Financial Assistance Cases

- There is financial assistance if the company secures the loan by charging the
company’s assets or by being a guarantor for the debt.

Chung Khiaw Bank Ltd v Hotel Rasa Sayang Sdn Bhd & Anor [1990] 1 MLJ 356

Material Facts
The bank had agreed to grant to a company, Johore Tenggara Sdn Bhd a fixed loan of
RM1,250,000 to facilitate the purchase by the directors of the company of the shares of Hotel
Rasa Sayang Bhd. Hotel Rasa Sayang Sdn Bhd agreed to provide security by way of creating
a charge over its assets in favour of Chung Khiaw Bank, which intended to use the funds to
acquire shares in that Hotel.

Held
Since the provision of the security by the Hotel was for the purpose of or in connection with
the acquisition of the company’s shares, this was a financial assistance transaction and
contravenes with section 67(1) of the Companies Act 1965

KL Sdn Bhd v LGH [1990] 1 MSCLS 90 402

Material Facts
Shareholders in a company owing land transferred their shares to a developer. It was agreed
that the developer would build houses on the land and transfer some of the houses to the
shareholders in exchange of their shares. The developer financed the development by
charging the company’s land to a finance company.

Held
The Supreme Court held that the arrangement to fund the building and transfer of the shares
amounted to financial assistance within the meaning of section 67(1).

Other Transaction
- Where a company resolves to reduce liability or waive the debt owed by a shareholder
to the company, such decision to waive the debt is a financial assistance.

EH Dey Pty Ltd v Dey [1966] VR 464

Material Facts
The company had issued shares to Dey and the shares were partly paid for. Mr and Mrs Paul
wished to purchase the company’s shares from the shareholders, including Dey. They entered
into an agreement where the debt owed by Dey was deemed to have been repaid and that the
sale price was deemed to have been paid to the amount of the waived debt.

Held
The court held that there was financial assistance because the reduction of the amount owed
was in connection with the share transfer between Dey and Mr and Mrs Paul. The reduction
had influenced Mr and Mrs Paul to acquire the shares.

- A financial assistance may also occur when a subsidiary provides the financial
assistance to any person to subscribe to or purchase the shares of its holding company.

Armour Hicks Northern Ltd v Armour Trust Ltd [1980] 3 All ER 833

Material Facts
Armour Hicks Northern (AHN): Holding company
Armour Hicks Partners (AHP): Shareholder of AHN
Armour Hicks Trust (AHT): Subsidiary Company

AHN owed some debts to one of its shareholders, AHP. 2 directors of AHN were also
directors of its subsidiary company, AHT. These directors caused AHT to pay off the debts
that its holding company, AHN, owed to AHP. This resulted in AHP transferring the shares it
owned in AHN to the 2 directors.

Held
The decision of the subsidiary to pay off debts of its holding company to partners is a
financial assistance transaction. Without the directors arranging for the settlement of the debt
to AHP, AHP would not have transferred its AHN shares to the 2 directors. This was a
financial assistance by a subsidiary for the purpose of acquisition of shares in its holding
company.

- The transfer of assets to the company could still be a financial assistance transaction if
it was intended to put the purchaser of the company’s shares in funds to enable him to
acquire the company’s shares.
- It is very important to ascertain from the facts whether the acquisition of assets by the
company was genuinely for its own benefit.
- Even if the price was fair, if it was to enable the purchaser to have funds to acquire
the company’s shares = financial assistance

Belmont Finance v Williams Furniture Ltd (No 2) [1980] 1 All ER 393

Material Facts
Maximum Co. was owned and controlled by Mr Grosscurth. Mr Grosscurth wanted to
acquire shares in Belmont Finance. Mr Grosscurth sold to Belmont Finance all shares in
Maximum Co. Funds that he obtained from the selling of the shares was used to but shares in
Belmont Finance.

Held
There was financial assistance given to Mr Grosscurth in order to enable him to acquire
shares in Belmont Finance. The sale of Maximum to Belmont was not a bona fide
commercial transaction but a device to enable Mr Grosscurth to use Belmont Finance’s own
funds to acquire Belmont Finance’s shares.

- In determining whether the transaction occurred after the shares have been transferred
and paid for. If the alleged financial assistance transaction was given after the shares
have been paid for, there is less likelihood that it is in contravention with section
123(1).

Lori(M) Bhd v Arab-Malaysian Finance Bhd [1999] 3 MLJ 81

Material Facts
MARA was a holding company of Lori (M). Lori (M) was managed by Technivest. MARA
agreed to sell its shares in Lori (M) to Technivest. The purchased was to be paid by a loan
obtained from Arab-Malaysian Finance. To enable the loan to be given to Technivest, the
Bank agreed to accept several guarantees and a charge over the land belonging to Lori (M)
but the transaction did not proceed as there were elements of financial assistance.

Several months later, Technivest obtained loan from the Bank. The loan was to provide
Technivest working capital and security provided by Lori (M). At this point, Technivest
already acquired the shares in Lori (M) which were fully paid for.

Held
The Court of Appeal decided that this was a bona fide commercial transaction. The security
given by Lori (M) was given after the shares transaction had been completed and after the
shares had been transferred and fully paid up. There was no financial assistance.

Datuk Tan Leng Teck v Sarjana Sdn Bhd [1997] 4 MLJ 329

Material Facts
According to the agreement, Sarjana sold land to Pasti Hasil and RM1m of the purchase
consideration will be capitalized as paid-up capital for 1m shares in the first defendant. These
1m shares had been allotted to the second defendant pursuant to a resolution passed by the
first defendant at its extraordinary general meeting on 22 June 1992. The plaintiff who was
the majority shareholder of Sarjana Sdn Bhd commenced this action seeking declarations to
render the allotment of the shares to the second defendant void on the basis that this was a
financial assistance transaction.

Held
There was a financial assistance when the company transferred its asset to the purchaser of
the company’s shares. This was because although the assets were transferred at RM 1 million,
this sum was to be used to issue the shares of the company as fully paid up to the purchaser.
This means hat the purchaser has acquired the shares of the company at no cost.
 - A debt-equity swap does not amount to financial assistance as it is an ordinary
commercial transaction.

Intraco Ltd v Multi Pak Singapore Pte Ltd [1995] 1 SLR 313

Material Facts
Multi-Pak and City Carton were once related corporations, but City Carton ceased to be
related corporation to Multi-Pak. But these companies continued to have common
shareholders. City Carton and its subsidiary, Box-Pak faced some financial difficulties and a
restructuring scheme was proposed by the companies’ creditors. The creditors, which include
Multi-Pak planned to subscribe for the shares in City Carton and convert some of their debts
into equity. Subsequently, Multi-Pak agreed to take over the entire amount of debts owed by
City Carton and Box-Pak to Intraco and Intraco agreed to subscribe for the shares in Multi-
Pak. The cheques related to these transactions were issued and deposited at the same bank at
the same time and the total of the amount paid for the shares and the amount of loan equaled
the purchas price for the debts.

Held
This was not a financial assistance transaction. The debt-equity swap was not entered into
solely or mainly for the purpose of enabling Intraco to acquire the shares of Multi-Pak at no
cost to Intraco. The transaction was entered into because the directors were of the view at that
time that City Carton could be revived and that they intended to make City Carton a
subsidiary of the Multi-Pak,

Cheah Theam Swee [1989] 1 MLJ 426 at 440