Second Home, Second Thought

Stampeding civilians trying to board a US plane on the runway in Kabul airport during the evacuation
I know the questions you are going to ask me.
Whether Malaysia’s new MM2H rules are fair or make any sense in helping our damaged economy and tourism. Whether past or existing applicants are exempted and can still follow the old conditions. Whether the government by this new policy is intending to chase overseas people away from the country.
The new MM2H rules are supposed to be the culmination of months of expert study and consultancy. From 1 October to get MM2H you must have a monthly passive income of around USD10,000 and savings in the bank of USD375,000 out of which USD250,000 must be placed in a bank account in Malaysia.
These criteria will apply across the board even to current MM2H holders after their existing visa expires. In other words the rules are retrospective and sad to say, pretty prohibitive.
So the answers to your questions are no. The new rules are not fair. You are not exempted even if your earlier application under the old rules had been accepted and returned. But they are not doing this to discourage foreigners from coming. Malaysia still welcomes foreigners but it looks like only rich ones.
Do these rules make sense? Maybe not to you but it does to the architects of what is being called our new normal world.
Just take a look at vaccine passports in liberty-loving France, the Taliban recapture of Afghanistan within days without a fight and the mass internment of national populations around the world in the name of a bad viral flu.
In case you have a final question – can these MM2H changes be changed and reversed? 
That ultimately depends on how we all decide to respond to the “new normal”. Unless we all put our foot down and say that enough is enough and no more, the newer things are, the less normal they will be.

Kindness, Inc.

