Are You Selling Off Your Business Due to Covid-19?

As we Malaysians are aware due to the global pandemic of COVID-19, our government has taken the step to impose a Movement Control Order (“MCO”) throughout the country effective since March 18 till now and possibly further in order to further curb the spread of the virus.

As a result of the MCO, many businesses have suffered greatly as a result of the downward spiral of the country’s economic infrastructure which many are forced to mainly, retrench workers, impose unpaid leaves on employees, and some to sell their businesses or worse, to file for bankruptcy winding-up. 

Therefore, as the title suggests, this article is meant to provide some insights and highlights on what may be raised as a concern in the event where you, as a business owner may consider to sell your business in this challenging period and not to act in spite which will in return, protect yourself and your employees in the long run.

What if you do decide to sell your business, what should you do?

The best step forward here would be to prepare a handover checklist/plan, and for you to consult your lawyer to draft up a share sale agreement for the sale of shares of the business to the new owners as well as to prepare the necessary documentation to effect the said transfer.

Note: Beware of fraudulent parties which may take advantage of the pressing situation to avoid being pressured to complete the transaction hastily simply because you require the money urgently. Prevention is better than cure.

So now you have decided to sell your business, what will happen to your employees?

There are 2 ways in which this situation may ensue:

1. The employees continue to be employed under the new company pursuant to the terms of the arrangement between the previous company and the employee; or
2. The employee may be released subject to the previous employer fulfilling their obligations under the Employment Act 1955 whereby the new employer may present new terms of re-employment to the employee.

Regardless of the above, do you still have to notify your employees of the change of ownership of business?

YES. Many would think in which just because, a company has taken over where the employees agree to the new company’s terms and conditions, arguably the employee has then been validly terminated from the old company. This is however not the case, as statutory provisions dictate in which S. 12(3)(f) of the Employment Act (“EA”) 1955 provides:

[“(3) Notwithstanding anything contained in subsection(2), where the termination of service of the employee is attributable wholly or mainly to the fact that

[(a) to (e) has no application];

(f) a change has occurred in the ownership of the business for the purpose of which an employee is employed or of a part of such business, regardless of whether the change occurs by virtue of a sale or other disposition or by operation of law,

the employee shall be entitled to, and the employer shall give to the employee, notice of termination of service, and the length of such notice shall be not less than that provided under subsection (2)(a), (b) or (c), as the case may be, regardless of anything to the contrary contained in the period of notice.”]

What is minimum notice period required to be given under the EA 1955?

The general period of notice of termination can be referred to in the table below:

• Less than 2 years:  4 weeks notice
• 2 years or more but less than 5 years: 6 weeks notice
• 5 years or more: 8 weeks notice

What about Confidentiality Retention and Intellectual Property?

Another cause of concern as an employer/ business owner would be in the protection of your trade secrets/ employee confidentiality agreements as to whether or not upon the sale of your business, would as the employer/ business owner be handing over any trade secrets to the new owners? Or would you only be selling your brand and trademarks? Many might forget about the intellectual rights of the property when selling the business where the brand ownership of the name of the company may actually still be in the previous owner’s possession.

It is therefore imperative and advisable, to remember to protect your intellectual property and further, any copyrights of the works of the company which might be held by the employees by way of a non-disclosure agreement between the employer and employee.

What about the handling of Personal Data?

The Personal Data Protection Act 2010 seeks to protect data users such as those of employers, handling the personal data of employees. As such, in the event where a sale of business should occur, the employer/ business owner should consider as to how such data should be handed over to the new owners (subject to notification and consent by the employees) and how the data should be destroyed in the event where the data shall be not needed upon the sale of business in order to protect the data and information of the employees.

As guidance, the Personal Data Protection Standards 2015 provides that personal data is to be kept no longer than necessary where it can be further seen in that, the Personal Data Protection Act 2010 provides for the principles in which a person handling such data should act in accordance to:

1. General Principle:
   Personal data shall not be processed unless the data subject’s consent has been obtained.
2. Notice and Choice:
   Data subjects must be informed by written notice, the type of data being collected and the purpose, its sources, the right to request access and correction, the choices and means by which the data subject can limit the processing of their personal data, and whether it is obligatory or voluntary for the data subject to supply the personal data.
3. Disclosure:
   Personal data may not be disclosed to others unless the data subject’s consent has been obtained, for any purpose other than that which the data was disclosed at the time of collection, or to any third parties other than that notified to the data user.
4. Security:
   Data users shall take practical steps to protect the personal data from any loss, misuse, modification, unauthorized or accidental access or disclosure, alteration or destruction.
5. Retention:
   Personal data shall not be kept longer than is necessary for the fulfilment of its purpose where reasonable steps shall be taken to ensure that all personal data is destroyed or permanently deleted if it is no longer required.
6. Data Integrity:
   Data users shall take reasonable steps to ensure that personal data is accurate, complete, not misleading and kept up to date.
7. Access:
   Data subjects must be given access to their personal data and be able to correct any personal data that is inaccurate, incomplete, misleading or not up to date.

Note:
Fines may be imposed for the various offences contravening the principles not exceeding RM300,000. On conviction, offenders may also be liable to imprisonment to a term not exceeding 2 years.

Moving forward from Covid-19

Hence, as the grounds begin to shift where we understand in which you may be forced/pressured to take a stand as a result of the current global pandemic, we urge all employers’/ business owners to take the necessary precautions and preparations to avoid any hasty and rash decisions and to mitigate such impact if any.

This Article is written by:
Justin Faun Weng Fai
L.L.B (Hons) Hull, UK
Legal Assistant of Messrs Wong Wei Fan & Co