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The Labuan Companies Act 1990 (“the Act”) was recently updated to be more effective and to meet the ever-changing needs of the financial sector. These welcomed changes bring Labuan’s incorporation, registration and administration of Labuan companies, domestic and foreign, in line with international standards. Key updates include procedures relating to directors’ qualifications, introduction of beneficial ownership, striking off companies, and increase in penalties.

Companies based in Labuan will need to update their registration in line with the updated provisions to avoid penalties. The amended act allows a six-month grace period to allow companies to comply with the new provisions.

Other amendments for the Labuan financial sector allow licensed Labuan insurance/takaful broker to handle insurance or reinsurance of domestic insurance business, transacted in the Ringgit Malaysia in certain cases.

A. Labuan Companies (Amendment) Act 2022

The Labuan Companies (Amendment) Act 2022 (“Amendment Act”) was gazetted on 9 June 2022 and came into force on 10 June 2022.

Key changes are discussed as follows.

Directors

Resident Directors

Previously, Labuan companies had to have at least one director who may be a resident director. This has been amended to provide that a Labuan company may have one or more directors, at least one of which must be a resident director.

A resident director is one who is:

• a trust officer of a Labuan trust company authorised by the Labuan Financial Services Authority (“LFSA”) and made available by the Labuan trust company to be appointed as a resident director; OR
• a natural person who:
  - has attained the age of 18;
  - is otherwise of full legal capacity;
  - fulfils other criteria or requirement determined by LFSA; and
  - has consented in writing to be appointed as a resident director.

Thus, a body corporate which is a domestic company or a Labuan company wholly-owned by a Labuan trust company will no longer be eligible to be a resident director. Companies who do not meet the updated requirements have six months from 10 June 2022 (the coming into force date) to comply with the new provisions.

The Amendment Act also provides that any director who discloses any information obtained as by way of his office will be penalised RM3 million or imprisonment for a term not exceeding five years or both.

Directors’ disqualification

The Amendment Act has substituted section 90, relating to directors’ disqualification. While the disqualifying events remain the same (i.e. director should not have been convicted of offence, not involved in fraud, bribery or dishonesty, or not bankrupt or insolvent), the new section allows LFSA to disqualify a director if LFSA deems them unfit.

Further, the burden is shifted to the Labuan company to ensure that no person who is acting or nominated to act as a director is a disqualified person. Failure to do so is an offence and upon conviction, can be fined RM1 million or imprisonment for a term not exceeding five years or both.

Disclosure of interests

The Amendment Act now has included a penalty provision in respect of a director’s duty to disclose interest in contracts, property, offices and etc. as set out under section 91 where failure to comply with section 91 is punishable with a fine of RM3 million or imprisonment for a term not exceeding five years or both.

New penalties for breach of duty and liability

New penalties have also been introduced for two offences under section 92 with regards to the duty and liability of officers:

• failure of a director to exercise reasonable care, skill and diligence with the knowledge, skill and experience which may be expected of a director having the same responsibilities, and any additional knowledge, skill and experience which the director in fact has, will be an offence punishable with a fine of RM3 million or a term of imprisonment not exceeding five years or both; and
• where a solvency statement is made without any reasonable grounds for the opinions, the penalty is RM500,000 or a term of imprisonment not exceeding five years or both.

Further, the officer who breached this section shall be liable to the company for any profits made by him and for any damage suffered by the company as a result of the breach.

Beneficial ownership

New sections have been introduced to deal with beneficial ownership of a Labuan company. Beneficial ownership is defined as:

• a natural person who owns or controls a Labuan company or foreign Labuan company, in whole or in part, through direct or indirect ownership or control of shares or voting rights or other ownership interest in the Labuan company or foreign Labuan company; or
• who exercises effective control and influence in the Labuan company or foreign Labuan company as may be determined by LFSA.

A Labuan company is now required to take reasonable steps to find out and identify its beneficial owner. This can be done by issuing notice requiring:

• that any member who knows or has reasonable grounds to believe, or any other person, is a beneficial owner of the subject company to:
  - state whether he is a beneficial owner of the subject company;
  - state whether he knows or has reasonable grounds to believe that any other person is a beneficial owner of the subject company; and
  - provide such other information requested in the notice; and

• any members, within the time specified in the notice, to inform the subject company whether their ownership in the subject company is subjected to an arrangement in which another person is entitled to control the member’s interest or right, and provide the particulars and parties to such agreement.

Introduction of bearer share and bearer share warrants

A new section 46A prohibits a Labuan company (including a foreign Labuan company) from:

• issuing a bearer share or bearer share warrants;
• converting a share into a bearer share or bearer share warrants into share warrants; or
• exchanging a share for a bearer share.

Any purported issuance, conversion or exchange, or even including any enabling provision in the company’s memorandum or articles to do so, is void.

Striking off

The striking off powers under the Act have been widened to provide that a Labuan company may be struck off if it:

• fails to pay its annual fees and additional amounts;
• fails to appoint a replacement resident secretary under section 93(2). Previously, LFSA has the discretion to strike off a Labuan company in the event that the Labuan company fails to appoint a replacement secretary within 30 days from the date of resignation. This has been tightened to state that the company is deemed to be struck off for failure to replace a resident secretary;
• contravenes any provisions of the Act or any other law relating to Labuan financial services;
• surrenders or LFSA revokes its licence, approval or registration under the Labuan Financial Services and Securities Act 2010 or Labuan Islamic Financial Services and Securities Act 2010; and
• is not carrying on business or is not in operation.

