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The ASEAN Handbook on Good Regulatory Practice (GRP) was launched to promote the adoption of GRP principles across ASEAN Member States. Our Partner and Head of the Government Advisory practice, Mohamad lzahar Mohamad lzham outlines the GRP principles in the handbook and advocates that the handbook be a catalyst for greater GRP adoption and implementation across the ASEAN region.

Publication
Law Reform and Government Advisory

The Application of Good Regulatory Practice (GRP) across ASEAN – The ASEAN Handbook on Good Regulatory Practice (GRP)

Mohamad lzahar outlines the GRP principles in the handbook and advocates that the handbook be a catalyst for greater GRP adoption and implementation.

In a significant step toward its energy transition plans, the Energy Efficiency and Conservation Bill was passed by Dewan Rakyat in October 2023. The Bill is expected to come into force when passed by Dewan Negara. The Bill aims to regulate the consumption and conversation on energy, going further than the country’s earlier attempts to tackle electricity demand in the industrial, commercial, and residential sectors. In this article Amin Abdul Majid and Khoo Yu Lin, from the Infrastructure, Energy & Utilities practice group, go through the key measures under the Bill and provide comparison with current energy laws and regulations.

Publication
Infrastructure, Energy and Utilities

Driving Efficiency for the Future – Unveiling Malaysia’s Latest Energy Efficiency and Conservation Initiative

This article goes through the key measures under the Energy Efficiency and Conservation Bill and provide comparison with current energy laws.

The impacts of climate change on global economies and businesses are no longer subtle, driving countries worldwide to transition towards renewable energy. With the Asia Pacific region's unique transition footprint, where the decline in the levelized cost of energy is unfolding at a time of emerging technologies, the region is rapidly transforming the renewable energy landscape. Solar as a renewable resource, in particular, is at the forefront, with many countries embracing solar solutions to meet their growing demands for renewable energy.

 In this article, Caera Lee Huan Yin, a Partner in the Infrastructure, Energy & Utilities practice group, provides an overview of the renewable energy landscape in the region and delves into the country-specific continual evolution and adoption of solar energy in Malaysia and its valuable contribution towards the nation’s energy transition pathway. Moving forward, the author expects to see a rising focus on integrated energy transition plans in the region’s renewable stories, ranging from the integration of innovative generation and storage solutions to opportunities for repowering the existing fleet of plants with new renewable solutions.

Publication
Infrastructure, Energy and Utilities

Charting the Course of Solar Energy in Energy Transition

An overview of the renewable energy landscape in the region and the country-specific continual evolution and adoption of solar energy in Malaysia.

Bank Negara Malaysia (“BNM”) (Central Bank of Malaysia) has recently proposed standards and guidelines for sell and buy back agreements (“SBBA”) and collateralized commodity murabahah (“CCM”) transactions used as Islamic financial instruments in the Islamic Interbank Money Market (“IIMM”).  

BNM’s exposure draft of 2 October 2023 sets out these proposals. Industry players have been asked to provide feedback by 31 October 2023, after which BNM will formalize a policy document on 1 January 2024.

The objectives of the policy document are to:

  1. outline the scope of the SBBA and CCM transactions;
  2. provide the regulatory requirements and BNM’s expectations for such transactions;
  3. promote sound risk management practices for the conduct of such transactions; and
  4. ensure compliance with Shariah principles.

Policy document will supersede previous guidance notes on SBBA

When it comes into effect, the policy document will supersede the Guidance Notes on Sell and Buy Back Agreement (“Guidance Notes”), previously issued on 28 June 2013.

The Guidance Notes provided best practices governing the conduct of the SBBA transaction. The SBBA, which is akin to the conventional repurchase (“Repo”) agreement, was modified to comply with Shariah principles and approved by the Shariah Advisory Council of BNM as an Islamic financial instrument.

A Repo agreement is guided by the Repurchase Agreement Transactions Policy Document issued by BNM in 2019. The policy document defines a Repo as a transaction which involves the sale of securities with a simultaneous agreement to repurchase them on a future date and at a higher price. The repurchase price consists of the original price plus an interest rate on the cash leg of the transaction.

