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Legal Due Diligence During a Pandemic: Uniquely Malaysian Considerations

Introduction


As the world contemplates co-existence with COVID-19, Malaysians continue to struggle with the effects of the on-going movement control order on the economy of the country and their livelihoods.


Encouraged by economic opportunities or driven by the need to survive, many Malaysians are investing in businesses which they have little to no knowledge of ("Investor").


Legal Due Diligence in a Malaysian Environment


A well planned and conducted legal due diligence exercise not only helps in managing new practical difficulties which have arisen due to the COVID-19 pandemic, but also aids an Investor in appreciating the additional legal risks in this current climate. Some examples include:


Accessibility of Information


The provision of documents is fundamental to a legal due diligence exercise. The inability to access required documents may have an adverse impact of the intended timeline of the transaction through no fault of any party. In transactions which are time sensitive, this may be a deal breaker.


It is therefore important to discuss at preliminary stages whether a virtual data room is sufficient or whether part of the legal due diligence must be conducted at a physical office. For transactions involving real estate, including the acquisition of plantations, hotels or factories, it may be the case that certain documents are kept onsite and only available offline as they have yet to be digitalised. There may be further complications if the physical office is located in another state and the legal due diligence exercise must be carried out during the time-period where cross-border travel is prohibited. Other practical problems may include the inability by the company secretary of a company to provide vital documents due to a temporary prohibition by the Government of certain sectors deemed non-essential from entering their physical offices.


Governmental Initiatives and Policies


In recognition of the impact of COVID-19 on individuals and businesses, the Malaysian government has implemented many measures including the enactment of the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Act 2020 ("COVID-19 Act"). One of the features of the COVID-19 Act is to provide temporary relief to parties under specified categories of contracts who may be affected by the measures taken under the Prevention and Control of Infectious Diseases Act 1988 from the performance of their legal obligations. It is important for an Investor to be aware of the potential implications to their investment especially if there are material contracts which may be affected by the operation of the COVID-19 Act.


Other governmental policies which have an impact on the legal rights and obligations of the business, including tax or stamp exemptions, moratoriums on loans from financial institutions or the applicable standard operating procedures imposed on the relevant sector the business is operating in, should also be scrutinised as part of the legal due diligence exercise.


Key Takeaways


The recent COVID-19 resurgence in Malaysia has shown how the Government’s ever-changing policies to combat the pandemic can be both confusing in its implementation and commercially disruptive. It is therefore a prudent step to consider these uniquely Malaysian factors during the planning and conducting of legal due diligence so that the Investor will be better placed to make informed decisions and negotiate for more favourable and practical commercial terms.


This article is authored by Alden Yeoh Shuen Chun and Benjamin Chia Lin Fung, the co-founders and partners of Messrs. Kuruvilla, Yeoh & Benjamin.


Alden Yeoh leads the Corporate & Commercial practice group whereas Benjamin Chia leads Projects & Real Estate practice group.


For more information, please visit www.kyblegal.com or please feel free to contact Alden Yeoh at alden@kyblegal.com and/or Benjamin Chia at benjamin@kyblegal.com.


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KYB Legal Insight - Legal Due Diligence During a Pandemic - Uniquely Malaysian Considerati
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