New provisions have been included to prohibit directors, members, approved liquidators and receivers of a Labuan company whose name has been struck off the register from incurring any new liability.

Notifications to LFSA

The Act has been amended to impose an obligation on a Labuan company to notify LFSA of any transfer of shares or debentures or any change in the information submitted on the transfer within 30 days.

Further, where there is any change in the chargee or details of the charge, under the new section 84A, a Labuan company is required to lodge with LFSA a notice of the assignment or variation containing such information as may be determined by LFSA.

Other amendments

The Act has been amended to remove the restrictions and notification requirements relating to dealings by a Labuan company with residents and in Ringgit Malaysia as they are no longer applicable. Also, LFSA may, in addition to a Labuan trust company, require any person that is approve by LFSA, to subscribe for and file documents electronically.

In relation to capital reduction, the penalty for wilfully concealing the name of a creditor entitled to object the reduction, or wilfully misrepresenting the nature or the amount of debt or claim of a creditor, or who aids, abets or is a party to any such concealment or misrepresentation has been increased to RM3 million or imprisonment for a term not exceeding five years or both.

With regards to the lodgment of solvency, failure of the directors of the Labuan company to lodge a certified copy of the solvency declaration within 30 days with LFSA is an offence, with the penalty being a fine of RM50,000 or imprisonment for a term not exceeding three years or both.

Section 85(1) has been amended to provide that a registered office in Labuan of the Labuan company has been extended to be any other office approved by LFSA.

B. Labuan Financial Services and Securities Amendments

The Labuan Financial Services and Securities (Amendment) Act 2022 and the Labuan Islamic Financial Services and Securities (Amendment) Act 2022 have also been gazetted and deemed to come into force on 1 January 2019. Such amendments stipulate compliance requirements of international taxations standards that prohibit harmful tax practices.

The amendments provide for the definition of Labuan insurance business and Labuan takaful business, and that a licensed Labuan insurance or takaful broker may handle insurance or reinsurance of domestic insurance business, transacted in the Ringgit Malaysia provided that such activity does not include any activity that is regulated or prohibited under other written law in Malaysia.

Commentary

The Amendment Act supports accountability, enhanced disclosure, further facilitation of businesses and dealings, and better board governance. While the amendments are certainly welcomed, greater clarity is needed on certain introductions. One such question is whether the provision relating to resident director is limited to such director residing in Labuan. There may be further interesting developments to provide clarity on certain introductions but in the meantime, existing Labuan companies should start reviewing its corporate documents and information to ensure that they are in line with the Amendment Act.

If you have any questions or require any additional information, you may contact Stephanie Choong Siu Wei or the Zaid Ibrahim & Co partner you usually deal with.

This article is for general information only and is not a substitute for legal advice.

“Audentes Fortuna Juvat” (Fortune Favours the Bold) – a Latin proverb that perhaps spurred the aspirations of many and sculpted the resilience of humanity to thrive above catastrophes, pandemics and economic downturns. This desire to rise beyond circumstances has led to the explosion of creative innovations that challenges traditional systems and propelling humanity to a new frontier.

The insurgence of digital innovations which redefined payment methods, delivery services, dining cultures, shopping experiences have woven itself into the fabric of our current lifestyle. That said, the maturing digital landscape which revolutionised the financial services sector and inculcated a seamless user culture, now demands for a further evolution of digital offerings.

Blockchain technology which shadows the spotlight introduction of the digital assets ecosystem has often been misunderstood as a co-dependent solution exclusive to the issuance of digital assets. Nonetheless, truth be told, Blockchain technology itself is neutral and its offering promotes, in all simplicity, the ability for a peer to peer maintenance and authentication of information.  This comes in useful whether for our day-to-day digital transactions, or to provide a decentralised infrastructure for digital assets offerings.

Fungible Tokens

The popularity of fungible tokens rose around 2017. The concept of a decentralised digital currency which operates free of any central control or the oversight of banks or government began to creep in and set its footprint in our nation’s financial ecosystem. The hedging and trading of Bitcoin coupled with alternative fund raising mechanisms such as Initial Coin Offerings (“ICO”) exploded in popularity amongst entrepreneurs and innovators, creating a fresh vertical of investment opportunities or offerings through the issuance of digital assets.

Unregulated as they were, the insurgence of ICOs, enticed the attention of global regulators where the US Securities and Exchange Commission (SEC) and the US Supreme Court applied the Howey’s Test to determine if digital asset offerings qualify as “investment contracts” and if so, those transactions are considered securities^[1] under the Securities Act of 1933 and the Securities Exchange Act of 1934.

Similarly in 2019, our Ministry of Finance issued the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019^[2] (the “Order”) which describes Digital Assets to encompass both Digital Currency and Digital Tokens. Digital Assets which fulfils the criteria as defined under the Order are prescribed as securities and are subject to the provisions of the Capital Markets and Services Act 2007 (the “CMSA”) which in turn falls within the purview of the Securities Commission of Malaysia (the “SC”).

Following the Order, the SC introduced additional frameworks which includes the introduction of the Digital Asset Exchange License (the “DAX”) under the Recognised Market Operator Guidelines (the “RMO Guidelines”), where parties with the proper set of expertise can obtain approval to operate a crypto trading platform.

To date we have four approved DAX consisting of Luno, Sinegy, Tokenized and MX Global. In a recent article,^[3] SC announced that over RM16 billion in digital assets and cryptocurrencies were traded in Malaysia between August 2020 and September 2021 amid an uptrend in prices of blockchain-based assets.