Setting up a Foundation for purpose and charity

Inside the Tatev Monastery, Armenia. Copyright Kerk Boon Leng 2016
Power of Purpose
Capitalism the old school way is crushed and crumbling under the existential weight of covid. To many people now the idea of running a company to do good is not only morally right, it makes pretty good business sense.
Some call them purpose foundation, others refer to them as social enterprise, or steward-ownership business, these entities are often real companies running viable and profitable business. Contrary to common belief and the news about their misuse for tax, these companies do not survive on donations and are not always run as charities.
As a matter of fact, these purpose-driven companies are usually set up and run by hired staff and experienced professionals. They generate income but the money they make are channeled towards specific objects and altruistic causes.
Company Limited By Guarantee (CLBG) 
The advantage of setting up a Limited Liability Company is that it can be used to create wealth while shielding its owner from personal liabilities including the risks of bankruptcy. Although this corporate model has served capitalism well, it also created the messy world today of unfair societies, broken communities and damaged natural environment.
There are two kinds of Limited Liability Companies: the ones limited by share capital and those that are limited by guarantee. Companies limited by guarantee (CLBG) are the entities primarily used for non- profit or purpose organisations that require a status of a legal entity.
CLBG does not have shareholders but instead have members who will each guarantee to pay for the liabilities of the company up to an amount (typically RM100) specified in the articles of the Constitution in the event of its insolvency or winding up.
Perpetual Succession
CLBG is created by incorporation under the Companies Act. As a corporation, it is a separate legal person in law. It is unaffected by the death or departure of any member but continues in existence no matter how many changes in its membership.
Membership
SSM (Suruhanjaya Syarikat Malaysia), Malaysia’s Registrar of Companies, has a sample constitution to follow. The sample is just a guide. You are allowed to amend and modify the membership criteria and admission procedures based on your requirements to suit the CLBG’s objectives.
For example: the membership can be restricted to clan members or those with certain family name or to the descendants of a named benefactor. It can also be restricted to, for example certain classes of persons such as employees of companies or armed forces personnel serving in a specific regiment, war or period.
Similarly, membership classes can be tailored to suit the requirements, such as honorary, ordinary or special membership with special voting rights or veto powers over matters similar to the way MOF exercises control over its GLCs with rights to nominate or appoint Board members.
In some family CLBGs, there are permanent Board of Trustees or Governing Trustees to ensure that the founding family maintains control over objectives and direction of the CLBG.
How many members in CLBG? It depends, there is really no optimum number of members. The decision on how many members to have is left to the promoters to make and set the tone depending on their intentions and foresight.
As there is no share capital in a CLBG, each member has one vote depending on what is written in the constitution relating to membership and rights. Bearing in mind, the more members there are, the harder it is to have control.
Some CLBGs give the chairman the right to co-opt and appoint Trustees onto the Board so that he has sufficient support to maintain control. This will also allow the chairman to carry out duties instead of being bogged down continuously with in fighting at the Board level.
Berhad or Yayasan?
Source: SSM
The table above shows the difference between CLBGs with the word “Berhad” to its name and those without. Some CLBGs prefer to call themselves Yayasan or Foundation instead of using “Berhad”(Limited). To do this, they are required to first apply to the Minister of Domestic Trade and Industry for approval to drop “Berhad”.
The approval process can previously take up to 3 months, now it is maybe longer. The main condition to dropping “Berhad” is the requirement and written commitment from a party supporting the CLBG to donate at least RM1 million together with a forecast income and expenditure accounts for two years.
Alternatively, the CLBG can be incorporated with the word “Berhad” to its name and then later apply to change it to Foundation.
Name and Object Clause
This part is arguably the most important stage in the process of incorporating a CLBG. Careful consideration must be given to select a proper name for the CLBG and to describe in detail its objects.
The CV and biodata of the Promoters and the first Board of Trustees must be carefully prepared. Other important information include:
(a) the reasons why a CLBG is registered instead of an association under the Societies Act;
(b) will the CLBG be related to or associated with any existing associations or societies?;
(c) whether any of the Promoters have previously registered any society or association with the Registrar of Societies
No Payment to Members and Trustees
Although a CLBG is allowed to invest to earn money, run a profitable business and also receive donations, it is not allowed to use them to pay any fee, salary or benefit to its directors or Trustees. But CLBG is allowed to reimburse these volunteers for their out-of-pocket and traveling expenses.
As a legal entity with a purpose, a CLBG is free to employ full-time staff and pay them market salaries and other competitive remunerations.
CLBG has no share capital so Members do not hold any shares. Therefore, a CLBG is prohibited by its Constitution and the Companies Act 2016 from paying any dividend or share of profits to Members. All income and profit must be used towards the foundation’s purpose and objects as stated in its Constitution.

Lee Wee Hee, (ACIS), Director, CIS Secretarial Services Sdn Bhd and Kerk Boon Leng , Partner, Kerk & Partners, Advocates and Solicitors

Coronavirus Guide to Business Hibernation

Jeff Wall’s photograph based on the prologue of “Invisible Man” a celebrated novel by Ralph Ellison considered to be the greatest African-American writer of all time.

” Please, a definition: a hibernation is a covert preparation for a more overt action.”

– Ralph Ellison, Invisible Man, 1952

In harsh climates when food is scarce, bears and some other animals sleep through winter because they use up more energy maintaining their body temperature and in foraging for food than they would receive from eating the food they are able to find. This is also true of businesses now during this pandemic and forced lockdown.

Professionals such as accountants and lawyers who are normally very circumspect, compliant and coy about selling themselves in public, have recently very quickly jumped into the business guru bandwagon by dispensing webinar wisdoms and live-streamed tips to clients and strangers they have never met on how to survive through this unpredictable period that each day is looking leaner and tougher.

Companies are advised to tighten their belts at a time when they are also told that they have a legal and moral duty to pay full salaries to all their staff who are not working and staying at home.

Business owners are exhorted to stay positive and be willing to adapt and innovate. But they must if possible keep everything the way it was so that the situation can and will return smoothly and quickly back to before. As employers they are not allowed to change any job position, working hours and pay. To get staff to accept any of these changes a business owner must first convince them (via Zoom of course) that his plan is good for everyone in the long run and by appealing to their sense of desperation, gratitude or pity.

