Issue: Whether an Employer is allowed to provide loan to the Employees under Moneylenders Act 1951 and Companies Act

1965. AMONEYLENDERS ACT 1951 (ACT) 3 of the Act, to be a moneylender. The lender has to rebut the presumption imposed by law. Section 3 of the Act reads as follows:Save as excepted in section 2A(1) and (2), any person who lends a sum of money in consideration of a larger sum being repaid shall be presumed until the contrary be proved to be a moneylender.

1. When a borrower has to pay interests, the lender is presumed, by section

2. The word "Moneylender" is defined in section 2 of the Act:

means any person who lends a sum of money to a borrower in consideration of a larger sum being repaid to him

3. Person here includes a body of persons, corporate or unincorporated Interpretation Acts 1948 and 1967 (Act 388) s 3.

4. Section 2A(1) and (2) provides:

2A. Non-application of Act and exemption therefrom. (1) This Act shall not apply to(a)any authority or body established, appointed or constituted by any written law, including any local authority; (b) any co-operative society registered under the Co-operative Societies Act, 1948*; (c)any bank or merchant bank licensed under the Banking and Financial Institutions Act, 1989 or any bank licensed under the Islamic Banking Act, 1983; (d) any insurance company licensed under the Insurance Act, 1963; (e) any company licensed under the Takaful Act, 1984; (f) any pawnbroker licensed under the Pawnbrokers Act, 1972; (fa) a development financial institution prescribed under the Development Financial Institutions Act 2001 [Act 618]; (g) any licensed finance company as defined in section 2(1) of the Banking and Financial Institutions Act, 1989. or (2) The Minister may(a) in consideration of the special circumstances relating to the nature of the business of any company, or the objects of any society, and its financial standing; and (b) if he is satisfied that it would not be contrary to the public interest to do so, by notification in the Gazette exempt such company or society from all or any of the provisions of this Act, and such exemption shall be granted for such duration as may be specified in the notification, and may be made subject to such limitations, restrictions or conditions as the Minister may specify in the notification. (3) The Minister may at any time revoke any exemption granted by him under subsection (2) if he is satisfied, after giving the company or society

concerned an opportunity to be heard, that the company or the society, as the case may be, has failed to observe any limitation, restriction or condition subject to which the exemption was granted, or that it is otherwise no longer suitable to continue to be granted exemption.

5. A moneylender must have a licence. Section 5(1) of the Act provides:

No person shall conduct business as a moneylender unless he is licensed under this Act.

6. The moneylender is committing an offence if provide loan without licence

and shall be guilty under Section 5(2): Any person who carries on business as a moneylender without a valid licence, or who continues to carry on such business after his licence has expired or been suspended or revoked shall be guilty of an offence under this Act and shall be liable to a fine of not less than twenty thousand ringgit but not more than one hundred thousand ringgit or to imprisonment for a term not exceeding five years or to both, and in the case of a second or subsequent offence shall also be liable to whipping in addition to such punishment.

7. The interest for the loan given is explained under section 17A of the Act:
17A. Interest for secured and unsecured loans. (1) For the purposes of this Act, the interest for a secured loan shall not exceed twelve per centum per annum and the interest for an unsecured loan shall not exceed eighteen per centum per annum. (2) Notwithstanding subsection (1), interest shall not at any time be recoverable by a moneylender of an amount in excess of the sum then due as principal unless a Court, having regard to all the circumstances, otherwise decrees. (3) Where in a moneylending agreement the interest charged for a secured loan or an unsecured loan, as the case may be, is more than that specified in subsection (1), that agreement shall be void and have no effect and shall not be enforceable. (4) Any moneylender who contravenes this section shall be guilty of an offence under this Act and shall be liable to a fine not exceeding twenty thousand ringgit or to imprisonment for a term not exceeding eighteen months or to both.

8. The requirement of Moneylending Agreement is provided under section

10P: 10P. Moneylender and borrower must enter into a moneylending agreement.

(1) A moneylender who intends to lend money to a borrower shall enter into a moneylending agreement with the borrower, and that agreement shall be in the prescribed form. (2) Any moneylender who contravenes this section shall be guilty of an offence under this Act and shall be liable to a fine of not less than ten thousand ringgit but not more than fifty thousand ringgit or to imprisonment for a term not exceeding five years or to both, and in the case of a second or subsequent offence shall also be liable to whipping in addition to such punishment. (3) Any moneylending agreement which does not comply with the prescribed form shall be void and have no effect and shall not be enforceable.

