Do we need a COVID Act in Malaysia?

COVID Act is an act of parliament. Singapore came out with their own version a month ago. But why and how should it matter to you?

What is a COVID Act

The best way to explain this is by giving a summary of an existing COVID Act already in force by our neighbour down south.

Singapore’s COVID Act came into effect last April. Without going through the details, the act aims to give temporary relief for a certain type of contracts like loans and construction-related contracts, so that financially distressed companies affected by the COVID crisis can have some breathing space to restructure and sort out their financial affairs.

Generally, COVID Act acts as a bandage to prevent more bleeding suffered by companies due to the Covid-19 crisis. For instance, the law may allow for tenants to stop paying for rentals to their landlords for a certain period. This is done so that the tenants will have some breathing space to manage their cash flow until the situation gets better.

So many prominent people especially lawyers have written about the need for Malaysia to have a Covid Act like Sittpah Selvaratnam, who is intimately aware of the scenario as she was instrumental in the formation of Danaharta, a special purpose entity formed by the Malaysian government to handle distressed companies affected by the 1997 Asian Financial Crisis. This also includes coming up with restructuring schemes so that companies will be able to continue its operations.

To recap, Covid Act helps distressed companies with cashflow problems by freezing legal actions by creditors who are now haunting debtors like vultures for their unpaid debts. This allows these companies to have some breathing space to reorganise themselves with a fixed ‘cooling-off’ period.

Last month, in an attempt to help distressed companies, the Companies Commission of Malaysia increased the debt threshold from RM10,000 to RM50,000 until 31 December this year. In other words, any creditor cannot seek to wind up a company unless this RM50,000 threshold is met. Additionally, the same announcement also includes an extension of response time from 21 days to six months. These measures hopefully would give some breathing space for distressed companies to sort out their financial affairs.

Will COVID Act benefit Malaysian technology companies and startups?

Yes, although it may be unlikely that the COVID Act would distinguish between brick and mortar companies to tech companies, I am confident that many early stage companies will benefit from the statutory protections that the COVID Act will provide (this would also be subject to the Malasian government considering the same positions that the Singapore government has undertaken in its law). Additional measures may also include freezing of rental payments and repayment of debts and so on.

In addition to the RM100 mil of various financial schemes announced by the Malaysia government, the additional statutory protections to protect startups from being sued for unpaid debts will greatly help entrepreneurs and founders to negotiate their current contracts and restructure their debts.

How do we get a COVID Act passed?

This may sound sloppy, but the easiest way is to just take the Singapore’s COVID Act and use it as a base law. After that, the draft can be customised and based on the inputs by the lawmakers including trade associations and Malaysian companies. Also, there’s no copyright protection for statutes and legislations.

Once our drafting team in the Attorney Generals Chambers are okay with the draft bill, the bill needs to be debated by our lawmakers in the Malaysian parliament. The bill will run through several sittings and debates before it can be passed with a simple majority. The King will then give his royal assent before it gets gazetted as a new law.

What are the issues involved around COVID Act?

Many will know Malaysia’s current ruling government’s position is shaky and maybe potentially illegitimate. Notwithstanding its political legitimacy, getting the lawmakers in the parliament is the key to get this law enacted.

Some analysts argued that corrupt regimes may abuse the COVID Act by including onerous and “emergency” powers on the executive (like the ministers, police or civil servants) to allow them to enforce security measures which may not serve the best interest of the society as a whole.

Based on the latest announcement by the speaker of the house, it is clear now that the lawmakers will not be debating on the proposed COVID Act.

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