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With the extension of the Movement Control Order (“MCO”) in Malaysia to 14 April 2020, most businesses owners are bracing themselves for the multi-faceted impact of the MCO.

We expect that most businesses will need to navigate a number of issues during the MCO period. To help business owners prepare for it, we set out below some key points that we believe will be useful to business owners during this period of uncertainty.

  1. Keep your shareholders / investors informed

Business owners should communicate regularly with the investors regarding the impact that the MCO has on the business. Keep your investors informed on the specific impact of the MCO on the business, especially if your investors are based overseas and may not fully appreciate the consequence of the MCO. Transparency in communication will help to manage the investor’s expectation, especially if you foresee that the profitability of business may drop and impact the investor’s returns.

For companies with a shareholders’ agreement, check if you are contractually obliged to provide your shareholders with updates on any material changes to the company’s budgets, financial forecasts, projections, etc.

For companies that have raised funds via issuance of preference shares, this may also be a time to recap the liquidation preferences offered to investors and any participation rights in the distribution of surplus assets or capital in the event of a liquidation event occurring, for the purposes of financial planning and/or contingency planning.

  1. Re-look your contracts or renegotiate the contractual obligations

While re-looking your existing contracts, business owners should also be prepared for third parties asking for a re-negotiation of contractual terms, such as payment terms, delivery obligations and timing for performance. Consider consequences of breach or termination of contract to prepare for the worst case scenario, and how to avert or mitigate potential losses. If you are in the midst of negotiating a new commercial contract, consider how MCO may potentially affect your contractual terms. We have previously written about how you can prepare for this here.

  1. Employment consideration

With the extension of MCO and closure of office premises, businesses still have to shoulder the responsibility of paying salaries to the workers, among other fixed operating expenses. With the strain on cash flow, businesses may be forced to reduce the employee’s salaries or even to operate with reduced staff.

We have covered the legality of a retrenchment exercise in details here. Broadly speaking, you should look at other cost-cutting measures and exhaust other means before considering retrenchment. Any restructuring in workforce should be done in good faith and with legitimate grounds.

  1. Privacy-related issue

Businesses may require the employees to disclose their health status, travel plans and history, exposure of close contacts to mitigate the risk of exposure. However, do note that physical or mental health or condition of a data subject falls under “sensitive personal data” under the Personal Data Protection Act 2010, whereby explicit consent of the data subject is required before the employer can collect and process the sensitive personal data.

You can read more about this topic here.

  1. Adopting e-signing for remote working

Electronic signing for simple contracts is possible and legally enforceable in Malaysia under the Electronic Commerce Act 2006 (“ECA”). There are plenty of e-signing tools available in the market, such as Docusign, Adobe sign, etc. Documents such as board resolutions and company notices should also be able to be e-signed without any issues.

Digital signature, which is a subset of e-signature, is governed under the Digital Signature Act and comes with a set of more stringent requirements. Under the ECA, if the law requires a seal to be affixed to a document, the requirement is fulfilled by a digital signature (but not any e-signature).

Do also note that for certain instruments such as Power of Attorney, wills, trust documents and negotiable instruments, the usage of e-signature will not be acceptable and physical signing will still be required.

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This article was written by Shawn Ho and Ee Lyne Chong.  Shawn leads the corporate practice group of Donovan & Ho, and has been recognised as a Notable Practitioner, whilst the firm has been recognised as a Notable Firm for Corporate and M&A by Asialaw Profiles 2020.  We are also ranked as a Recommended Firm by IFLR1000 2020.

 Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysia start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds.  Feel free to contact us if you have any queries.

 

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