MALAYSIA Law and Practice Contributed by: Dilys Tan, Adnan Sundra & Low
By way of assignment (equitable or legal) A legal assignment is preferable compared to an equitable assignment, as under Malaysian law the holder of the legal assignment would have priority above the holder of an equitable assignment over the same asset. However, the perfection of legal assignments in a securitisa - tion transaction may be difficult if there is a large pool of assets. This is because in order to create a legal assignment in Malaysia a written notice of assignment must be served to the obligors/ debtors to the asset, which proves to be a prob - lem when there are a lot of obligors/debtors to such asset. As such, in Malaysia another way of perform - ing transfer of assets from the originator to the SPE is by way of an equitable assignment. While there is a risk that the originator may transfer the asset to a third party and register such trans - fer or serve a notice of assignment (whereby a legal assignment is deemed to have been cre - ated), such risk can be mitigated by imposing restrictive covenants on the originator in the sale agreement, such as: • a restriction on creating security interests over the asset; and • a restriction from disposing, transferring or selling the asset to a third party. By way of novation This is the cleanest way to transfer, as both the originator and its counterparty/obligor/debtor acknowledge (and the SPE agrees) that all the rights, title, interests and obligations of the origi - nator are novated to the SPE, and that the SPE shall be the “replacement” for the originator. However, this method may be time-consuming and difficult to complete if there are a large num - ber of counterparties/obligors/debtors involved,
as their signatures and agreement to the nova - tion are required. 6.4 Construction of Bankruptcy-Remote Transactions There are no means of constructing a bankrupt - cy-remote transaction in Malaysia other than by the requirements set out in paragraph 2.17 of Part 4 of the LOLA Guidelines. In order to deter - mine whether an SPE is sufficiently “bankrupt - cy-remote”, the following must be taken into account: • the SPE cannot include in its objectives the power to enter into any other activities that are not incidental to its function as an SPV in relation to the securitisation transaction; • the SPE must subcontract to third parties all services that may be required by it to main - tain the SPE and its assets; • the SPE is not permitted to have employ - ees or incur fiduciary responsibilities to third parties other than to parties involved in the securitisation transaction; and • all present and future liabilities of the SPE (including tax) must be quantifiable and capa - ble of being met out of resources available to it. Additionally, an SPE will be considered “bank - ruptcy-remote” if the chances of proceed - ings being brought against it for liquidation are remote. This would be fulfilled if the SPE com - plies with the covenants set out in the trust deed for the ABS, which would (among others) restrict the SPE from incurring any further liabilities. Additionally, the transaction documents for the securitisation transaction may also provide for the service providers’ agreement with the SPE that their claims be limited to the assets of the SPE, and that they will not be in a position to file any winding-up proceedings against the SPE.
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