SECURITIES AS A COLLATERAL

Aminurasyed bin Mahpop Faculty of Law Universiti Kebangsaan Malaysia

CONTENTS

Lending Securities Type of Securities

INTRODUCTION
When credit is extended, risks are inevitably evolved. To minimize these risks, B require some form of security. Bankers, financiers,, creditors, lenders and customers should know the law on lending and securities To ensure Banks are protected To protect the rights of customers Documentation is very important

LENDING AND SECURITIES

Credit facilities Securities Letter of Offer Facilities Agreement Security Document Charge Assignment Guarantee Other kinds of securities

LETTER OF OFFER
Signing the LO is considered as legally binding contract. Lee Chong Lim v Standard Chartered Bank Malaysia Bhd (2004) 6 CLJ 447 The Pt was granted housing loan by the Dt via LO 27/06/01. The Pt accepted the offer and entered into FA and executed MOC. The Dt decided to withdraw the loan facility (false information). The Dt issued LOD and the Pt applied for SJ for SP. The Dt is duty bound to disburse the loan. The loan was not repayable on demand but repayable over 240 months.

WHAT IS SECURITY?
Taken before the loans and advances are given to the customer It can be regarded as insurance against defaults in payment of the loan. Possession of the holder of the security holds as against the grantor a right to resort to some property or some fund. If the debtor goes bankrupt, a secured creditor takes precedence over unsecured creditor in the distribution.

WHAT IS SECURITY?

Security implies something which the creditor could resort to in order to aid him in realizing or recovering the debt, in case the debtor failed to pay. Lien Chung Credit & Leasing Sdn Bhd v Chang Chin Choi [1994] 3 MLJ 488 The R gave a postdated cheque for RM35K as security for RM35K loan. The said cheque was not mentioned in the memorandum. The appellant claimed for repayment. Mohd Ghazali JC:
The word security has several meanings, sometimes means the property- land is mortgaged the land. Postdated cheque cannot be termed as security.

PERSONS FROM WHOM SECURITIES ARE TAKEN

Individual- Above 18 years Companies Partnerships

Sole proprietorships

COMPANY
Separate legal entity. Can sue and be sued. S67 of the CA 1965- Cannot deal in its own shares S 133- cannot provide any loan or security in connection with its directors or to persons connected with its directors. Penalty RM10K. Notwithstanding a breach off s 67 and 133, the company's liability on the loan and security are unaffected by such breach.

Lori M Bhd v Arab Malaysia Finance Bhd [1993] 3 MJ81

PERSONS CONNECTED WITH ITS DIRECTORS S122A

(a) a member of that director's family; or (b) a body corporate which is associated with that director; (c) a trustee of a trust under which that director or a member of his family is a beneficiary; or (d) a partner of that director or a partner of a person connected with that director. (2) a member of that director's family shall include his spouse, parent, child (including adopted child and stepchild), brother, sister and the spouse of his child, brother or sister. (3) a body corporate is associated with a director if (a) the body corporate is accustomed or is under an obligation, to act in accordance with the directions, instructions or wishes of that director; (b) that director has a controlling interest in the body corporate; or (c) that director or persons connected with him, or that director and persons connected with him, are entitled to exercise, or control the exercise of, not less than fifteen per centum of the votes attached to voting shares in the body corporate.
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PARTNERSHIP

A maximum off 20 members.

Banks to keep the Partnership agreement. Register with the ROB, CCM. To ensure the authority of a partner to borrow.

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SOLE PROPRIETOR

Sole proprietor company

To produce a copy off the Certificate of registration issued by the CCM.

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TYPES OF SECURITIES
1.

2.
3. 4. 5. 6. 7. 8. 9.

Land Debentures Contract moneys and book debts Life policies Stocks and Shares Cash Goods Ships Guarantees
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ASPECTS FOR CONSIDERATION

1. 2. 3.

The value of the security Realisability Validity of tittle

4.
5.