Recognising the potential innovation where alternative fund raising is conducted through a tokenised regime, the SC in 2020 introduced under the RMO Guidelines and the Digital Assets Guidelines (the “DA Guidelines”), the Initial Exchange Operator framework (the “IEO”), where companies are able perform to tokenised fundraising exercises through approved licensed IEO Operators in a regulated environment. Unlike ICOs, the IEO is positioned to provide better clarity and a supervised environment to marginalised fraudulent propositions in view to protect investor interests while promoting legitimate value propositions.

Whilst value propositions with their respective white papers can now be vetted through an IEO platform, continuous efforts in ensuring public confidence was further promoted through the introduction of a registration regime under the DA Guidelines for Digital Custodians. The introduction of a DAX coupled with an IEO platform and a Digital Custodian framework, seems to complete the architecture which provides sufficient broad strokes for “check and balance” whilst balancing minimal interference in the economic growth of the decentralised market in Malaysia.

To date, SC has approved the registration of two   IEO platform operator, namely Kapital DX Sdn Bhd and Pitch Platforms Sdn Bhd^[4]. Perhaps, while “the gold standard” was the economic totem of the age, digital assets may spring as the lifeblood of a parallel yet alternative financial system potentially setting the foundation for an alternative standard or a metaverse economy.

Non Fungible Tokens

Non Fungible Tokens or NFTs has recently dominated the headlines of the crypto world. Whilst fungible tokens are starting to firm its grip and gain its traction in the financial world, spinning away from stable coins and government backed coins, NFTs has generated immense interest in recent months. The ideation years in creating an authentication token for purposes of embracing intellectual properties has now come into fruition when Ethereum introduced the ERC-721 standard.

To put it simply, NFTs are digital tokens that provide representation of rights, authentication or guarantee of ownership to digital images, videos, games and other forms of digital assets. NFTs are non-fungible in nature.  In other words, each NFT is uniquely identifiable. Generally, when a NFT is bought or sold, the asset never changes hands. Rather, the transfer of the asset is recorded and the ownership of the asset is assigned in the blockchain.

Due to the NFTs’ unique characteristics, unlike fungible tokens, further uncertainty looms over the regulatory vertical in determining whether such digital tokens would fall within the definition or parameters of a security. In the US, the Commodity Futures Trading Commission (the “CFTC”) interprets commodities to include cryptocurrencies such as bitcoin.^[5] However, the CFTC has yet to provide an official guidance about whether NFTs should be considered commodities or whether NFTs should be treated as securities under the Securities Act of 1933 and the Securities Exchange Act of 1934.

Separately, the Financial Conduct Authority in UK suggests that generally, NFTs are likely to be ‘unregulated tokens’. In Singapore, the Monetary Authority of Singapore adopts the approach to differentiate NFTs under its existing laws. Whether an NFT will be regulated is subject to whether that NFT warrant a utility, payment or security characteristic.

That said, it is noteworthy that, the European Union in its recent issuance of the ‘Markets in crypto-assets Regulation’ (MCA) (which is expected to be in force in 2025) expanded the definition of crypto assets to include NFT.

Whilst global regulators seem to be distant in navigating the regulations pursuant to NFTs, closer to home, it would seem that NFTs may arguably fall out of the criteria as set out in the Order. Nonetheless, it remains useful to thread with caution as the influx of new methods of using NFTs, especially through NFT gaming (where NFTs are mined for returns in fiat currency), remains untested and may potentially assume the risk of being prescribed as securities under the Order.

To date, the SC has yet to clarify whether NFTs is prescribed as a security. Thus, NFTs remain a white space of which regulation are yet to be put in place by the Malaysian regulators.

Difference between Fungible Tokens and Non Fungible Tokens^[6]

Medium of Exchange

Undeniably, with the significant influx of investments and fiat currencies into the crypto market, the concept of embracing digital assets as a medium of exchange has begun to gain traction. Pioneers in the global payment system space, such as Visa, has emerged to embrace the acceptance of digital currencies as a medium of exchange. Likewise in Japan, crypto currencies such as bitcoin and ethereum have been accepted as a medium of exchange, however it is treated very much like an asset rather than an alternative currency.

Similarly, onshore retailers^[7] have begun to accept cryptocurrencies as a medium of exchange for their goods and services. Nonetheless, in a joint statement between Bank Negara Malaysia and SC published on 6 December 2018, BNM announced that digital currencies and digital tokens are not recognised as legal tender nor as a form of payment instrument that is regulated by BNM.^[8] This position has recently been reaffirmed by the current Deputy Finance Minister II.^[9]

That said, the doctrine of freedom of contract^[10] is embedded in the Malaysian Contracts Act 1950 which states that all agreements are contracts if made with the free consent of parties competent to contract, for a lawful consideration and lawful object. Whilst cryptocurrencies has yet to obtain legal tender status, it remains recognised as a medium of exchange as upheld by the Courts of Malaysia in the case of Luno Pte Ltd & Another v Robert Ong Thien Cheng.^[11]  Nonetheless, while parties are free to adopt digital assets as a medium of exchange,^[12] such adoption does not exempt parties from compliance with other laws and regulations that are relevant to the said transaction (e.g. tax regimes).

