Legal Updates June 2019 - Shearn Delamore & Co

Dear valued clients and business partners,

We are pleased to highlight the following legal updates for June 2019.

Click here to download the PDF version: Legal Updates June 2019

CORPORATE/M&A

Corporate Governance Monitor 2019

The Securities Commission Malaysia (“SC”) issued its inaugural Corporate Governance Monitor 2019 (“CG Monitor”) on 6 May 2019. The CG Monitor will be issued annually by the SC to provide statistics on the adoption of the Malaysian Code on Corporate Governance (“MCCG”) by listed companies, and observations on the thematic reviews selected for the year.

Some of the key statistics featured in the current edition of the CG Monitor include:

27 of the MCCG best practices had an adoption level of more than 70%;
74% of companies adopted at least 1 Step Up practice;
Listed companies generally provide disclosures which contained the minimum information required to explain the adoption or departure from the MCCG practices;
131 listed companies disclosed the top 5 senior management remuneration in bands of RM50,000 and a further 25 listed companies disclosed the detailed remuneration of senior management on a named basis;
Malaysia made steady progress in terms of gender diversity on boards between December 2016 and December 2018, with a 7 percentage point increase for the top 100 listed companies (from 16.6% to 23.68%) and a 4 percentage point increase (from 12% to 15.69%) for all listed companies;
Target set in 2017 to have no all-male boards in the top 100 listed companies by the end of 2018 was achieved;
242 resolutions to retain long-serving independent directors with tenure of more than 12 years were put to vote using the two-tier voting process; and
81% of CEOs of the top 100 listed companies by market capitalisation received RM10 million or less in remuneration.

The current edition CG Monitor further featured the following thematic reviews:

Long-serving independent directors — policies and practices of listed companies;
Gender diversity on boards and senior management; and
CEO remuneration on the top 100 listed companies on the Main Market of Bursa Malaysia.

It is the aim of SC that the statistics and observations provided in the CG Monitor would facilitate stakeholders including boards, management, shareholders and the investment community in enhancing corporate governance excellence.

The SC contemplates to review the anti-corruption measures which have been adopted by listed companies, for the purposes of implementing the National Anti-Corruption Plan (2019-2023) (NACP) launched on 29 January 2019. These findings will be published in the next edition of the CG Monitor.

You may access the inaugural CG Monitor here.

For further information regarding corporate/M&A matters, please contact our Corporate/M&A Practice Group.

FINANCIAL SERVICES

Proposed Consumer Credit Law

The local media has reported that Bank Negara Malaysia is working with a number of ministries, namely, the Ministry of Domestic Trade and Consumer Affairs, the Ministry of Housing and Local Government and the Ministry of Entrepreneur Development to introduce a new Act, namely, the Consumer Credit Act.

Governor Datuk Nor Shamsiah Mohd Yunus, the Governor of Bank Negara Malaysia, said that discussions are at an advanced stage and hopes that the bill will be tabled in 2020.

The Governor also added that the Consumer Credit Act is intended to, among others:

promote a healthy consumer credit market across the board, by providing consumers equal treatment and protection irrespective of who they borrow from; and
supplement the Bank Negara Malaysia’s Responsible Financing guidelines which it has issued not only to banks but also to cooperatives through the Cooperative Commission.

Policy Document on Shareholder Suitability for Approved Persons

Bank Negara Malaysia (“BNM”) issued a policy document on Shareholder Suitability for Approved Persons (“PD”) which took effect on 3 June 2019.

The PD applies to a shareholder who holds an aggregate interest in shares (as defined in Schedule 3 to the Financial Services Act 2013 and the Islamic Financial Services Act 2013, respectively) of 5% or more in any of the following category of approved persons:

approved insurance brokers;
approved takaful brokers;
approved money brokers;
approved financial advisers; and
approved Islamic financial advisers.

The PD sets out, among others:

the requirement for an aquirer to notify Bank Negara Malaysia in writing within seven days after an agreement or arrangement is entered into to acquire an interest in shares in an approved person, along with information and document as prescribed in the Appendix to the PD.
the application procedures for an acquisition of interest in shares of an approved person where such acquisition results in a change of control (as defined in the FSA and IFSA, respectively).
the shareholder suitability requirements that must be complied with, at all times, by shareholders of an approved person.

Exposure Draft on Framework for Electronic Trading Platforms

BNM had, on 14 June 2019, issued an exposure draft which sets out its requirements and expectations on electronic trading platforms offered by the following categories of persons:

money brokers approved to operate electronic broking platforms; and
operators of any facility, system, trading venue, marketplace or organisation through which market participants (as defined in the Financial Services Act 2013 and Islamic Financial Services Act 2013, respectively) are able to execute binding transactions electronically based on established methods and standard market conventions and includes an electronic broking platform.