9. The Courts will not help an unlicensed moneylender. The unlicensed

moneylender can sue but his claim will be thrown out. Section 15 of the Act reads: No contract for the repayment of money lent by an unlicensed moneylender shall be enforceable. Therefore, any Moneylending Agreement entered between the Employer (i.e. the unlicensed moneylender) with the Employee for the purpose of giving loan to the employee, such contract is unenforceable under this Act. BMONEY LENDERS ACT 1951 (EXEMPTION UNDER SUBSECTION 2A(2)) P.U. (B) 219. IN exercise of the powers conferred by subsection 2A(2) of the Moneylenders Act 1951 [Act 400], the Minister, in consideration of the special circumstances relating to the nature of the business and financial standing of the company described in paragraph 2 and being satisfied that it would not be contrary to the public interest to exempt such company, exempts such company from all of the provisions of the Act with effect from 1 November 2003. Exemption 2. (1) A company shall be exempted from all the provisions of this Act if (a) the company lends a sum of money (i) to its related corporation as defined under section 6 of the Companies Act 1965 [Act 125]; or (ii) to its director, officer or employee as a benefit accorded to such person under his terms of employment

1.

It is a common practice for companies to make advances or loans or make payments to and on behalf of their related companies and subsequently charge them interest. The amount of interest charged is normally lower than the cost of obtaining loans from external parties.

These arrangements helps in facilitating transactions and keeps the cost of doing business within the group low.1

2.

In some cases, revolving funds may be set up by a company and given out to assist its group of companies, where interests may be charged when capital sum is repaid.2 Certain companies provide loans to staff as a form of staff benefit. One of which is the financing facility for Employee Share Option Scheme (ESOS). Interest is normally charged at a rate lower than commercial banks. As this is a staff benefit, therefore such loans to staff is exempted. 3 COMPANIES ACT 1965 ( CA)

3.

C-

1. Section 133(1) of the CA prohibits loans to directors. This is to

prevent self-dealing by directors who may use the companys funds for their own personal needs.

2. A company (other than an exempt private company) shall not make a

loan to a director of the company or a related company.

3. The company shall not enter into any guarantee or provide any
security in connection with a loan made to such a director by any other person.

4. However, the section also provides several exceptions to the rule: i)

The company may provide the director with funds to meet expenditure incurred or to be incurred by him for the purpose of the company. The company may also provide a loan to enable the director to perform properly his duties as an officer of the company. The company may provide a director in full time employment with the company or its holding company with funds (loans) to enable him to acquire a home. The company may give loans to directors in full time employment with the company or holding company under a loan scheme for employees approved by the general meeting.

ii)

iii)

5. But, the company could only do so subject to section 133(2) of the

CA:

i)
1

with the prior approval of the company given at a general meeting in which the full details of the loan is disclosed; or

Moneylending Business: Issues & Implication on Implementing the Moneylenders (Amendment) Act 2003 by Lee Swee Seng 2 Ibid 3 Ibid

ii)

on condition, if the approval of the company is not given at or before the next following annual general meeting, the loan shall be repaid or the liability shall be discharged within 6 months from the conclusion of that meeting. under subsection (2) of the Act, it connected with directors if the loan director who is engaged in the fullits related corporation, as the case

6. Section 133A of the CA deals with the prohibition of loans to persons

connected with directors. However, allows the giving of loan to persons made to a person connected with a time employment of a company or may be i)

for the purpose of meeting expenditure incurred or to be incurred by him in purchasing or otherwise acquiring a home; or in accordance with a scheme for the making of loans to employees approved by the company in general meeting.

ii)

7. Section 67 of the CA deals with the prohibition of buy back shares. It

says that the company shall not whether directly or indirectly and whether by means of a loan, guarantee or the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company or, where the company is a subsidiary, in its holding company or in any way purchase, deal in or lend money on its own shares. However, subsection (2) of the same section provides the following exceptions:i) where the lending of money is part of the ordinary business of a company, the lending of money by the company in the ordinary course of its business; the provision by a company, in accordance with any scheme for the time being in force, of money for the purchase of or subscription for fully-paid shares in the company or its holding company, being a purchase or subscription by trustees of or for shares to be held by or for the benefit of employees of the company or a subsidiary of the company, including any director holding a salaried employment or office in the company or a subsidiary of the company; or the giving of financial assistance by a company to persons, other than directors, bona fide in the employment of the company or of a subsidiary of the company with a view to enabling those persons to purchase fully-paid shares in the company or its holding company to be held by themselves by way of beneficial ownership.

ii)

iii)