Indefeasibility of the security

Cost of stamping

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METHODS OF TAKING THE SECURITY

Many forms. Charge, pledge, lien, legal assignment, set off. Assignment is an absolute one not purporting to be way off charge only? BBMB v Syarikat Kejuruteraan Hong Huat Sdn Bhd & Ors [1988] 3 MLJ 328

Whether or not an assignment is an absolute one nor purporting to be by way of charge only is to be gathered only from the four corners of the instrument itself.

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LAND

Charge and Lien NLC 1965 Effect of registration-s340- Indefeasibility of title Freehold land: in perpetuity Leasehold title: for a term of years. S76- cannot exceed 99 years. Tenancies: cannot exceed 3 years unless renewed. Not acceptable as security. Forms of title: 1. Final Title: Registry title (grant) and Land Office Title (Mukim Grants). 2. Qualified title: Hak Milik Sementara RDT: Original copy of the grant (Land Office) IDT: Duplicate copy of the original grant (Owner)

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RESTRICTIONS

Restriction in interest
1.
2. 3. 4.

For policy reason Malay reservation land Customary land Native Land

Any instrument of dealing registered in contravention off a ROI would be a void instrument. Conditions of land use:

1. 2. 3.

Agriculture Residential Commercial

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CHARGE
On land or assets Land: Statutory creation. NLC 1965 Confers a right on the secured party to look to a particular asset in the event of the debtor's default, which is enforceable by either power of sale or appointment of a receiver Land with the IDT-Memorandum of charge Land without the IDT- Deed if Assignment.

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CHARGE

First party charge: Both the borrower and the chargor are the same. Third party charge: Where the chargor and the borrower are different. First legal charge and second legal charge: S 241 NLC- It is permissible to create more than one charge on the same property. The rights of the subsequent chargee shall rank after the first chargee.

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LAND SEARCH

To ascertain the ownership of the land, the existence of any encumbrances, any ROI and etc.
Land searches- land office. The land office will issue certificate of search.

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DOCUMENTATION OF A CHARGE

The MOC- Form 16A

Execution: If company, common seal and in the presence of directors or company secretary. It depends on the board resolution Attestation- attestation by magistrate, AA, notary public, land administrator
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STAMPING
A charge is an instruments that attracts ad volerum stamp duty Stamp Act 1949- RM5 for every RM5000 Must be paid within 30 days from the date of execution of the charge. If not, the charge is impounded. The charge will be inadmissible in evidence in a court unless the penalty is paid. RM25 or 4x the amount of the deficient duty. Eg. RM1M RM5K. If impounded: RM20000+RM5K.

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DOCUMENTATION OF AN ASSIGNMENT
Land without tittle.
A loan agreement cum assignment: both the purchaser and borrower are the same. A loan agreement and a deed of assignment: the purchaser and the borrower are different. Power of attorney.
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LIEN-HOLDERS CAVEAT

Right to hold the property of another as security for the performance of an obligation.
Banker's lien is the banker's right to enforce his claim upon the land until the debt is repaid. Lienholders caveat: The B can enter LC which is a notice to third parties that the land is encumbered by that lien.
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LIEN ON FIXED DEPOSIT

Monies kept under a fixed deposit account can be a pledged as security for the repayment of a loan.
Documentation: The Memorandum of Deposit- Ad valorem or Letter of Set-Off-nominal

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ASSIGNMENT OF CONTRACT PROCEEDS

Transfer to an assignee of the right to receive a benefit from a debtor. Assignment of contract rights BBMB V Syarikat Kejuruteraan Hong Huat Sdn Bhd & Ors (1988) 3 MLJ 328

OD facility RM2.8m- loan agreement. Security-Charge under the NLC and guarantee + deed of assignment of all the proceeds under the project undertaken known as Malacca Seafront Reclamation. Upon default, the Pt claimed the loan sum. The pt has right to take legal action against assignor for the loan recovery even without having to enforce the securities.

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DEBENTURES

An instrument evidencing a debt by a company.

