Financial Assistance by Malaysian Companies: A Gordian Knot

Publication Type

Journal Article

Publication Date

2004

Abstract

As a corporate governance measure, the law should closely monitor a company's ability to give financial assistance to those who control it or to those who seek to acquire it. In general, such financial assistance is prohibited. Yet, because the aim of such restraint is to protect corporate assets, the usual consequence of illegality - the invalidity of the transaction and the refusal of the courts to aid enforcement or recovery - is not appropriate. For this reason, the statutory prohibition is accompanied by a saving provision allowing a company to recover payments and assets. As far as Malaysian law is concerned, a series of recent decisions by the Federal Court - Co-operative Central Bank (in receivership) v Feyen Development [1995] 3 MLJ 313, Lori (M) (interim receiver) v Arab-Malaysian Finance [1999] 3 MLJ 81, and Koperasi Rakyat v Harta Empat [2000] 3 MLJ 81 - has thrown the law into disarray. This article critically examines these cases and the approach of the court in the light of amendments to the Companies Act 1965. It concludes that legislative intervention is necessary to force a return to the pre-Feyen position.

Discipline

Business Organizations Law

Publication

The Australian Journal of Asian Law

Volume

6

Issue

1

First Page

63-87

ISSN

1443-0738

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