Embracing Change

Perhaps it is no longer appropriate to assess this space from the safety of an observation tower.   With the new norm and the volatility of the present economic climate, the insurgence of an alternative yet parallel financial system may be a healthy development.  As we embrace these changes, regulation remains the key in balancing both economic and social interest.

“Entrepreneurship rests on a theory of economy and society. The theory sees change as normal and indeed as healthy. And it sees the major task in society – and especially in the economy – as doing something different rather than doing better what is already being done. That is basically what Say, two hundred years ago, meant when he coined the term entrepreneur. It was intended as a manifesto and as a declaration of dissent: the entrepreneur upsets and disorganizes. As Joseph Schumpeter formulated it, his task is “creative destruction.”
― Peter F. Drucker, Innovation and Entrepreneurship: Practice and Principles

If you have any questions or require any additional information, you may contact Jonathan Lim or the Zaid Ibrahim & Co partner you usually deal with.

Jonathan Lim is a corporate partner in the Communications, Multimedia and Technology practice group of Zaid Ibrahim & Co, and helms the Fintech portfolio of the firm. He is also serving as the Secretary for the Fintech Association of Malaysia for the term 2021/2022.

The views expressed here are the writers’ own.

This article is for general information only and is not a substitute for legal advice.

[1] ‘Howey Test’ (Investopedia) <https://www.investopedia.com/terms/h/howey-test.asp>: Securities are fungible and tradable financial instruments used to raise capital in public and private markets. The public sales of securities are regulated by the SEC. The definition of a security offering was established by the Supreme Court in a 1946 case called SEC v. W.J. Howey Co. In its judgment, the court derives the definition of a security based on four criteria (a) the existence of an investment contract, (b) the formation of a common enterprise, (c) a promise of profits by the issuer, and (d) the use of a third party to promote the offering.

[2] Please see here for a copy of the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019.

[3] Ahmad Naqib Idris, ‘SC: Over RM16b in cryptocurrencies, digital assets traded in Malaysia as at September 2021’ The Edge Malaysia (26 October 2021) <https://www.theedgemarkets.com/article/sc-over-rm16b-cryptocurrencies-digital-assets-traded-malaysia-september-2021>.

[4] ‘SC Registers Two Initial Exchange Offering (IEO) Operators’ (Fintech News, 23 March 2022) <https://fintechnews.my/30958/blockchain/sc-registers-two-initial-exchange-offering-ieo-operators/>.

[5] Commodity Futures Trading Commission, ‘Bitcoin Basics’ (CFTC) <https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoinbasics0218.pdf>.

[6] See ‘Difference between FT and NFT’ (Social NFT, 20 April 2021) <https://socialnft.market/difference-between-ft-and-nft/> and Gwyneth Iredale, ‘The Difference Between Fungible and Non-Fungible Tokens’ (101 Blockchains, 24 March 2021) <https://101blockchains.com/fungible-vs-non-fungible-tokens/>.

[7] Team Luno, ‘Where to Spend Bitcoin in Malaysia’ (Luno, 7 August 2021) <https://discover.luno.com/spend-bitcoin-in-malaysia/>.

[8] Please see ‘Joint Statement on Regulation of Digital Assets in Malaysia’ (Bank Negara Malaysia, 6 December 2018) <https://www.bnm.gov.my/-/joint-statement-on-regulation-of-digital-assets-in-malaysia>.

[9] Kevin Helms, ‘Malaysia’s Deputy Finance Minister: Crypto Not Suitable as Means of Payment or Store of Value’ (Bitcoin.com, 3 March 2022) <https://news.bitcoin.com/malaysias-deputy-finance-minister-crypto-not-suitable-as-means-of-payment-or-store-of-value/>.

[10] Ooi Boon Leong & Ors v Citibank NA [1984] 1 LNS 26.

[11] [2019] 1 LNS 2194.

[12] Please see ‘Half a Bitcoin Used to Buy 3 Acres of Land in Sabah’ (Property Guru, 11 January 2018) <https://www.propertyguru.com.my/property-news/2018/1/167836/half-a-bitcoin-used-to-buy-3-acres-of-land-in-sabah>.

Climate change, net-zero and carbon neutral commitments are now fuelling the growth of electric vehicle (EV) sales. Other factors such as high oil prices come into play too and they contribute to the global shift to emission-free motoring. Across ASEAN, many countries are aiming for a more significant impact for the EV industry by introducing policies encouraging the use of EVs. These lead to the implementation of EV roadmaps, the introduction of tax exemptions and incentives and collaborations with the private sector.

This publication sets out how ASEAN is driving towards green mobility with a focus on the growth of the EV industry. Increased government support will lead to more investors in the region, which in turn will encourage more regional growth and choices in the EV market. The future of EV is promising, offering much choice for existing assets and incumbent players alike, and provide new opportunities and promising returns.

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On 25 October 2021, the Human Resources Minister, Datuk Seri M. Saravanan, tabled the Employment (Amendment) Bill 2021 (“the Bill”) to amend the Employment Act 1955 (“the Act”). The proposed amendments, among others, are to bring the Act in line with the standards and practices required by the Trans-Pacific Partnership Agreement, the Malaysia-United States Labour Consistency Plan and the International Labour Organisation.

The proposed amendments are long overdue and contains very critical changes to what is considered one of the main employment legislations in Malaysia.

SUMMARY OF KEY CHANGES

A reading of the Bill reveals substantial and much-anticipated changes. A summary of the key changes are as follows:

Prior approval from the Director General of Labour to hire foreign employees

The Bill introduces a new requirement for the prior approval of the Director General of Labour (“DGL”) in order to hire foreign employees. Previously, there was only a requirement to furnish particulars of foreign employees to the DGL.