Pursuant to the exposure draft:

the framework will not apply to:
1. non-money and/or non-foreign exchange product transactions carried out by operators of recognized markets under the Capital Markets and Services Act 2007;
2. any stock market of an approved stock exchange, or facilities offered by an approved stock exchange; or
3. a proprietary single-bank platform offered solely for bilateral transactions for money and/or foreign exchange market instruments.
eligible platform operators are required to obtain BNM’s approval prior to offering their services in Malaysia and to put in place or maintain appropriate internal governance, policies and procedures in providing their services.
platform operators that wish to offer electronic trading services for securities and instruments, other than those specified in the exposure, draft are required to ascertain and obtain the necessary approvals from relevant authorities, where applicable.
the Guidelines on Electronic Broking System by Licensed Money Brokers issued on 1 August 200 will be superseded.

The deadline for submission on feedback to the exposure draft is 15 July 2019.

BNM Issues Exposure Draft on Insurance and Takaful Aggregation Business Registration Procedure and Requirements

Insurance and takaful aggregation business will be regulated by BNM as a new category of registered business under the Financial Services Act 2013.

BNM is currently seeking industry comment for its exposure draft, which was issued on 20 June 2019. Based on the exposure draft, “insurance and takaful aggregation business” means the business of providing services through any electronic means that:

sources, aggregates and compares insurance or takaful products of more than one licensed person; and
makes referrals to any such licensed person in respect of the procurement of such insurance or takaful products; or
arranges the procurement of such insurance or takaful products through such electronic means.

According to BNM’s press statement, once this new category of registered business comes into effect:

insurance and takaful aggregators which were approved under the Financial Technology Regulatory Sandbox; and
any person intending to become a registered insurance and takaful aggregator,

will be required to registered under the Financial Services Act 2013 to carry on insurance and takaful aggregator business.

The exposure draft sets out the registration procedures, fees, notification and business conduct requirements. One of the requirements would be that the registered insurance and takaful aggregator must be a company registered under the Companies Act 2016.

The deadline for submission on feedback to the exposure draft is 19 July 2019.

For further information regarding financial services matters, please contact our Financial Services Practice Group.

INTELLECTUAL PROPERTY

Taken for Granted: How McDonald’s Lost Its Most Beloved Trademark “BIG MAC”

The European Union Intellectual Property Office (“EUIPO”), in a bold approach of applying the “use it or lose it” principle, revoked McDonald’s registered trademark, BIG MAC, in its entirety on the ground that the mark has not been genuinely used.

Supermac, an Irish upstart burger chain, filed an application under Article 58(1)(a) of the EU Trade Mark Regulation, requesting a revocation of the trademark on grounds that the mark have not been put to genuine use for a continuous period of five years, from 2012-2017.

At the start of its decision, the EUIPO reminded that in a revocation proceeding on the basis of non-use, the burden of proof lies with the trademark proprietor as the applicant cannot be expected to prove a negative fact, which is, that the mark has not been used during a continuous period of five years.

Therefore, it is the trademark owner who must prove genuine use within the European Union, or submit proper reasons for non-use.

McDonald’s, in its attempt to defend its mark, has submitted the following documents before the EUIPO.

Three affidavits, signed by representatives of McDonald’s companies in Germany, France and the United Kingdom, claiming significant sales figures in relation to Big Mac sandwiches between 2011 and 2016 as well as samples of the packaging of the sandwich (boxes), promotional brochures and what appear to be menus

Brochures and printouts of advertising posters, in German, French and English, illustrating, amongst others, Big Mac meat sandwiches and packaging for sandwiches (boxes) dated between 2011 and 2016. The brochures and posters show a sandwich on the menu along with other products, or on its own, and the prices are also provided on some of the materials; other documents appear to be blank menus in which the price can be filled in. The mark appears on the submitted material in relation to the sandwiches.

Printouts from the websites depicting a variety of sandwiches, amongst others, Big Mac sandwiches, some of which state that they are sandwiches made with beef meat.

A printout from Wikipedia of information on the Big Mac hamburger, its history, content and nutritional values in different countries.

The EUIPO’s response to the affidavits submitted by McDonald’s is that statements made by the interested parties themselves are generally given less probative value as that of independent evidence.

This is because the perceptions of a party involved in a dispute may be more or less affected by its personal interests in the matter. However, this does not mean that such statements do not have any probative value at all.

As for the packaging materials and brochures bearing the mark, the EUIPO held there is no information provided about how those brochures were circulated, who they were offered to, and whether they have led to any potential or actual purchases. Further, no independent evidence was submitted that could show how many of the products for which the packaging was used (if that is the case) were actually offered for sale or sold.

