Following the announcement on 10 April 2020 by Datuk Alexander Nanta Linggi, the Minister of Domestic Trade and Consumer Affairs (“Minister”), that the Companies Commission of Malaysia will introduce measures to ease the burden of businesses amid the COVID-19 pandemic, the Minister has, on 22 April 2020, gazetted the Companies (Exemption) Order 2020 (“Exemption Order No.1”) and on the following day, 23 April 2020, the Minister again gazetted another exemption order, the Companies (Exemption) (No.2) Order 2020 (“Exemption Order No.2”), which among other matters, revoked Exemption Order No.1.  Both Exemption Order No.1 and Exemption Order No.2 were issued and gazetted by the Minister pursuant to his powers under section 615 of the Companies Act 2016 (“CA 2016”). This is an interesting development as it is the first time that the Minister has invoked its powers under section 615 to grant a blanket exemption of such nature since CA 2016 came into effect in January 2017
 
In essence, Exemption Order No.2 exempts all companies from the application of section 466(1)(a) of the CA 2016 which raises a presumption of insolvency if a prescribed debt is not paid without valid cause within 21 days from the receipt of a statutory demand. The exemption is subject to the condition that a company will now be deemed to be unable to pay its debt only if it fails within six months to satisfy a debt under a statutory demand served on it between 23 April 2020 and 31 December 2020. This means that companies now have six months to respond to a statutory demand.
 
While both the Exemption Orders are aimed at extending the time frame for debtor companies to respond to statutory demands from 21 days to six months, hence, giving companies some breathing space, there are some key differences between the two. In this regard, Exemption Order No.2 seeks to clarify some of the possible ambiguities contained in Exemption Order No.1.
 
In this article, we will first compare both the Exemption Orders before proceeding to evaluate the effectiveness of Exemption Order No.2 in easing the burden of businesses which have been affected by COVID-19.
 
Exemption Order No.1 vs Exemption Order No.2
 
Firstly, paragraph 2 Exemption Order No.2 makes it clear that the Order applies to statutory demands issued pursuant to section 466(1)(a) of CA 2016 which are served between 23 April 2020 and 31 December 2020. This therefore makes it clear that all statutory demands issued prior to 23 April 2020 would only have to adhere to the initial time period of 21 days before a winding-up petition can be filed. This is to be contrasted with Exemption Order No.1 which merely states that the order “comes into operation on 23 April 2020 until 31 December 2020”.
 
Secondly, paragraph 3 of Exemption Order No.2 now “exempts all companies” from the provision of section 466(1)(a) of CA 2016 entirely. The phrase “exempts all companies” is consistent with the wordings used in section 615(1) of CA 2016 which reads as follows:
   
This differs from Exemption Order No.1 where paragraph 3 uses the phrase “exempts the provision” and is more in line with the phrasing of the statutory provision.
 
Thirdly, paragraph 4 of Exemption Order No.2 now clearly provides that the exemption is “subject to the condition that any company shall deemed to be unable to pay its debts under paragraph 466(1)(a) of the Act if the company neglects any notice of demand by any creditor to pay its debt or to secure its debt or to compound its debt to the satisfaction of the creditor within a period of six months after the notice of demand is served on him”.  This is also now consistent, on the face of it, with section 615(2)(c) of CA 2016 which gives the Minister who is exercising his power under section 615 of CA 2016, the power to “impose any terms and conditions”.
 
Sufficiency of the Exemption Order No.2
 
As explained in our Alert titled “Covid-19: Malaysia takes steps to address insolvency concerns of companies”, which was published on 14 April 2020, it is still questionable as to whether it is actually within the Minister’s power to impose a new time frame as the 21 days’ time frame is embodied in a primary legislation which should only be amended by way of a supplementary act of Parliament. Arguably, this would be a problem under Exemption Order No.1 where the wordings adopted suggest that the Minister is arbitrarily imposing a new time frame to respond to statutory demands. However, this is no longer an issue under Exemption Order No.2. As explained above, the wordings adopted in the Exemption Order No.2 fall squarely within the provisions of section 615 of CA 2016 and the question of validity should no longer arise.
 
Another point to note is that Exemption Order No.2 only applies to statutory demands issued under section 466(1)(a) of CA 2016 which are served between 23 April 2020 and 31 December 2020. This means that debtors who received statutory demands issued up until 22 April 2020 are still caught by the 21 days’ time frame. We are now at the tail end of the 3^rd phase of the Movement Control Order (which has since been extended by a further two weeks under the 4^th phase) and most businesses, save for those falling under the essential services, have been forced to shut down for more than a month now. Some would have already received statutory demands long before 23 April 2020. It cannot be denied that COVID-19 had started to significantly impact Malaysia’s economy long before 23 April 2020, and yet, no provisions have been made to cater to statutory demands that were issued prior to 23 April 2020. If no special measures are implemented in respect of these cases, Exemption Order No.2 would not help businesses which have received such statutory notices even though they have been affected by COVID-19.
 
Increase in Threshold
 
The second measure announced by the Minister on 10 April 2020 to increase the threshold of indebtedness for a statutory demand has also been formalised in the Direction of the Minister under Section 466(1)(a) of CA2016 (“Minister’s Direction”) published on 23 April 2020. The Minister’s Direction increases the minimum threshold of indebtedness from more than RM10,000.00 to more than RM50,000.00 for the issuance of a statutory demand for the period between 23 April 2020 and 31 December 2020. The Minister’s Direction is available on the Companies Commission of Malaysia’s website.
 
Comment
 
With the publication of Exemption Order No.2 and the Minister’s Direction, both measures announced by the Minister on 10 April 2020 to ease the burden on businesses in consequence of the COVID-19 pandemic have been implemented.
 
This Article was written by Janice Ooi (Senior Associate) (janice.ooi@skrine.com) of the Insolvency Practice Group of Skrine.