Like the latest memes such as stay at home to save lives, be responsible by not working or being alone in this together, the advice about the law we have been hearing sums up the paradoxes and dilemmas of Covid-19.

This pandemic is different from all past crises we know, not just because it affects and can harm more people and spread to more places but also because the response it brings out in people is so contradictory and confusing. 

We are now dealing with the ‘unknown unknowns’, to use a term coined by ex-US Secretary of Defense Donald Rumsfeld when he was asked about the alleged weapons of mass destruction during the war on Iraq in 2002.

With so much that we don’t know and not knowing even more of what we don’t know, isn’t it better for us to postpone planning or committing too much until we figure things out? Shouldn’t a business be like a bear in the depth of a long dark winter adapt for survival by going into hibernation to conserve energy and resources till when the season is kinder and food becomes more plentiful and easier to find?

Malaysian labour laws only give companies the choice to either continue with terms they have agreed with their staff or lay them off if they cannot afford to keep them. Options such as pay reduction, shorter working hours or unpaid leave are core changes to the terms of employment. To carry out any such cost cutting, companies must first get their employees to agree. A boss, under labour law, has no right to force his workers to take a pay cut or insist that they take unpaid leave.

Covid-19 is a textbook case of commercial frustration. This is a crisis on a dramatic and shocking scale. Countries across the world, on lockdown mode to contain the virus, are creating the conditions for the worst economic downturn since the Great Depression.

In Malaysia employment contracts are at the risk of frustration under section 57(2) of the Contracts Act 1950. Due to restrictions on movement and commercial activities by MCO that have now lasted for 6 weeks and are still continuing with no indication of when these will end or what social distancing laws will there be after that, many employers should now be able to legally say that their contracts with their workers have been frustrated. To be fair, these companies ought to be allowed to treat their employments as ended and no longer valid.

Labour is a special species of contracts where government often steps in in time of crisis on the side of workers. But this time the problem is so much larger in size and repercussions. Tackling it will overwhelm any policy makers in the period ahead unless countries pass laws to freeze contracts and save them from breach. This is what Singapore and Denmark did recently in passing their Covid legislations. Since 2009 Australia has its Fair Work Act that allows the employees to be stood down on no wages when they cannot do useful work due to matters outside the employer’s control such as inclement weather and now Covid-19.

While most companies are making hard decisions about cashflow, income and monthly survival, more of them have reached a point where they must cut staff back to the number they really need in order to protect the jobs of those that stay. 

As the country enters further into an indefinite period of lockdown and an uncertain social, financial, commercial, health and logistical aftermath, the logic of hibernation will be harder to ignore.

A clear-headed way out of this quagmire is first for both employer and workers to accept that a situation giving rise to frustration of contract exist now. Next is for both sides to agree in good faith to avoid frustration by allowing the employment contract to hibernate and to stand down the workers so that money, jobs, and relationships can be protected and preserved. By hibernating, companies and staff are in fact agreeing to save the employment from frustration.

Any staff who is willing and able to work remotely or at home should be given freelance assignments and income to sustain himself during hibernation. The rest will need to think of ways to monetize their other skills or hobbies. Companies can only help those who are willing to learn new skills to prepare for life and work after Covid 19. Paying a person just to sit at home without having to work or contribute does not make social or commercial sense even in weird times like this.

This will give the company the time, money and focus it needs to conserve its resources, plan its recovery and transform itself internally for the big changes and opportunities that will certainly come its way when the crisis is over.

Asking staff to sacrifice by taking a pay cut or go on unpaid leave now so that they will have the same pay and job waiting for them is committing to a promise you may be forced to break. Neither does it make sense to pay staff in full for not working or decide now whom to sack or keep when things and situations are so unclear and changing day by day.


