020 until 31 March 2020. The duration of the MCO has since been extended until 14 April 2020[ii]. Essential services include amongst others, banking and finance, e-commerce, port and dock services[iii], and this list may be updated from time to time.

Subject to the approval of the Ministry of International Trade and Industry, manufacturers of certain critical/essential goods may continue their operations during the period of the MCO, subject to compliance with terms and conditions[iv].

The Government together with its agencies have issued various guidelines and FAQs to clarify the restrictions under the MCO.

For Chinese corporations with business operations in Malaysia, it may be worth highlighting the following key points:

• The MY Sub may conduct its Annual General Meeting (“AGM”) electronically[v] or apply for more time to hold the AGM as a result of the outbreak[vi]. The MY Sub must still ensure that the proceedings of the AGM comply with the requirements under its constitution (if any) and the Companies Act 2016.
• The MY Sub is allowed a moratorium of 2 weeks after the expiry of the MCO to lodge all statutory filings and notifications.[vii] Late submission fees will be exempted during the moratorium[viii].
• For listed companies, they are given flexibility by Securities Commission Malaysia and Bursa Malaysia Berhad on the timing to hold an AGM and issue their quarterly and annual reports[ix]. Proceedings of the AGM must still comply with the requirements under the constitution and the Companies Act 2016.
• The MY Sub should check whether any of its licences/approvals are expiring in the near future. If this is the case, it is advisable that the application for renewal be made earlier as it may be prudent to anticipate longer processing time.
• The MY Sub must continue to pay its employees their salaries during the MCO closure period, unless the employment contract expressly provides otherwise.

IN ADDITION TO THE ABOVE, YOU OR YOUR CLIENTS OR THE RESPECTIVE MY SUB MAY HAVE ENTERED INTO VARIOUS AGREEMENTS (INCLUDING COMMERCIAL AGREEMENTS), IT MAY BE PERTINENT TO TAKE NOTE OF THE FOLLOWING:

During the MCO period, financial institutions including commercial banks are still open during the MCO closure period. Therefore, if pursuant to the agreement, parties have undertaken certain obligations which are pegged to “business days” and “business days” is defined as days when commercial banks are in operation, then the timing of the obligations will generally continue to run. Therefore, IT IS IMPORTANT to prepare a checklist / timeline of obligations to monitor that the agreed milestones is in keeping with the timeline.

On the other hand, there is no uniform force majeure provision under Malaysian law and before the same is finalized, it remains subject to parties’ negotiation akin to other terms of the agreement. Please check whether the force majeure provisions (if any) specifically refers to epidemics, pandemics and have a catchall provision (e.g. any other event beyond the reasonable control of the parties) to include the situation under the MCO, and whether the parties’ obligation under the agreement can be suspended / held in abeyance for the duration of the MCO. In this regard, industry specific clarifications issued from various Ministries may be of assistance, where relevant. IT IS IMPORTANT to draft a force majeure clause properly, or where such clause has been included, to construe the same in detail to protect MY Sub’s business because a declaration of force majeure must be done promptly and in accordance with the terms of the agreement. However, in the absence of applicable force majeure, parties will need to negotiate a compromise.

Moving to the context of a M&A agreement, a buyer may wish to consider incorporating the anticipated effects or consequences of a virus outbreak or an office shutdown for prolonged period under material adverse events (“MAE”) which may lead to, amongst others, adjustment of purchase price and termination of the agreement; whereas the seller should be mindful of the extent of such MAE clause (for example, territory specific and period specific). Parties should be mindful that any MAE and force majeure provisions do not conflict with each other.

Moving forward, considerations for the MY Sub may include the process for engagement with employees for their consent to implement amongst others, voluntary pay cut, utilise annual leave towards the shutdown, freeze on non-contractual increments, in the event of a similar shutdown. In the absence of consent, any unilateral action by the employer may be treated as grounds to treat oneself as constructive dismissal.

IN RELATION TO PROCESSES WHICH MAY BE TIME SENSITIVE:

• Where applications have to be made to regulatory authorities, most regulatory authorities are either closed or have limited operation during the MCO, and it is likely that any such applications will only be processed after the MCO is lifted.
• Even when the MCO ends, applications submitted will likely take a longer processing time due to the backlog of applications submitted.
• Where share transfer is expected to be effected, while the share transfer form can be submitted for stamping via the e-stamping portal, the actual assessment is a manual process and this may have been impacted by the MCO and may take longer than usual. Assuming this is the case, the timing for transfer of legal ownership of shares will be impacted as it can only be completed after the stamping is done.
• Due to the delay in the performance of obligations, and processing time as a result of the outbreak and the shutdown, parties may not be in compliance with their contractual and/or licensing conditions. In view of this, parties should consult with the relevant counterparty or regulator to seek their written waiver, exemption and/or clarification on the same taking into account the outbreak and the shutdown.

Inevitably, companies are likely to face financial liquidity and cash flow issues due to amongst others, the restricted movement period under the MCO. Immediate actions must be taken, in addition to managing the aforementioned timelines, to also review its contractual obligations and liabilities, particularly those that have financial implications for non-compliance. It may be worth putting efforts to do a thorough review of all the material contracts bearing in mind the unprecedented global pandemic.