The employer’s application for approval is subject to the following conditions:

• there is no outstanding matter relating to any decision, order, or directive issued under the Act;
• there is no outstanding matter or case relating to any conviction of offence under the Act and other specified legislation; and
• the employer has not been convicted for any offence under any written law in relation to anti-trafficking in persons and forced labour.

Failure to obtain the prior approval of the DGL can attract a fine not exceeding RM100,000 or to imprisonment for a term not exceeding five years or to both.

The Bill also provides that where a foreign employee has been terminated (either by the employer, expiry of employment pass, or repatriated or deported), the employer has to inform the DGL within 30 days of the termination. Where the foreign employee terminates or absconds, the employer has 14 days from the date of the termination or absence to inform the DGL.

Creation of a new offence of “forced labour”

The Bill aims to create a new offence of “forced labour”. “Forced labour”, as provided in the Bill, is where any employer threatens, deceives, or forces an employee to do any activity, service or work and prevents the employee from leaving before the activity, service or work is done. The offence carries a penalty of a fine up to RM100,000 or to imprisonment for a term not exceeding two years or both.

Extension of DGL’s power to decide on discrimination in employment

A new section, section 69F, aims to introduce another power for the DGL to inquire and decide on any dispute relating to discrimination in employment, and make an order where necessary. Failure to comply with the DGL’s order is an offence and can result in a fine not exceeding RM50,000, and for offences that are continuing, a daily fine of up to RM1,000 for each day the offence continues.

There is however no definition of what constitutes discrimination, or what protected characteristics are in the Bill or the Act, or whether discrimination in employment is actually considered as an offence. The provision simply provides that failure to comply with the DGL’s order is an offence.

Although the new provision allows for the DGL to make an “order”, there is little or no indication of what such an order could be. In contrast, the existing section 69 of the Act (DGL’s power to inquire into complaints) has extensive provisions indicating the sort of orders that can be made by the DGL.

With such wide powers being given to the DGL and little to discuss what may constitute discrimination and what are protected characteristics, there would be inevitable concerns over the opening of floodgates to claims. Based on the Bill, as it is currently, so long as discrimination is raised in a dispute, it would appear that the DGL will need to carry out an inquiry and make an order. This could inevitably involve the DGL making orders relating to matters that would customarily have been in the hands of the management, such as promotions and transfers etc.

While the section on discrimination is certainly welcomed, greater clarity is needed.

Reduction in maximum weekly working hours and enhancement of sick leave

The Bill proposes to reduce the maximum working hours from 48 hours to 45 hours in a week.

Sick leave entitlement is also to be amended by removing the proviso where the aggregate of sick leave inclusive of any period of hospitalisation is 60 days. This will entitle employees to 60 days sick leave if hospitalisation is necessary without touching the employee’s normal sick leave entitlement.

Flexible working arrangements framework

In light of the pandemic and many businesses shifting to flexible work arrangements, the Bill has introduced provisions on a flexible working arrangement framework. An employee may apply to an employer for flexible work arrangements including to vary hours of work, days of work or place of work. An application shall be in writing and in the form and manner as may be determine by the DGL.

The Bill does not oblige the employer to approve all applications and just provides that an employer has 60 days, from the date the application is received, to reject or approve the application. If the application is refused, the ground(s) of refusal must be provided.

Enhancement of maternity leave and introduction of paternity leave

Maternity leave has been extended to 90 days from 60 days, in line with that for civil servants. Where a female employee entitled to maternity leave requests to commence work within the maternity leave period, she has to be certified to be fit to resume work by a registered medical practitioner. Further, exceptions to restriction on termination of pregnant employees has been expanded to include willful breach of a condition of the contract of service, misconduct and closure. Previously, the only permitted exception was closure.

Another welcomed introduction is the inclusion of paternity leave. A male employee is entitled to paid paternity leave for a period of three consecutive days for each confinement. Nonetheless, this is restricted to five confinements irrespective of the number of spouses. The conditions for paid paternity leave are that the married employee:

• has been employed by the same employer for at least 12 months; and
• has notified the employer of the pregnancy at least 30 days from the expected confinement, or as early as possible after the birth.

It is interesting to note that the Bill proposes to delete section 44A, which provides that maternity protection, under Part IX of the Act, applies to all female employees irrespective of their wages. This means that the current protection afforded under the Act, extended to cover those that do not fall under the scope of the Act, i.e. female employees earning more than RM2,000 a month, would be removed.  According to the explanatory statement, the rationale behind the deletion is that it is a consequence of the extension of scope of the Act. However, the proposed removal of Section 44A appears to be incongruent with an extension of scope.

Requirement to exhibit notice on sexual harassment

The Bill introduces a requirement for employers to exhibit conspicuously a notice to raise awareness on sexual harassment (similar to health and safety notices). While this is requirement is a positive one, the Bill leaves it open to the employers to determine what should go into the notice.

A puzzling change is the proposed deletion of section 81G, which allows for sexual harassment complaints to be made by any employee irrespective of their wages. The amendments to the requirements for sexual harassment complaints appear to have taken one step forward and two steps back.

