Business Law Assignment: Loan Agreements, Charges, and Company Assets

This business law assignment addresses the legal aspects of loan agreements and company charges for Yaya Bhd. The analysis covers stamp duty and legal fees associated with loan agreements, referencing the Stamp Act 1949 and guidelines from the Malaysian Inland Revenue Board. It delves into the concept of charges, differentiating between fixed and floating charges, and their implications on various company assets, including land, printing machines, printed papers, and computers. The assignment references relevant sections of the Companies Act 2016 and the National Land Code 1965, along with case laws such as Siebe Gorman Company Limited v Barclays Bank Limited and Malaysian International Merchant Bankers Bhd v Highland Chocolate Confectionery Sdn Bhd. It explores the registration requirements for both fixed and floating charges and the circumstances under which a floating charge crystallizes into a fixed charge. The document provides a comprehensive overview of the legal considerations for securing loans using different types of company assets.

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Business Law

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Question 2
a) Yaya Bhd is in need of capital. The directors have approached various banks
that are willing to give long term loans to the company. The loans will be repaid
within 15 years. The company had the following assets:
An agreement is to be made between Yaya Bhd and the bank which would be granting the
loan to the directors. The charges would be applicable in the form of stamp duty and legal
fees taking into consideration the amount which is to be granted by the bank as loan. If the
loan amount is 500,000 RM, then the stamp duty for the loan agreement would be 2500 RM.
The key thing with regard to the imposition of the stamp duty is the compliance with the
Stamp Act of 1949. The guidelines with regard to the relief concerning stamp duty in
compliance with Section 15 and Section 15 A of the Stamp Act of 1949 have been released
off late by the Malaysian Inland Revenue Board. In addition to the stamp duty, the legal fees
are also charged on the basis of the amount of loan as far as the drafting and execution of the
loan agreement is concerned. If the loan amount is 500,000 RM, then the legal fees for the
loan agreement would be 5000 RM (Khalid, Iqbal & Associates, 2019).According to Sub-
section 16 of Section 2 of the Companies Act of 2016, charge implies a mortgage and an
agreement for execution of charge or mortgage as per the situation in question. The main
objective of a charge is to imply security over property with reference to loan accordingly.
Two types of charges can be imposed over properties. Such charges include fixed charges
and floating charges depending upon the nature of the property which can be immovable or
movable respectively. A charge can also imply the repayment of debt accordingly as per the
demands of the creditor or the charge as far as mortgage is concerned. With regard to loan, a
charge is necessarily to be imposed on the property which is the asset of the company
concerned as it would help in the creation of a security in the desired manner. The charges
imposed over property are to be registered as per the National Law Code of 1965 as far as its
aspect of legality is concerned. It is imperative form Section 353 of the Companies Act of
2016 that both floating and fixed charges are to be registered.
I) A pieces of land in Jalan Kampar worth RM1.5 million.
As far as the aspect of security over the land of Yaya Bhd amounting to RM 1.5 million is
concerned, it would include charges along with the statutory liens and assignments. Since the

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amount of RM 1.5 million is huge, charges would be taken into consideration with regard to
security in terms of money borrowed by the bank. It further implies that the bank granting
loan would acquire an interest in the land legally but the ownership of the land would be
retained by Yaya Bhd. The debentures in the form of fixed charges are imposed for movable
property (Ramesh, 2016). In the case ofTan Aik Tech v Tang Soon Chye[2007] 5 CLJ 441,it
was held by the Court of Appeal of Malaysia that interests cannot be charged if the loan is
granted by the drafting and execution of a Friendly Loan Agreement (Lim, 2019).In
Lekchumanan’s case[2016] MLJU 1316, it was held by the Court of Appeal of Malaysia that
the land transfer to respondent was in contravention of the National Land Code of 1965.A
fixed charge is imposed over immovable property such as land and building. Such kinds of
charges are registered in accordance with Section 353 of the Companies Act of 2016 as far as
the procedure for such registration under Section 352 is concerned. In the case of Siebe
Gorman Company Limited v Barclays Bank Limited(2 Lloyd’s Rep 142), it was held by the
High Court of England and Wales that a property on which charge is imposed cannot be
disposed of by the company unless the consent is granted by the creditor. As a result, the
demarcation between fixed and floating charges was taken into consideration as far as their
definitions are concerned. In Affin Bank Bhd v. Malayan Banking Bhd [2009] 3 CLJ 320, it
was held by the Singapore High Court that a charge over any shares owned or acquired by the
borrower is a fixed charge. It is imperative that a fixed charge is imposed over a property
which is in an ascertained form which can include a piece of land. As a result, the piece of
land which is RM 1.5 million would be under the ambit of fixed charge with reference to
mortgage as a result of loan as far as the concept of specified property is concerned.
II) A printing machine, which is used for the company’s printing business. The
machine is on lease from Bobo Finance Bhd.
The printing machine would be under the ambit of floating charge. The term of lease
agreement is to be taken into consideration. In this case, Bobo Bhd provides a printing
machine for Yaya Bhd on an lease agreement. In other words, the printing machine was
rented out by Bobo Bhd to Yaya Bhd for an amount agreed by both parties. The printer is on
and therefore, floating charges would be imposed. It is observed that a floating charge is
imposed over a property which is variable in nature as far as security with reference to the
repayment of loan is concerned. Any creation of a floating charge is to be registered under