With reference to the printouts of the proprietor’s web pages with images of the sandwiches but without the prices, it could not be concluded whether, or how, a purchase could be made or an order could be placed. Whilst the websites provided such an option, no information of a single order being placed was provided. Therefore, a connection between the trademark proprietor’s websites and the eventual number of items offered sold could not be established.

Taking into account the evidence as a whole, the EUIPO concluded that the documents submitted by McDonald’s lacked probative value in that there is no conclusive proof that the products bearing the trademark are actually offered for sale, as there is no confirmation of any commercial transactions, either online or via brick-and-mortar operations. It is up to the EUTM proprietor to show such use in a manner which allows a reasoned conclusion to be made that the use is not merely token.

Interestingly, the EUIPO commented that the finding of no genuine use of the trademark is not due to an “excessively” high standard of proof, but to the fact that the McDonald’s chose to restrict the evidence submitted. McDonald’s has filed an appeal to the decision.

The unpredictable decision has taken the confident McDonald’s by surprise not only because it has lost its bid to a small fast food chain but more so due to the undeniable notoriety of its trademark in the EU and elsewhere. It serves as a harsh lesson that non-use revocation/cancellation proceedings are not to be taken lightly and ownership of a registered mark is not to be taken for granted; trademark owners are expected to earn ownership of their trademarks.

What could have been a straightforward tackle by McDonald’s has now become its most embarrassing defeat. Whilst the decision only applies to the European Union jurisdiction, it is only a matter of time that national courts elsewhere adopt a similar stricter approach on trademark owners especially multinational companies to keep them in check in relation to the use of their trademarks; an approach that is most welcomed.

Myanmar

Myanmar is undergoing significant and fundamental changes to the framework of IP trademark law pursuant to the signing of Myanmar’s Trademark Bill by the Myanmar President on 30 January 2019.

Previously, Myanmar had no legislation overseeing trademarks. With the implementation of the new law, Myanmar will be replacing its First-to-Use system with the First-To-File system and as such trademark owners will be required to re-register all existing trademarks as there will be no automatic carry-over of registrations.

Further, Declarations of Ownership for existing registrations and any evidence of use can be submitted and will be considered during assessment of re-registration of applications. Further information will be provided nearing the enforcement of the legislation.

Brexit and the UK

The UK has accepted the EU’s offer of a Brexit extension until 31 October 2019 which amplifies a possibility that the UK will not be left with a no-deal exit from the EU.

In preparation for Brexit, the UK Government has set up statutory instruments to ensure rights accrued from all existing registered EU trademarks (“EUTMs”) and registered European Community designs (“RCDs”) will be enforceable in the UK on the day of exit, irrespective of a deal or no deal exit.

This is done by creating an automatic equivalent UK-registered trademark or registered design which will be enforced on the day of exit at no further cost to the IP owner.

For EUTM or RCD applications that are still pending on the date of exit, the applicant has nine months from the date of exit to instruct filing of a new UK trademark or design application equivalent to the parent EUTM or RCD application and will be entitled to claim the same filing date as that of the EUTM or RCD application. However, this will involve payment as set out by UK Registry.

For further information regarding intellectual property law matters, please contact our Intellectual Property Practice Group.

TAX AND REVENUE

Income tax

The Income Tax (Deduction for Employment of Senior Citizen, Ex-Convict, Parolee, Supervised Person and Ex-Drug Dependant) Rules 2019 have been gazetted on 11 June 2019 and have effect for the years of assessment 2019 and 2020.

The Inland Revenue Board of Malaysia (“IRB”) has recently issued the Guideline For Approval Of Director General Of Inland Revenue Under Subsection 44(6) Of The Income Tax Act 1967 to replace the Guidelines for Application of Approval under Subsection 44(6) of the Income Tax Act 1967 issued in January 2005.

Sales tax

A Specific Guide on Sales Tax Exemption under Item 33A, 33B, 55, 63, 64 & 65 Schedule A, Sales Tax (Persons Exempted from Payment of Tax) Order 2018 (as at 25 June 2019) has been published on the Royal Malaysian Customs Department’s MySST website.

Service tax

A revised version of the Industry Guide on Information Technology Services (as at 25 June 2019) has been published on the Royal Malaysian Customs Department’s MySST website.

For further information regarding tax and revenue law matters, please contact our Tax and Revenue Practice Group.

This Alert is issued for the information of the clients of the Firm and covers legal issues in a general way. The contents are not intended to constitute any advice on any specific matter and should not be relied upon as a substitute for detailed legal advice on specific matters or transactions.

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