MALAYSIA Law and Practice Contributed by: Shelina Razaly Wahi and Vincent Chan Siew Onn, Abdullah Chan & Co
3.1.7 Intercreditor Arrangements There is no material restriction or requirement imposed on intercreditor arrangements, and an intercreditor agreement would be enforceable subject to the pay - ment of the applicable stamp duty on the transaction documents. 3.1.8 Syndicated Loans The concept of agency and the role of an agent such as the facility agent and security agent to secure a syndicated loan is recognised. 3.1.9 Debt Subordination A debt subordination is permissible and is recognised. It is legally valid under Malaysian contract law and is typically accomplished through an intercreditor or subordination agreement between the various classes of creditors and the debtor. 3.1.10 Transfer/Assignment of Debts Under Foreign Laws The transfer or assignment of all or part of an out - standing debt under an English or New York law-gov - erned loan is permissible and recognised. 3.1.11 Usury/Interest Limitation Laws An interest payment obligation is common in conven - tional financing arrangements. In Sharia-compliant financing, the imposition of Riba (usury) is prohibited. Instead, alternative structures used are those such as fee-based, profit-based, or sale-based arrangements. There is otherwise no law limiting usury or interest. 3.2 Security 3.2.1 Typical Forms of Security and Recourse The typical forms of security and recourse granted in a domestic aviation finance transaction would include: • assignment of insurances; • assignment of reinsurances; • IDERA; • deregistration power of attorney; • guarantees (by a parent company or by sharehold - ers); • sublease assignment (if there are multiple layers in the lease structure); • mortgage over the aircraft; and, sometimes,
sia), as long as the repatriation is in foreign currency and the conversion from ringgit is done in accordance with the BNM notices. 3.1.3 Granting of Security to Foreign Lenders The BNM regulates the provision of financial guaran - tees to foreign lenders. Non-bank residents may pro - vide financial guarantees, to secure a non-resident’s borrowing, with exceptions for special purpose vehi - cles or if the resident arranges to repay the borrowing in foreign currency other than through a call upon a financial guarantee due to default. The BNM’s prior approval is required for borrowing beyond these limits or in the specified exceptions. Other than financial guarantees, borrowers may pro - vide security to foreign lenders. 3.1.4 Downstream, Upstream and Cross-Stream Guarantees Subject to the conditions in 3.1.1 Restrictions on Lending and Borrowing , downstream, upstream and/ or cross-stream guarantees in favour of lenders are permitted. Corporate benefit may be more easily demonstrated in downstream guarantees. However, it is more chal - lenging to establish corporate benefit in upstream guarantees and cross-stream guarantees. If no cor - porate benefit can be shown, a liquidator may chal - lenge the guarantee. 3.1.5 Lenders’ Share in Security Over Domestic SPVs It is advisable for a lender to take share security over a domestic special purpose vehicle (SPV) if the domes - tic SPV only owns aircraft financed by a particular lender. It is possible to create a share charge which is regis - trable against the shareholder, to the extent the share - holder is a corporate entity. A pledge of shares is less common in Malaysia. 3.1.6 Negative Pledges A negative pledge is recognised as a pledge to abstain from creating any form of charge, encumbrance or security.
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