In the SBBA, there are two distinct contracts which are concluded at two separate times, namely, the sale of securities in the first contract and the repurchase of the securities in the second contract. In addition, there is no stipulated condition to repurchase the securities by the seller in the first contract. The Wa’d or promise to repurchase and/or to sell the securities in the SBBA overcomes the inter-conditionality issue in the Repo, as the promise is only made upon the conclusion of the first contract.

The SBBA is thus the answer to a Shariah compliant repurchase agreement.

Policy document will enhance features and provide clarity in SBBA

The proposed policy document enhances the features of the existing SBBA transaction, namely by providing clarity to its definition and transaction sequence as follows:

  1. an outright sale of SBBA securities by an SBBA seller to an SBBA buyer at an original price;
  2. a promise, which may be in any of the following forms:
    1. the SBBA seller unilaterally promises to buyback the same or equivalent SBBA securities from the SBBA buyer on a future date at a sale price;
    2. the SBBA buyer unilaterally promises to sell the same or equivalent SBBA securities to the SBBA seller on a future date at a sale price; or
    3. a bilateral promise by both the SBBA buyer to sell and the SBBA seller to buy back the same or equivalent SBBA securities on a future date at a sale price; and
  3. an outright purchase of the same or equivalent SBBA securities by the SBBA seller from the SBBA buyer.

The element of promise or Wa’d in the SBBA arrangement prevents inter-conditionality between the sale and purchase transactions entered by the SBBA buyer and SBBA seller.

Key differences between the policy document and previous guidance notes

The key difference between the policy document and the Guidance Notes is the introduction of CCM as an alternative Islamic financial instrument for the IIMM. The CCM is an arrangement based on the Shariah principle of murabahah where a CCM pledgor buys commodity from a CCM pledgee on deferred payment terms. The CCM pledgor then pledges Shariah compliant securities as collateral for the deferred payment obligation under the murabahah contract.

Other salient differences between the Guidance Notes and the policy documents are set out below:

Conclusion

In 2014, the International Islamic Financial Market issued a Master Collateralized Murabahah Agreement (“MCMA”) which is a standard template used as an alternative to the Repo. The MCMA is based on the Shariah principles of murabahah and rahn and aims to address the issues and diversity in practices around the buying and selling of securities by the same counterparties at a future date.

Since then, international banking institutions, especially in the United Arab Emirates, have used the MCMA as a liquidity management tool.

Therefore, the introduction of CCM in this proposed BNM’s policy document may be more appealing to banking institutions that are less favourable towards the SBBA.

If you have any questions or require any additional information, please contact Lily Adelina Hashim, Raihan Naseeha Rafidi, or the Zaid Ibrahim & Co (in association with KPMG Law) partner you usually deal with.

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

Article
Islamic Financial Services

Malaysia's Central Bank issues Exposure Draft on Islamic Collateralised Funding

Bank Negara Malaysia recently proposed standards and guidelines for sell and buy back agreements and collateralized commodity murabahah transactions.

In our previous article, we discussed the initiatives implemented by the Government to ease the process of discharge of bankrupts. This included the conditions and procedures for discharging bankrupts with small-scale debts, as well as proposed amendments to the Insolvency Act 1967aimed at enhancing the provisions for discharge of bankrupt and the administration of a bankrupt’s estate. 

The recent enactment of the Insolvency (Amendment) Act 2023 has now come into effect, implementing the proposed amendments.  

Below, we summarize the key amendments to Malaysian insolvency law.

Additional categories of bankrupt individuals eligible for discharge

Prior to the amendment, the discharge of a bankrupt under section 33A was at the discretion of the Director General of Insolvency (DGI), with a minimum waiting period of five years from the bankruptcy order and subject to section 33B, which allowed creditors to object to the discharge. However, the recent amendment expands section 33B(2A) of the Insolvency Act to include two additional categories where creditors are not permitted to object to the discharge, namely:

  1. a bankrupt who is incapable of managing himself and his affairs due to any mental disorder, as certified by a psychiatrist from any government hospital;
  2. a bankrupt aged seventy years and above and in the opinion of the DGI, is incapable of contributing to the administration of his estate.

Streamlined discharge process & enhanced powers for the DGI

The Amendment Act revises section 33C governing the automatic discharge of bankrupts. Previously, a bankrupt will be automatically discharged after three years if they fulfilled specific criteria, such as reaching the targeted contribution towards their provable debt and complying with obligations related to rendering an account of money and property.