“If it is to your advantage, make a forward move; if not, stay where you are. Anger may in time change to happiness, annoyance can revert to joy. But a State that has been destroyed cannot be brought back to life. Hence the enlightened ruler is heedful, and the good general full of caution. This is the way to keep a State at peace and an army intact.”

(19-22, The Art of War, 12)

In our next post we will tell you about HERA – the Hibernation of Employment and Resumption Agreement and the steps to take in hibernating your business and standing down your employees while at the same time providing them with freelance work and alternative income.

****


Lim Yew Yi and Kerk Boon Leng

Electricity and its Discontents

Nikola Tesla, the inventor of modern electricity

 
‘The price of monopoly is upon every occasion the highest which can be got…The one upon every occasion the highest which can be squeezed out of the buyers, or which, it is supposed, they will consent to give…”
 
Adam Smith, The Wealth of Nations (1776)

 

Tenaga Nasional Berhad or TNB, once called National Electricity Board (NEB) is the country’s biggest and sole supplier of electricity. 

As a government-gifted monopoly backed by parliament-made laws protective of its economic interests, TNB has over the years grown profitable, powerful and technologically advanced. Recently the public’s acceptance of TNB as a necessary behemoth has turned into open hostility and even disdain as more consumers have come out accusing TNB of overcharging and high-handedness.

Consumers who find their home or factory power supplies cut and court actions taken against them by TNB for stealing electricity through meter tampering are especially unhappy and aggrieved. 

These consumers are slapped with debilitating (and sometimes multiple) court summonses by TNB. The claims for such “loss of revenue” are usually punitive and sometimes for sums of money far exceeding what most consumers are capable of benefitting from their alleged transgression.

A consumer when sued by TNB for meter tampering is like a soccer team that enters a match with a pre-existing 1-0 score at kick-off in favour of the rival.

Much of the apparent unfairness is due to the way the courts have interpreted the abstruse provisions of the Electricity Supply Act 1990 – a statute specially enacted for the benefit of TNB’s privatization.

Recently the judicial tide seems to be turning in favor of consumer rights over the unrestrained free hands of corporate monopoly.

In a first ever decision, the Court of Appeal in Putrajaya stunningly slashed TNB’s claim against a customer for tampering with the power meters in its plastic making factory in Johor Bahru.***

TNB’s claim for RM1.1 million of loss revenue from tampering was dramatically reduced by the court to just RM28,000 – a reduction of over 97% !

The appeal court’s panel of three learned judges unanimously sent a strong signal that TNB can no longer simply claim any unreasonably huge amount it wants from the consumer based on the previous logic of the courts that a thief who has stolen has no right to question but, as punishment, must merely accept whatever amount the victim has estimated to be his loss.

Now the Court of Appeal says TNB to be sure can still claim the lost income from meter tampering by using an estimate but this estimate must not only be fair and reasonable. It must also be mathematically calculable and capable of standing in the face of the facts.

Lim Yew Yi , LLB (Malaya), Advocate and Solicitor

*** The case of Tan Kwee Siang v Tenaga Nasional Berhad, decision of the Court of Appeal was delivered on 23 May 2019. Kerk & Partners acted for the appellant Tan Kwee Siang. The case is at the time of this article unreported

Selamat Arrivederci

Massacre of the Innocents by Peter Paul Rubens

Malaysia and the Statute of Rome

Malaysia has just announced it will pull out of the Rome Statute.


The Rome Statute (not to be confused with the Treaty of Rome that gave birth to the European Union) is an international treaty that aims to punish powerful individuals who can get away with killing and murder on a country scale because the laws of the land they are in will not or cannot bring them to justice.


Fresh with memories of two of the largest attrocities since World War II that had taken place in Bosnia (1992) and Rwanda (1994), the nations of the world met in Rome in 1998 to hammer out a document that in 2002 set up the International Criminal Court (ICC) in the Hague, the stately and sedate town in Holland that is home to the Dutch parliament and also the International Court of Justice.


