MALAYSIA Law and Practice Contributed by: Samantha Chiang Xin Li, Yee Yik Shien and Tay Zi Li, Zi Li & Partners
• Where a power of attorney is granted under a security document, the security document must be authenticated in accordance with the procedure as prescribed under the Power of Attorney Act 1949, and stamped and registered with the High Court of Malaya for a nominal fee in order for the power of attorney to be valid. • For a land charge, the charge must be registered with the relevant land office or registry within three months from the date of the charge, using the prescribed statutory form under the National Land Code (Revised 2020) (NLC); failing which, a finan- cial penalty will be imposed. The registration fee and penalty differ depending on the state where the real property is located. • For a legal assignment to be effective, it must be in writing, absolute and not appear to be by way of charge only, and it must be expressly notified in writing to the debtor of the receivables. Legal assignments grant the assignee the legal right to the debt and the ability to sue the debtor directly without involving the assignor. 5.2 Floating Charges and/or Similar Security Interests A company may grant security over all its present and future assets by creating a floating charge, typically by way of a debenture. The debenture generally provides that the floating charge may be converted, or “crystal- lised”, into a fixed charge upon the occurrence, or in anticipation of the occurrence, of any event of default, after which the company will not be able to deal with such assets. 5.3 Downstream, Upstream and Cross- Stream Guarantees Generally, there are no restrictions on Malaysian entities giving downstream, upstream and/or cross- stream guarantees, subject to certain considerations, including the following: • the constitution of the guarantor authorises the provision of such guarantee (in the absence of a constitution, the Companies Act provides that a company has full capacity to carry on or undertake any business or activity, which includes the ability to provide a guarantee);
• the directors of the guarantor must be satisfied that the guarantee is in the commercial interests of the guarantor; • the guarantee does not constitute financial assis- tance under the Companies Act, or is regularised through the whitewash procedure available under the Companies Act – see 5.4 Restrictions on the Target ; • the guarantee is not given in connection with a loan made to a director of the guarantor, unless such guarantee falls within the exceptions prescribed under Section 224 of the Companies Act; and • the guarantee is not given in connection with a loan made to a person connected with a director of the guarantor or of its holding company, unless such guarantee falls within the exceptions prescribed under Section 225 of the Companies Act. See 3.3 Restrictions and Controls on Foreign Cur- rency Exchange for certain restrictions on the ability of a resident entity to give a financial guarantee. 5.4 Restrictions on the Target Section 123 (1) of the Companies Act provides, among other things, that a company will not give any financial assistance, whether directly or indirectly and wheth- er by means of a loan, guarantee or the provision of security or otherwise, for the purpose of a purchase or subscription made by any person for any shares in the company or any shares of its holding company. The Companies Act provides for certain exceptions to the general prohibition, and allows financial assis- tance to be given if the company complies with the statutory whitewash procedure, which requires the following to be satisfied: • a special resolution must be passed by the share- holders to approve the financial assistance; • before the financial assistance is given, the direc- tors must resolve that the company is permitted to give the financial assistance, that doing so is in the company’s best interests, and that the terms of the financial assistance are fair and reasonable to the company; • each director who voted in favour of the financial assistance must make a solvency statement that complies with the provisions of the Companies Act;
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