Post-amendment, the financial capability of the bankrupt is taken into consideration, and the conditions for automatic discharge under section 33C are eased. The requirement to achieve the targeted contribution towards the provable debt is replaced with the obligation to pay a sum determined by the DGI for estate administration purposes, provided that the bankrupt has fulfilled his or her obligations under the Act.

In this regard, the Amendment Act introduces the suspension of automatic discharge for up to two years if the bankrupt fails to fulfil his or her obligations. The DGI is granted the power to suspend automatic discharge for a maximum of two years if the debtor does not meet his or her obligations. Additionally, the DGI may request further information regarding the debtor's income, expected income, and properties. The suspension, as per the newly inserted section 33C(1)(b), takes effect when the DGI serves a notice to creditors who filed a proof of debt within six months before the original three-year mark.

Furthermore, in line with the ‘second chance policy’, the amendments to sections 33C and 33B(2A) are applied retrospectively to cover individuals who had been declared bankrupt before the passing of this Amendment Act.

Adoption of remote communication technology and electronic communications

To align with the judiciary's transition to remote hearings, and in line with the insertion of section 15A of Court of Judicature Act 1964, the Act has been amended to accommodate remote communication technology in the administration of bankruptcy in Malaysia.

Communication pertaining to insolvency matters, including service of notices under the amended section 130 of the Insolvency Act, 1967, may now be carried out by electronic means, where consent has been obtained to do so.

It is also pertinent to note that, prior to the amendment, the Act only allowed the DGI to hold a meeting at such a place which the DGI considers to be convenient for the majority of the creditors.  Now, meetings of creditors under amended Schedule A of the Insolvency Act may be conducted through remote communication technology, among others, video link, video conferences, or any other electronic means of communication.

Dispensation of the mandatory requirement of holding the first meeting of creditors

Previously, section 15 of the Act made it mandatory for the first meeting of creditors to be held as soon as may be after a bankruptcy order is made. The meeting is confined to consider proposals for the composition or arrangement and the mode of dealing with the bankrupt’s property.

Post-amendment, the mandatory nature of the first meeting of creditors has been replaced with a discretionary power of the DGI. Nonetheless, the purpose of the section is maintained with the additional scope of any other purpose as prescribed by the Minister. The Amendment Act also replaced all references to the “first meeting of creditors” in the Insolvency Act 1967 with “meeting of creditors”.

Thus, pursuant to the Amendment Act, a meeting of creditors is no longer mandatory and will only take place upon request or when deemed necessary.

Other amendments

In addition to the above, the Amendment Act also introduces changes related to summary administration in cases where the debt is small. To provide greater flexibility in bankruptcy administration, certain monetary amounts specified in the Insolvency Act 1967 have been replaced with amounts to be prescribed by the Minister. This allows for adjustments based on prevailing economic conditions and circumstances without the need for legislative amendments.

For more information, please refer to the Insolvency (Amendment) Act 2023 and Insolvency (Amendment) Rules 2023.

Conclusion

The newly enacted amendments establish a more effective and inclusive bankruptcy administration system, aligning with the government's commitment to help bankrupt individuals secure a fresh financial start. While many are still grappling with their prior financial missteps, the enforcement of these amendments brings some relief. It is hoped that the government’s initiative to fostering bankruptcy administration will ultimately contribute to the nation’s economic development.

If you have any questions or require any additional information, please contact Khoo Kay Ping, Chuah Jo-Shua, or the Zaid Ibrahim & Co (in association with KPMG Law) partner you usually deal with. This article was prepared with the assistance of Chong Siau Fong, a Senior Associate at Zaid Ibrahim & Co (in association with KPMG Law).

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

Article
Litigation and Dispute Resolution

Update to Insolvency Laws: Simplifying Bankruptcy Procedures

The recent enactment of the Insolvency (Amendment) Act 2023 has now come into effect, implementing the proposed amendments.

One topical area for reform that has constantly been of discourse of late is political appointments in Government agencies. It is not to say that political appointments are legally wrong, but what is important is that the appointments are merit based. Individuals appointed should possess the necessary experience and qualifications to add value as members of the appointed institutions.