Other amendments

• General amendments to update and change the archaic references of “domestic servants” to “domestic employees”.
• The general penalty for offences has been increased from RM10,000 to RM50,000.
• The penalty for non-compliance of the DGL’s order pursuant to an inquiry by the DGL into any dispute between an employer and employee is to be increased from RM10,000 to RM50,000 with the daily fine for continuing non-compliance increased from RM100 to RM1,000 per day.
• The court can order an employer, who has been convicted for an offence relating to wages, to pay any payment that is due to the employee. Failure to comply, the court can issue a warrant to levy the employer’s property for any payments due.
• The Bill provides provisions for the presumption as to who is an employee and employer in the absence of a written contract of service, relating to any category of employee under the First Schedule.

What to look forward to

At the time of publication the Bill is at the second reading stage at the Dewan Negara (House of Representatives). It remains to be seen how much of these amendments will be eventually passed by Parliament.

Whilst many of these changes are seen as timely, questions are abound based on a reading of the Bill. One such question is whether the provisions relating to maternity (section 44A) and sexual harassment (section 81G) still apply across the board to all employees regardless of wage levels as they have been earmarked for deletion. Both these sections were meant to “open” the scope of the Act to be applicable to all employees rather than to the limited scope of coverage in the First Schedule. Therefore, the proposed deletion of both sections, but no widening of scope in the First Schedule seems to be regressive.

This will certainly be an interesting development to follow so watch this space!

If you have any questions or require any additional information, please contact Yong Hon Cheong, Vinhothinii Rajoo or the Zaid Ibrahim & Co partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.

Companies and government agencies have been implementing various policies to curb the Coronavirus Disease 2019 outbreak (“COVID-19”). We have been slowly adapting towards a new normal. During the enhanced Movement Control Order, restaurants and malls were closed to dine-in patrons and shoppers, employees told to work from home and some residential premises were kept under comprehensive lockdown with barbed fences. A familiar case would be the enhanced lockdown of Menara City One which made headlines last March.

As such, Kuala Lumpur City Hall (“DBKL”) urged that there is a need for Joint Management Bodies (“JMB”) and Management Corporations (“MC”) to undertake additional duties to break the chain of COVID-19 infections.

On 26 February 2021, DBKL conducted an online webinar, attended by some 300 JMB and MC, and members of the public (“Webinar”).[1]

This article discusses the salient points raised, including, the additional duties to be undertaken by the JMB and MC, and whether such duties have been statutorily ingrained in the Strata Management Act 2013 (“SMA 2013”).

Statutory duties under SMA 2013

The statutory duties and powers of a JMB are provided under section 21(1) of SMA 2013, as follows:

1. to properly maintain and manage the building or land intended for subdivision into parcels and the common property, and keep it in a state of good and serviceable repair;
2. to determine and impose the Charges to be deposited into the maintenance account for the purpose of the proper maintenance and management of the buildings or lands intended for subdivision into parcels and the common property;
3. to determine and impose the contribution to the sinking fund to be deposited into the sinking fund account for the purpose of meeting the actual or expected expenditure specified under subsection 24(2);
4. to effect insurance according to this Act or to insure against such other risks as the parcel owners may by special resolution direct;
5. to comply with any notice or order given or made by the local authority or any competent public authority requiring the abatement of any nuisance on the common property, or ordering repairs or other work to be done in respect of the common property or other improvements to the common property;
6. to prepare and maintain a register of all parcel owners of the buildings or lands intended for subdivision into parcels;
7. to ensure that the accounts required to be maintained by the joint management body under this Act are audited and to provide audited financial statements for the information to its members;
8. to enforce the by-laws; and
9. to do such other things as may be expedient or necessary for the proper maintenance and management of the buildings or lands intended for subdivision into parcels and the common property.

The duties and powers of a MC under section 59(1) of SMA 2013 are similar to the duties and powers accorded to a JMB.

Additional duties required to be undertaken by JMB and MC during the pandemic

During the Webinar, DBKL pointed out several additional duties that are required to be undertaken by JMB and MC in light of the pandemic.

Firstly, DBKL stated that there is a need to control common areas such as the swimming pool and gymnasium where there are high risks of infection spreading.

JMB and MC should also arrange for periodic sanitisation of premises in these common areas and when there have been confirmed positive cases.

Sanitisation of common areas such as lifts should be done five times per day for a span of three days if there are confirmed positive cases. Sanitisation work should be monitored to ensure that the personnel involved use proper equipment and comply with the proper sanitisation procedures.

DBKL recommended that the respective JMB and MC decide and allocate a budget for the sanitisation of premises.

Further, DBKL advised that notices and infographics on personal hygiene and vaccination at residential premises should be displayed. Regular updates on the number of positive cases as well as the residential blocks affected, should be publicised to strata residents. For this purpose, DBKL stated that the medium of publication could be via WhatsApp or a Facebook Group. It was stressed that the confidentiality of the COVID-19 patients’ personal information should be respected at all times.