The ICC has the power to investigate, charge and put on trial powerful people who commit terrible and large scale killings of groups of human beings in cases of genocide, war crimes and other international crimes of aggression.


Malaysia now says it does not want to be part of ICC although it earlier said it would join.


Bowing again to popular sentiments Malaysia has back pedalled and gone against the global current like it did a few months ago by reneging on its promise to stamp out racial discrimination and abolish the death penalty.


Mass ignorance, misleading academics and mischievous politicians have won the day once again in Malaysia.

Malaysia’s RPGT 2019: More Pain, Less Gain

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From 1 January 2019 onwards RPGT will have to be paid regardless of how long you have owned your property. Real Property Gains Tax (RPGT) is the share of money you must pay to the government from the profit you make in selling your house.

Previously under Najib Razak RPGT in 2014 was hiked up to the highest rates in its history. This time Malaysia’s first-time populist coalition government has outdone its maligned predecessor. The new government has announced that not only will those high rates increase but RPGT will also now be perpetually payable.

Until 31 December this year if you are the owner of your property for more than five years then you pay zero % RPGT if you are Malaysian and 5% RPGT if you are a company or a foreigner.

Effective  1 January 2019 the rates of RPGT for property sold after five years is 5% for Malaysians and 10% for foreigners.

RPGT rates for property sold within three years and on its fourth and fifth years remain fixed at 30%, 20% and 15% respectively.

There are people who see tax as a great equalizer, that RPGT is a necessary evil to curb greedy speculators who drive up house prices. They feel that RPGT imposed on property sellers and landowners is fair since these wealthy people enjoy more of society’s resources and comfort.  Indeed some form of rich tax is needed to reduce Malaysia’s income gap which is the widest in Asia and one of the worst wealth distributions in the world.

To do this the new government will do well to also look into the following:

  • Exempt all houses that are principal place of residence from RPGT. At present sellers are only given a once in a lifetime exemption. Any owner who can prove that his house has been used as a home should not have to pay RPGT.
  • Make owners of multiple houses and commercial units fork out more for RPGT but be lenient on the small house owner who may be selling his house at a better price to upgrade his family or maybe just to survive inflation.
  • Abolish or reduce the present requirement to retain and send to the government  within 60 days of the sale 3%  (Malaysian) or 7% (foreigner) from the property price as security for RPGT. The deposit in Malaysia is normally 10% of the price so such large retention for RPGT will leave a house seller with no cash after he pays his agent and lawyer. He has to wait 6 months or more to get his money from the sale and up to a year for his RPGT refund from the government. It is discouraging to note that Malaysia holds a world record for using the longest average time to transact a property deal.
  • Allow interest paid for bank loans to be deducted for RPGT. Since RPGT is going to be perpetual and applicable many years after you first bought your property most gain on property will not be real but inflationary.

MM2H : SOME UPDATES AND CLARIFICATION

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Malaysia this year is a country excited for change. But judging by the way the country is handling the change it wants to make to immigration especially MM2H, it appears not to know how.

Last month the Malaysian government sent a notice to all MM2H licensed agents to tell them that the usual monthly committee meetings to vet applications and to approve them in batches have stopped. All applications they say will now go straight to the Minister responsible for immigration for his decision.

Unhelpfully the Government did not say how this new procedure will affect the time taken for processing approvals. We can only guess that the new processing time will likely be longer than the 6 months it now takes for approval.

The Government’s notice worded in officialese and clumsily circulated via MM2H Agents Association group chat has caused widespread concern and confusion. The notice has misled many into thinking the MM2H programme has been suspended. It hasn’t.

Applications for MM2H are still being accepted. Actually more applications have been received lately. The increase is fueled partly by rumours that the government will soon raise the bar for MM2H or maybe even disband it altogether.

So for those who are interested, you can and should still apply now for MM2H. It’s just that you need to brace yourself for a longer waiting period.

Kerk Boon Leng