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Section 353 of the Companies Act of 2016. In other words, to register a floating charge, we
must refer to Section 352 of the Companies Act 2016. In conclusion, by referring to the
decided cases, the printing machine shall be registered as a floating charge under Section 352
of the Companies Act 2016. The crystallization into fixed charge will occur once the aspect
of lease is settled. In the case of In re Panama, New Zealand and Australian Royal Mail
Company (1870) 5 Ch App 318, the validation of floating charge was taken into
consideration by the Court of Appeal of England and Wales. In the case of National
Westminster Bank plc v Spectrum Plus Limited, a property on which a floating charge is
imposed cannot be treated as security in terms of loan until some event occurs in the future. It
implies that security cannot be ascertained on the printing machine as it is on lease. Since a
floating charge is a variable in nature, it cannot be charged on a definite basis. The main
reason being that it would change if the form of the property changes as per the requirements
of the business.
III) Several tons of printed papers, ‘computer prints and newsprints’.
Debentures on printing papers are converted into floating charges as implied by the case of
Malaysian International Merchant Bankers Bhd v Highland Chocolate Confectionery
SdnBhd(1998) MLJU 477 with regard to the creation of charge over a particular piece of
property provided that the property is to be owned by the company(Ibrahim et al., 2019). A
floating charge is created over a movable property unlike fixed charge which is created over
an immovable property. A floating charge needs to be registered as per Section 353 (g) of the
Companies act of 2016 as per the procedure under Section 352 of the Companies act of 2016.
In Barker v Eynon[1974] 1 WLR 462, it was held that a floating charge is imposed over a
property which is shifting in nature which is converted into fixed charge after an event with
regard to the settlement accordingly. The ambulatory aspect of floating charge was
emphasised for the first time by Lord McNaughton in the case of Illingworth v Houldsworth
[1904] AC 355. Movable property such as raw materials in the form of various kinds of
papers are under the ambit of floating charges since they change their form on a constant
basis as far as their utilities in different aspects are concerned depending upon their nature.
The property on which a floating charge is imposed upon can be disposed of by the company
only after it is crystallized as far as its conversion into fixed charge is concerned. As a result,
the concept of floating charge is justified. Since computer prints and newsprints can change

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their form as per the business requirements of Yaya Bhd, a floating charge is to be imposed
on such assets.
IV) Several computers and fax machines which were bought on credit from Kong
EngSdn. Bhd.
Debentures for assents like computers and fax machines are converted into floating charges
as observed by the judgement in the aforesaid case ofMalaysian International Merchant
Bankers Bhd v Highland Chocolate Confectionery Sdn(1998) MLJU 477. A floating charge is
indefinite in nature which is converted into a fixed charge once the property acquires a
definite form accordingly. In Re Yorkshire Woolcombers Association case [1903] 2 Ch 284, it
was held that a floating charge is imposed over a certain set of assets which are changing in
nature. Section 353 (g) of the Companies act of 2016 implies mandatory registration of a
floating charge. As a result, it is imperative that the crystallization into fixed charge would be
executed once the debt is paid off to Kong EngSdn. Bhd. The key thing in terms of a floating
charge implies the change of the nature of the asset or the property as a result of the
requirements of the business activities of the company in terms of the scenario concerned.
Such a change of nature of the asset of the company is to occur on a regular basis. The assets
under the ambit of floating charge are to be utilized by the company not only on the current
basis but are also to be considered for usage in the future. The concept “bought on credit”
implies that an item is purchased with a promise that the payment would be made in the
future. As a result, it is imperative that the floating charge would crystallize into fixed charge
once the payment for the computers and fax machines are made.

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Reference List
Ibrahim, M.H., Salim, K., Abojeib, M. and Yeap, L.W., 2019. Structural changes,
competition and bank stability in Malaysia’s dual banking system. Economic Systems, 43(1),
pp.111-129.
[Accessed on July 13, 2019]
Khalid, Iqbal & Associates, 2019. Calculators. Info Centre. [online] Khalid, Iqbal &
Associates. Available at:
<http://www.khalidiqbal.com.my/info-center/calculators/legalfee.html>
[Accessed on July 15, 2019]
Lim, J.S., 2019. Are you allowed to charge interest for loans to friends and family in
Malaysia? [online] Ask Legal. Available at:
<https://asklegal.my/p/friendly-loans-friends-and-family-charge-interest-malaysia>
[Accessed on July 15, 2019]
Ramesh, M., 2016. Funds in Malaysia and Singapore. Transforming the Developmental
Welfare State in East Asia, p.191.
[Accessed on July 11, 2019]
Ramlan, H. and Adnan, M.S., 2016. The profitability of Islamic and conventional bank: Case
study in Malaysia. Procedia Economics and Finance, 35, pp.359-367.
[Accessed on July 11, 2019]

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