As a security for credit facilities granted to companies. Debentures are secured by a fixed and a floating charge over the assets of the company. Document: Debenture agreement
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GUARANTEES
Guarantor to guarantee the repayment. Additional personal obligations on the part of the principal debtor. Joint and several guarantee: the B has the luxury of either suing all of them jointly or choosing from any of the guarantors. Eg directors. Documentation: Guarantees and Indemnities Stamp duty: RM10

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LIFE ASSURANCE POLICY

By way of an assignment of the policy.

The proceeds under the policy will be paid directly to the B by the insurer upon the death of the assured provided the death occurred during the tenure of the loan.

Documentation: An endorsement on the policy and deed of assignment.

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PLEDGE

Transfer of possession of a chattel eg stocks and shares.

A form of possessor security. Power of sale in the event of a default on the secured obligations.

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GOODS

Goods can be a security for loan and credit facilities. A security over goods by way off a pledge. A pledge requires delivery of possession of the goods to the bank.

A security over goods by way of the Bill of Sale Ordinance 1950-possession of the goods remains with the borrower.

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THE END

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SECURITY
Lien Chung Credit & Leasing Sdn Bhd v Chang Chin Choi [1994] 3 MLJ 488, High Court Tan Wee Han & Anor v Meyappa Chettiar [1951] MLJ 227 Halsburys Laws of England (Vol 32, 4th Edn)

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TYPES OF SECURITIES
Land Debentures Contract moneys and book debts Life policies Stocks and shares Cash Goods and produce Ships Guarantee

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METHODS OF TAKING SECURITY

Hong Leong Finance Bhd v Staghorn Sdn Bhd & Other Appeals [2005] 2 CLJ 1 Bank Bumiputra Malaysia Bhd v Syarikat Kejuruteraan Hong Huat Sdn Bhd & Ors [1988] 3 MLJ 328, High Court

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PERSONS FROM WHOM SECURITIES ARE TAKEN

Companies Nature and Types of Companies Section 14(1), 15(1) of the Companies Act 1965
a)

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PERSONS FROM WHOM SECURITIES ARE TAKEN

Companies Operation of Companies Section 4 of the Companies Act 1965 Panorama Development (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711
a)

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PERSONS FROM WHOM SECURITIES ARE TAKEN

Companies Bank Lending and the Doctrine of Ultra Vires Section 19, 20, 30(2) Third Schedule of the Companies Act 1965 Royal British Bank v Turquand (1856) 6 E & B 327
a)

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PERSONS FROM WHOM SECURITIES ARE TAKEN

Companies Prohibition Against Company Dealing in its Own Shares and Loans to Directors or Persons Connected with Directors Section 67, 133, 133A of the Companies Act 1965 Utama Wardley Bhd & Anor v Lenggang Laut Development Sdn Bhd & Ors [1991] 3 MLJ 490 Chung Khiaw Bank Ltd v Hotel Rasa Sayang Sdn Bhd & Anor [1990] 1 MLJ 356 Yap Sing Hock Holding Bhd & Ors v Chuah Teong Hooi & Ors [1990] 3 MLJ 97 Kidurong Land Sdn Bhd & Anor v Lim Gaik Hua & Ors [1990] 1 MLJ 485 Lori (M) Bhd (Interim Receiver) v Arab-Malaysian Finance Berhad [1999] 3 MLJ 81 Che Wan Development Sdn. Bhd v Co-operative Central Bank Bhd [1990] 2 MLJ 365 Co-operative Central Bank Ltd (in receivership) v Feyen Development Sdn Bhd [1997] 3 CLJ 365 Aluminium Company of Malaysia v Ng than Chai & Ors [1994] 3 MLJ 544
a)

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PERSONS FROM WHOM SECURITIES ARE TAKEN

b)

Partnerships

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PERSONS FROM WHOM SECURITIES ARE TAKEN

c)

Sole Proprietorships

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LAND AS SECURITY
Land Law as General Section 206 or the National Land Code 1965
a)

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LAND AS SECURITY
Effects of Registration Section 340(2) of the National Land Code
b)

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LAND AS SECURITY
c)

