[Update: The Covid-19 (Temporary Measures) bill has been made law on Friday, 23 October 2020. The final section has been amended to include the new law]
During the MCO, it’s not surprising to hear about businesses closing down. Just like the Spanish inquisition, no one expected the Covid-19 pandemic to hit us that hard.
There have been attempts to soften the economic blow, such as a government subsidy for employee wages. But companies which can’t operate online, especially SMEs, might face difficulties after not operating for a few months. They might be unable to pay back loans, or even completing work they’re hired to do pre-MCO.
This can lead to creditors or clients trying to sue them for the money, potentially forcing the company to liquidate and sell their assets.
But Malaysian companies might get some temporary relief from these difficulties. During the announcement of PENJANA, Prime Minister Muhyiddin Yassin mentioned that they were in the midst of drafting a new bill: the Covid-19 (Temporary Measures) bill. This bill potentially allows companies to avoid lawsuits, and from being forced to shut down, at least for awhile.
It works by pausing your contract
According to Muhyiddin, the bill will ‘provide temporary relief for written obligations for a certain period.’ In case you don’t know, written obligations just means any contract that is written down. And contracts can cover a pretty big area.
The important thing in a contract is someone offers a deal, and the other party agrees to it. For example, a loan is a contract. A bank will lend you money, but in exchange you’ll pay them back with interest over a certain time period. Or building someone’s house. The contractor promises to build the house, in exchange for money.
But when something unexpected like the pandemic happens, you might not be able to fulfil your end of the bargain. You probably couldn’t pay the bank back, or you couldn’t finish building the house in time. Understandably, the other party might start a lawsuit, most likely to get you to pay up, because you couldn’t do what you promised.
So this new bill works by pausing your contract for a length of time, usually around six months. During that time, the other party can’t sue you, seize your property, or force you to liquidate in order to pay them back.
So how do we know how it works, if it’s still being drafted? The answer lies by looking at how other countries have done it, as some of them have created a nearly similar law to deal with this.
Most countries have introduced a similar law
We can start with one of our closest neighbour, Singapore. Singapore gazetted their Covid-19 (Temporary Measures) Act 2020 on April 9, just 2 days after it was passed in their parliament.
As the name implies, this Act is meant to protect businesses affected by the pandemic. Under this law, companies can seek temporary relief from contractual obligations for six months. To do so, they can sign up online to give a relief notice to other party. When the other party gets it, they are not allowed to seek legal action against the company. Not only that, the other party would also be unable to seize the company’s property, or force them to close down and liquidate.
If they do attempt to sue the company in court, their application will be rejected. They will also be guilty of an offence for going against the Act. So for six months, the company will be safe from lawsuits, and threats of closing down.
But this is not a free pass to escape your contract. You must show that your business was affected by the Covid-19, and that you couldn’t fulfil your contractual obligations because of that. If both sides couldn’t reach an agreement after the notice, either party can apply for an assessor. The assessor will then determine if the situation is covered by the temporary relief, and will then grant or deny the relief where necessary.
Other countries such as UK and New Zealand have also introduced similar laws to provide temporary relief. The wordings in their law might be different, such as providing a debt moratorium or a safe harbour for companies. But their goal is similar: to help companies recover from the Covid-19 pandemic by pausing contractual obligations, and protecting them from lawsuits.
We might have to wait for it The law is now in place
Update: The new Act has been gazetted (made law) on 23 October, 2020. It is called the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020.
The Act will be enforced for two years from the date it was gazetted, and will help those affected by the Covid-19 pandemic. Here are a few highlights from the new Act:
You can settle out of court: Contractual disputes caused by the pandemic can now be settled through the Covid-19 Mediation Centre. This mediation service is available to everyone with disputes below RM300,000. Those in the B40 and M40, as well as small and micro enterprises, will have their mediation costs covered by the government. You can email email@example.com for more information.
No late payment charges: If you’ve purchased a new property from a developer, but were unable to pay the instalments between 18 March-31 August, the developer cannot impose late payment charges on you for doing so.
Landlords can’t seize your property: Landlords cannot take out a warrant of distress against tenants who were unable to pay rent between 18-March-31 August. This means that the landlord can’t get a court order to sell the tenant’s belongings, in order to claim their unpaid rent.
Suppliers can’t repossess goods: Owners of goods can’t repossess their goods under a hire-purchase agreement, if there were any late payments between 1 April-30 Sept.
New homeowners have a longer warranty: For houses purchased before the MCO, the new house ‘warranty’, or the 24-month defect liability period, is now extended. The time between 18 March-31 August can’t be calculated by developers into the liability period. Which means if your warranty included that time period, you now have more time to claim for any defects to your new house.