It was also mentioned that JMB and MC should ensure proper and frequent collection of waste as per the Standard Operating Procedures (“SOP”) under the Ministry of Housing and Local Government for Solid Waste Management.[2] As for sporting activities within the premises, DBKL stated that reference should be made to the SOP provided by the Ministry of Youth and Sports.[3]

Another pertinent issue which cropped up at the beginning of this year was whether JMB and MC could demand residents to undergo COVID-19 tests, and bar entry for those who refused. Dato’ Sri Ismail Sabri, the then Senior Minister (Security), said at a press conference that the managements of condominiums and residential complexes have the right to require residents to submit to COVID-19 tests and bar those who fail to comply.[4]

He further added that the government would not prohibit strata managements from imposing this policy, although no such policy has been issued by the National Security Council. His statement received various opposing views from opposition lawmakers, health experts and property management experts citing concerns that the policy would be discriminatory and denies one’s right to property.[5]

Later on, the then Senior Minister clarified that his statement was misconceived but insisted that the barring policy should still apply to foreigners, not Malaysians.[6] This time, the Malaysian Bar,[7] lawyers, estate and property institutions and various activist groups spoke up and urged JMB and MC to refrain from doing so as there is no legal basis to demand a mandatory COVID-19 testing on foreigners.[8]

The Malaysian Bar raised arguments that the act of barring one from entering his or her own property is a violation under Article 13(1) of the Federal Constitution, which provides that “no person shall be deprived of property save in accordance with law”.

Premised on the above, although the right to property is a fundamental right, it is not absolute and is subjected to other laws.

The actions of JMB and MC must be in accordance with law, wherein the SMA 2013 or any emergency orders promulgated under the Prevention and Control of Infectious Diseases Act 1988 would be of relevance.

At first blush, none of these laws mandate the requirement for sanitisation, COVID-19 testing among residents nor to bar them if un-adhered. As such, this raises a question on whether these additional duties imposed can be derived from SMA 2013.

Are these additional duties ingrained in the Strata Management Act 2013?

On one hand, it is arguable that these additional duties are not embedded into the SMA 2013. The very purpose of the Act, which is reflected in the preamble, is an Act to provide for the proper maintenance and management of buildings and common property, and for related matters. Therefore, section 21 and section 59 have been enacted to only cater for the maintenance and management of buildings and common property.

For years, the courts have interpreted the term “maintenance and management” in a strict manner. For example, in Tey Kim Seng v Perbadanan Pengurusan Octiville Condominium [2019] 1 LNS 2328, the High Court held:

[28] “Maintenance” has been defined by the Oxford Engineering Dictionary (Oxford University Press) as:

1. The process of preserving a condition or situation of the state of being preserved
2. The provision of financial support for a person’s living expenses

Adopting the above approach, matters under SMA 2013 have been limited to the maintenance of standard facilities,[9] water bills[10] and any other related matters. As such, it could not possibly cover the additional duties imposed in times of the pandemic.

On the other hand, it is pertinent to note that the Federal Court had in recent years, advanced the proposition of the SMA 2013 being a social legislation, passed to facilitate the affairs of strata living for the good of the community or owners of the strata title.[11] This was exactly set forth by the Federal Court in Innab Salil & Ors v Verve Suites Mont’ Kiara Management Corp [2020] 12 MLJ 16 (“Innab Salil”). The Federal Court upheld that a MC may pass additional by-laws pursuant to section 70(2) of SMA 2013 by way of special resolution to regulate the control, management and administration including, inter alia, safety and security measures.

It is worth noting that section 70(1) of SMA 2013 prescribes that any regulation issued by the Minister pursuant to section 150, shall apply to every subdivided building and common property. Further, section 70(2) stipulates that additional by-laws can be passed by special resolution, for the purposes of supplementing the regulations issued by the Minister. Taking a step further, the Federal Court in Innab Salil held that the by-laws passed having a force of law derived from SMA 2013, would prevail over any statutory body’s advice or opinion.[12]

In Innab Salil, the court came to the conclusion that the Respondent’s purported House Rule No. 3, prohibiting short-term rentals (such as Airbnb), was passed for a legitimate purpose under section 70(2) or under the duties and powers of a MC pursuant to section 59 of SMA 2013.[13] House Rule No. 3 was passed when circular 2015/2016 was issued by the Commissioner of Building Kuala Lumpur curbing short-term rentals, which was conducted by the Appellants in Innab Salil. The guests at these short-term rentals had caused nuisance to the residents, misused common facilities and compromised the various security measures.

Another case where the MC’s by-laws were upheld was in the High Court case of Woh Fat Soeng v City View Management Corporation [2018] 1 LNS 1268. In this case, by-laws which were passed to disallow the building to be used as a commercial hotel/boarding house for foreign national tenants were held to be valid and not ultra vires to SMA 2013 or even the National Land Code.[14] The MC is statutorily responsible to “properly maintain and manage” the building and “to enforce the by-laws” of the building pursuant to section 59 of SMA 2013.[15] Residents who disagree with any the by-laws issued, can obtain remedies under the law to either:

1. table their objections or proposals during the Annual General Meeting; or
2. lodge a complaint to the Commissioner of Building (such as, COBKL).[16]

It would seem that, section 70 grants wide powers to JMB and MC whereby subsection (2)(i) allows them to impose a fine for any breach of the by-laws and subsection (7) further allows them to apply for enforcement orders or claim damages.[17]

Premised on Innab Salil, it is arguable that JMB and MC may pass and enforce additional by-laws for safety and security measures under SMA 2013.

Nonetheless, note that the by-laws which have been upheld in court thus far, involve by-laws to curb short-term rentals or boarding houses. It would be interesting to see whether the courts would uphold other by-laws made pursuant to section 70(2) which extends to curbing the spread of COVID-19.

Arguably and in the spirit of Innab Salil, SMA 2013, being a social legislation, was passed to facilitate the affairs of strata living for the good of the community.

By-laws passed during annual general meetings for purposes of ensuring and allocating budgets for periodic sanitisation would definitely fall within the ambit of section 70(2) for safety and security measures. These by-laws would also be supplemental to the SOP passed by the Ministry of Housing and Local Government pursuant to section 150 of SMA 2013. However, a mandatory requirement to undergo COVID-19 tests and barring residents, both locals and foreigners, for non-adherence should not be issued as by-laws as these do not fall within the ambit of any SOP or orders.