Indefeasibility of Title
Section 340(1), 340(2), 340(3) of the National Land Code Public Finance Bhd v Narayanasamy [1971] 2 MLJ 32 Tai Lee Finance Co Sdn Bhd v Official Assignee & Ors [1983] 1 MLJ 81 Owe Then Kooi v Au Thiam Seng & Anor, Development & Commercial Bank Bhd v Au Thin Chai & Ors (Owe Then Kooi, Intervener) [1990] 1 MLJ 234, MT [1991] 2 MLJ ii OCBC Bank (Malaysia) Bhd v Pendaftar Hakmilik Negeri Johor [1999] 2 CLJ 949 OCBC Bank (Malaysia) Bhd & Ors v Lee Lee Fah & Ors & Another Appeal [2000] 1 CLJ 71 Adorna Properties Sdn Bhd v Boonsom Boonyanit @ Sun Yok Eng [2001] 1 MLJ 241 EON Bank Bhd v Hotel Flamingo Sdn Bhd [2005] 5 CLJ 253 Yong Tim v Hoo Kok Chong & Anor [2005] 3 CLJ 229 Tan Ying Hong v Tan Sian San & Ors [2010] 2 MLJ 1

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LAND AS SECURITY
Alienation of Land Section 5, 40 of the National Land Code
d)

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LAND AS SECURITY
Freehold Land Section 76 of the National Land Code
e)

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LAND AS SECURITY
f)

Rent

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LAND AS SECURITY
Other Aspects on Title and Registration Nik Haji Mahmud bin Daud v Bank Islam Malaysia Berhad [1998] 3 MLJ 393 MBF Finance Bhd v Teguh Consolidated Sdn Bhd [2004] 3 CLJ 809
g)

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LAND AS SECURITY
Form of Title Final title Qualified title
h)

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LAND AS SECURITY
i)

Register Document of Title and Issue Document of Title

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LAND AS SECURITY
Conditions and Restriction on Titles Restriction on interest Condition of land use
j)

Collector of Land Revenue, Johor Bahru v South Malaysia Industries Bhd [1978] 1 MLJ 130 Land Executive Committee of Federal Territory v Harper Glifillan Bhd [1981] 1 MLJ 234 United Malayan Banking Corporation Bhd & Anor v Pemungut Hasil Tanah, Kota Tinggi [1984] 2 MLJ 87

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LAND AS SECURITY
k)

Charges
Section 5, 243 of the National Land Code
Wiggins Teape (M) Sdn Bhd v Bahagia Trading Sdn Bhd, The East Asiatic Co Ltd & Ors as Objectors [1980] 2 MLJ 45 Co-operative Central Bank Ltd v Y & W Development Sdn Bhd [1997] 3 MLJ 373 Eng Ah Mooi & Ors v Overseas Chinese Baning Corporation Ltd [1983] 1 MLJ 209 Syarikat Kewangan Melayu Raya v Malayan Banking Bhd [1986] 2 MLJ 253

Hong Kong and Shanghai Banking Corporation Ltd v Wan Mohd Bin Wan Ngah [1991] 3 MLJ 119
Bank Bumiputra Malaysia Bhd v Esah Abdul Ghani [1986] 1 MLJ 16 Gondola Motor Credit Sdn. Bhd v Almurisi Holdings Sdn. Bhd [1990] 3 MLJ 180
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LAND AS SECURITY
l)

Lien
Section 281(1) of the National Land Code Hong Leong Finance Bhd v Staghorn Sdn Bhd & Other Appeals [2005] 2 CLJ 1 Paramoo v Zeno Ltd [1968] MLJ 230

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LAND AS SECURITY
l)

Caveats
Section 323 of the National Land Code Malayan United Finance Bhd v Tay Lay Soon [1991] 1 MLJ 504 Chor Phaik Har v Farlin Properties Sdn Bhd [1994] 3 MLJ 345 Pendaftar Hakmilik Negeri Kedah v Oversea-Chinese Banking Corp Ltd [1991] 2 MLJ 177 MBf Finance Berhad v Pendaftar Hakmilik Negeri Perak & Anor [1990] 3 MLJ 437 Development & Commercial Bank Bhd v Land Administrator, Wilayah Persekutuan & Anor [1991] 2 MLJ 180

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