The consequence of Malaysia's Companies (Exemption) (No. 2) Order 2020


Ranjan N. Chandran, Partner (Commercial & Construction Department)
Harneshpal Karamjit Singh, Associate (Commercial & Construction Department)

Hakem Arabi & Associates


On 10th April 2020, as Malaysians were adhering to the Movement Control Order (“MCO”) imposed by the Government pursuant to the Prevention and Control of Infectious Diseases 1988 and Police Act 1967, the Companies Commission Malaysia (“CCM”) announced temporary reliefs for companies which was very much welcomed by the business and commercial community.

One of the temporary reliefs was a protection against Winding-Up whereby the value of indebtedness under Section 466 of the Companies Act 2016 (“CA”) was increased from RM10,000.00 to RM50,000.00 and the period for a debtor company to respond to a statutory notice pursuant to Section 466 of the CA was enlarged from twenty-one (21) days to six (6) months. It was also announced that this temporary protection would be in place till 31st December 2020.

However, such Announcement was without the force of law until the Minister of Domestic Trade and Consumer Affairs, the Minister in-charge under the CA, exercised his powers under Section 615 of the CA and gazetted the Companies (Exemption) (No. 2) Order 2020 (“the said Order”) which came into operation on 23rd April 2020 and will last until 31st December 2020. An earlier Companies (Exemption) Order 2020 was gazetted on 22nd April 2020 but has since been revoked and replaced by the said Order.

Commencement Period & Statutory Notices

Whilst the said Order on the endorsement of the CCM’s announcement is welcomed, it is noted that the date of the said Order commences on 23rd April 2020. This is regretted, as it defeats the protection that ought to have be afforded to companies retrospectively from the commencement date of 11th March 2020 when the World Health Organization (“WHO”) declared COVID-19 a Pandemic or alternatively on 18th March 2020 when the first MCO period was imposed.

We are now only six (6) days from the conclusion of the third MCO on 28th April 2020 and the gazetting of the said Order is rather late in the day and self-defeating to companies that would have welcomed an earlier moratorium period from the protection against winding-up.

With the commencement date of the said Order effective 23rd April 2020, any statutory notice served on a company prior to the said date, especially during the crucial period of the COVID-19 Pandemic and the MCO from 11th March 2020 to 22nd April 2020 will be not be shielded by the moratorium period in the said Order. In short, any statutory notice served on the debtor company prior to 23rd April 2020 will not be caught by the said Order. A creditor that issues a statutory notice before the commencement of the said Order can proceed accordingly after the twenty- one (21) days period to commence a Winding-Up Petition which shall be most detrimental to the said debtor company.

It must be borne in mind, that the debtor company must not be under a mistaken belief that although the said Order expires on 31st December 2020, the debtor company is mandated to respond to a statutory notice within the six (6) months period from the receipt of the statutory notice. As an example, if a statutory notice is received on 30th May 2020, it must be responded to on or before 30th November 2020. A failure to respond shall entitle the creditor to proceed with the filing of theWinding-Up Petition on 1st December 2020.

Henceforth, on the issuance of a Statutory Notice there will be two scenarios to consider:

  1. Since the commencement date of said Order is from 23rd April 2020, it simply means that a debtor company served with a Statutory Notice from 23rd April up until 31st December will automatically be protected by a Moratorium of 6 months fromWinding-up petitions.

    Once the 6 months’ time period of the said Statutory Notice lapses, the creditor can proceed with a Winding-Up petition.
  2. For Statutory Notices issued prior to 23rd April, the debtor company will not be afforded the 6 months Moratorium protection.

    This means once the 21 days’ time period of the said Statutory Notice lapses, the creditor can proceed with a Winding-Up petition.

Debt threshold & The Need of a Malaysian COVID-19 Legislation

Notably, the debt threshold requirement as announced by the CCM as mentioned above has not been reflected in the said Order. The reason for the omission is unknown and this then leaves companies in a limbo. What then is the true purport and intent of the announcement by CCM?

It must be reminded that Executive Bodies should not nilly-willy make announcements without the proper sanction of the law. The use of Section 615 of the CA to validate announcements of the CCM should be exercised cautiously so as not to contradict with the provisions of the CA. As Parliament is not scheduled to be in session until 18th May 2020, there is no proper procedure in place to make an amendment to the CA.

This is where there is an urgent need for the Malaysian COVID-19 Act of Parliament to be passed as a further safeguard and protection for companies in this current COVID-19 period as well as for the period post COVID-19. It is paramount for the Malaysian Parliament to convene and enact a legislation akin to the COVID-19 (Temporary Measures) Act 2020 (“CTM 2020”) of Singapore.

Section 22(1) of the CTM 2020 makes a modification to Section 254(2)(a) of the Singapore’s Companies Act 2006 wherein the statutory period to respond to demands from creditors has been increased from three (3) weeks to six (6) months and the debt threshold has been increased from $10,000 to $100,000.

Such an action as carried out by Singapore would have brought great relief to the companies in Malaysia, so as to ward off the issuance of numerous statutory notices during this current grim COVID-19 period.

An Article titled “Proposed Malaysian COVID-19 Act: The Law We Need” by the Authors has been published by the Malaysian Law Review (Appellate Courts) Journal with the citation [2020] 2 MLRA xv