Conclusion

It would be prudent for JMB and MC to be aware of regular COVID-19 updates via the Malaysian National Security Council as well as the Ministry of Housing and Local Government.

In order for JMB and MC to undertake their duties efficiently, it is advisable to also refer to the extended SOP provided by the government ministries and local municipal councils, such as DBKL.

With reference to these SOP and orders passed by the relevant authorities, JMB and MC would be able to pass resolutions for the necessary by-laws to curb the spread of COVID-19.

This duty to recommend and pass additional by-laws was also justified by DBKL during the Webinar. Once passed, such by-laws would have the force of law whereby JMB and MC are entitled to impose a fine for breaches[18] and proceed with enforcement actions or claim damages via court proceedings.[19]

Certain by-laws passed by the JMB and MC have been challenged as being too restrictive against a resident’s rights towards his or her own property. This includes renting out their own premises under platforms such as Airbnb, OYO Life, Co-Living spaces or Agoda Homes. The Federal Court in Innab Salil shed some light on these comparative positions when it held that the interpretation of a social legislation is one that favours the interest of the community over the interest of the individual. This finding is commensurate with its previous decisions in Ang Ming Lee[20] and Hoh Kiang Ngan.[21]

Therefore, although the right to property is enshrined under Article 13(1) of our Federal Constitution, such right is not absolute and is subjected to other laws. In our context, if by-laws curbing the spread of COVID-19 were passed by JMB and MC, these laws favouring the interest of the community, would prevail over one’s fundamental right to their own property.

If you have any questions or require any additional information, please contact Jeyakuhan S K Jeyasingam or the Zaid Ibrahim & Co partner you usually deal with. This article was prepared with the assistance of Sahira Binti Sha’ari of Zaid Ibrahim & Co.

This alert is for general information only and is not a substitute for legal advice.

[1] Dewan Bandaraya Kuala Lumpur, ‘DBKL.TV Webinar COBKL 2021’ (YouTube, 25 February 2021) <https://www.youtube.com/watch?v=fw9-PGVsmcE>.

[2] Kementerian Perumahan dan Kerajaan Tempatan, ‘INFORMASI COVID-19’ <https://www.kpkt.gov.my/index.php/pages/view/768?mid=482>.

[3] Kementerian Belia dan Sukan, ‘SOP – Sukan dan Rekreasi’ <https://www.kbs.gov.my/sop-sukan-rekreasi.html>.

[4] Hariz Mohd, ’Condo management can make covid-19 tests mandatory – Ismail Sabri’ (Malaysiakini, 28 January 2021) <https://www.malaysiakini.com/news/560815>.

[5] ‘Ismail Sabri rapped for endorsing condo managements’ demand for Covid test’ (Malaysiakini, 29 January 2021) <https://www.malaysiakini.com/news/560884>.

[6] Soo Wern Jun and Emmanuel Santa Maria Chin, ‘Property experts, lawyers: No laws allow for condo management to make Covid-19 tests mandatory for residents’ (Malay Mail, 31 January 2021) <https://www.malaymail.com/news/malaysia/2021/01/31/property-experts-lawyers-no-laws-allow-for-condo-management-to-make-covid-1/1945531>.

[7] Salim Bashir, ‘Press Comment | Management Corporations to Adhere to Laws and Allow Residents Entry to Property’ (Malaysian Bar, 2 February 2021) <https://www.malaysianbar.org.my/article/news/press-statements/press-statements/press-comment-management-corporations-to-adhere-to-laws-and-allow-residents-entry-to-property>.

[8] Ibid, note 6.

[9] Austin Heights Sdn Bhd v Andy Hong Ching Huat & Anor [2019] 1 LNS 2258 (HC).

[10] Tey Kim Seng v Perbadanan Pengurusan Octiville Condominium [2019] 1 LNS 2328 (HC) [31].

[11] Innab Salil & Ors v Verve Suites Mont’ Kiara Management Corp [2020] 12 MLJ 16 (FC) [26].

[12] Ibid [46].

[13] Ibid [113].

[14] Woh Fat Soeng v City View Management Corporation [2018] 1 LNS 1268 (HC) [37].

[15] Ibid [30].

[16] Ibid [37].

[17] An example of enforcement action to enforce by-laws, was initiated by the plaintiff in Marc Service Residence Management v Wawasan Raya Sdn Bhd & 202 Ors [2020] 1 LNS 721 (HC).

[18] Section 70(2)(i) of SMA 2013.

[19] Section 70(7) of SMA 2013.

[20] Ang Ming Lee & Ors v Menteri Kesejahteraan Bandar, Perumahan dan Kerajaan Tempatan & Anor and other appeals [2020] 1 MLJ 281 (FC).

[21] Hoh Kiang Ngan v Mahkamah Perusahaan Malaysia & Anor [1995] 3 MLJ 369 (FC).

In this publication, we share our insights on the recent developments in ASEAN on the promotion of renewable energy generation and tackling climate issues. From the increasing importance of solar and other renewable energy sources, energy efficiency efforts, development of regulatory and fiscal policies and frameworks in stimulating renewable energy generation, to the growing case for green finance and investment opportunities, we hope this publication gives you a useful and holistic overview of how ASEAN can and is rising to the challenge.

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