News & Views


Posted on 11th July 2020

An exemption order gazetted by the Government to provide temporary relief for companies facing financial difficulties during the Covid 19 pandemic lockdown, has been challenged as unconstitutional and ultra vires the powers of the Minister. The Companies (Exemption) Order 2020 provides temporary relief against bankruptcy action for companies in financial distress however it has also forced creditors to defer taking insolvency proceedings until after 2020.

The applicant for leave to conduct judicial review, Wabina Construction and Engineering Sdn. Bhd. alleged that Companies (Exemption) Order 2020, gazetted on April 23 during the second month of the national lockdown pursuant to section 615 of the Companies Act 2016, was wrongly gazetted as it did not go through the Dewan Rakyat for debate, and claimed that this was not in accordance with the Companies Act.

The Interpretation Act defines subsidiary legislation as “any proclamation, rule, regulation, order, notification, by-law or other instrument made under any Act, Enactment, Ordinance or other lawful authority and having legislative effect”. Section 19 of the same Act states that “The commencement of an Act or subsidiary legislation shall be the date provided in or under the Act or subsidiary legislation or, where no date is so provided, the date immediately following the date of its publication [in the Gazette] in pursuance of section 18.

It has been legislative practice and a generally accepted position of public law in common law countries that where express authority is given under legislation to a minister to enact subsidiary legislation, he may do so and the subsidiary legislation takes effect as law without going through a parliamentary debate, provided that the subsidiary legislation is not inconsistent with the principal legislation from which it is derived.

Prior to the Companies (Exemption) Order 2020, sections 465 and 466 of the Companies Act, deemed a company which failed to meet a statutory demand for payment within 21 days, unable to pay its debts and thereby liable for a winding-up. The Companies (Exemption) Order 2020 ostensibly extended that period to six months from the date of the demand.

Wabina was clearly unhappy that it had to wait out the full 6 months period before pursuing a petition for winding up having already obtained an arbitral award for the sum of RM7.3 million. However taking into consideration the time it would take to obtain a judicial review and the resistance it was likely to face resulting in a protracted dispute which could conceivably last out the limited duration of the Companies (Exemption) Order 2020[i], the decision to proceed with a judicial review application seems questionable.

The grounds for the challenge are interesting given the long history and practice of subsidiary legislation in the country. It is alleged that the order was unconstitutional because it was gazetted without a parliamentary debate and exceeded the authority of the Minister and therefore ultra vires the principal legislation.

The latter ground has greater merits as section 615 of the Companies Act only allows the Minister to exempt any person from complying with provisions of the Companies Act which means that statutory obligations under the Act may be waived by ministerial edict. It is arguable that the amendment is not in fact what the Minister did by gazetting Companies (Exemption) Order 2020, because the effect of the order was to bring about a legislative change that affected a deeming provision rather than waiving an obligation that was foisted on a person to comply with a provision under the Act. That is to say, a failure to meet a statutory demand in 21 days is not itself an obligation but merely a fact that allows the court to deem (presume) the defaulting party to have failed to pay his debts. That too is a rebuttal presumption.

Loong Caesar

[i] The order expires after 31 December 2020

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