In this publication, Nik Norzrul Thani, Mohamad lzahar Mohamad lzham, and Liya Saffura Ab. Rashid will explore these concerns in the context of public sector governance and propose an integrated approach with the emergence of a Public Sector Corporate Governance Act to consider for potential reform.

Publication
Compliance and Governance

Public Sector Governance Act: The need for a Public Sector Governance Framework

This article explores the concerns of political appointments in Government agencies

Recent amendments to the Solicitors Remuneration Order 2023 (“SRO 2023”), which came into effect on 15 July 2023, apply to transactions involving non-contentious matters such as the sale and purchase of movable and immovable properties, financing and tenancies. It effectively revokes the Solicitors Remuneration Order 2005 (“SRO 2005”).

The increase in legal fees has caused some concern amongst industry stakeholders, however the National House Buyers Association (“HBA”) issued a statement on 21 July 2023 stating that the increase of scale fees is in tandem with the times, and while many people are facing challenging times, professionals and lawyers are equally affected. HBA also added that as the increase in legal fees is reasonable and not significant when compared against the property value or loan amount. It is not expected to cause a domino effect towards the rising cost of living or house prices.

It is not all an increase, however, as the SRO 2023 also charges a lower legal fee of between 25% and up to 50% for properties governed under the Housing Development (Control and Licensing) Act 1966 (“HDA"), i.e. bought directly from housing developers.

Below is a comparison table for the changes to the legal fees for sale and transfer (non-HDA):

The comparison of the changes to the legal fees for HDA transactions:

There is technically no hike for HDA transactions however. Fees have been lowered by 50% for properties of which the consideration or adjudicated value is more than RM1,000,000. This will ease the burden of home-buyers, considering the fact that it is not uncommon nowadays for properties to be priced at more than RM1,000,000, especially in high-development urban areas.

The fees for leases and tenancies have also increased. However, with the proposed ‘Residential Tenancy Act’ in the works, a standard tenancy template may be drawn up, hence the involvement of lawyers may be reduced. Nevertheless, the table below highlights the changes of the legal fees for leases and tenancies:

The fees for financing have also increased. However, for properties under HDA where the loan value is above RM1,000,000, the discount under SRO 2023 (50%) is actually higher than the discount available under SRO 2005 (as amended in 2017) (35%). The table below highlights the changes of the legal fees for financing, discharge of charge and deed of assignment:

Professional Fees for Charges, Debenture and Other Security or Financing Documents

Professional Fees for Discharge of Charge

Professional Fees for Deed of Reassignment

The last revision of the Solicitors Remuneration Order was almost six years ago. The increase can be considered reasonable taking into consideration the higher costs of operations for lawyers. In its press release dated 24 July 2023, the Malaysian Bar stands firmly behind the increase of scale fees chargeable for non-contentious matters under the SRO 2023. They are also of the view that it must ensure that the integrity of lawyers and the ecosystem for lawyers in non-contentious transactional matters are insulated and protected so that the quality of lawyers remains at its highest level and consumers are not short-changed by the professional advice they receive. Likewise, lawyers are prohibited from overcharging, and that is the public interest aspect to the scale fee structure, which acts to protect against overcharging.

If you have any questions or require any additional information, please contact Angeline Cheah, Patricia Chia, or the Zaid Ibrahim & Co (in association with KPMG Law) partner you usually deal with.

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

Article
Real Estate

Recent Changes under the Solicitors Remuneration Order 2023

Recent amendments to the Solicitors Remuneration Order 2023 (“SRO 2023”) apply to transactions involving non-contentious matters.

The concept of ethics is well entrenched as part of corporate governance within business institution. In Malaysia, practical application of ethics can be seen in the various codes of ethics for industries and sectors, and from government initiatives. However, there is no streamlined application of ethics across national, corporate and individual levels.

In this article, Tan Sri Dr Nik Norzrul Thani, Mohamad Izahar Mohamad Izham, and Liya Saffura Ab. Rashid will delve into the importance of promoting ethical practices within Malaysia’s corporate landscape and review current application of ethical practices. They will also discuss the idea of establishing a “Centre of Ethics” in Malaysia to create a conducive environment for ethics to grow, and play an integral part in transforming the country.

Publication
Law Reform and Government Advisory

The Case for the Establishment of a Centre Of Ethics in Malaysia

The importance of promoting ethical practices within Malaysia’s corporate landscape and review current application of ethical practices.