1.

3rd party company – charge the land for the loan taken by the Zikay (Borrower)
Kembang Serantau (3rd party) – owner of the land
Zikay – took a loan from Affin Bank
S224 CA 2016 – Generally, a director is not allowed to take loans from a company with
few exceptions. A Company also shall not enter into any guarantee or provide any security
in connection with a loan made to such a director by any other person. It must be borne in
mind, the assets of the company and the assets of a director, even if the director runs the
company in its entirety, are separate and distinct in law. A director is merely entitled to
remuneration in performing his fiduciary duties to the company. This does not entitle the
director to the assets of the company.
This section shall not apply if:

 the company is an exempt private company

 the loan is a fund to meet the expenditure incurred or to be incurred by the director
for the purpose of the company
 the loan is provided to a full time director in purchasing or acquiring a home
 a passed resolution to approve a scheme for the making of loan to employees of the
company and the loan is in accordance with that scheme.

Harta Empat Sdn Bhd v Koperasi Rakyat Bhd [1997] 1 MLJ 381 COA
Respondent
 a private company limited by shares
 Business of housing development
 owns several pieces of land ('the subject property')
 wanted to develop the subject property into a housing estate
 in need of capital to fund the development
 wanted to raise monies against the security of the subject property
 However, the subject property was already charged to a finance company to which
the plaintiff owed almost RM2m.

Appellant
 a co-operative society
 business and affairs are regulated by its own by-laws and the provisions of the Co-
operative Societies Act 1948

June 1985
 respondent applied to the appellant for a loan of RM5m
 was not a member of the appellant
 S 30 of the Co-operative Societies Act authorizes loans only to members of a co-
operative society
 The respondent's application for a loan – not approved by the appellant
29 June 1985
 created a first legal charge over the subject property in the appellant's favour
 purpose – securing a loan of RM5m to one Lim Chin Hin ('Lim') – at all material times,
a director of the respondent.

19 August 1985
 Lim applied to become a member of the appellant – approved
 Lim then applied for and obtained a loan of RM5m from the appellant
 part of the loan amount – utilized to discharge the charge in favour of the finance
company and to redeem the issue documents of title to the subject property
 The respondent then executed a third party charge in the appellant's favour to
secure the loan

2 December 1991
 the respondent in reliance on s 133 of the Companies Act 1965 took out an
originating summons claiming a declaration that the charge in the appellant's favour
was void and unenforceable.

Issue
 Appellate Court held – a security, in the form of a charge, created pursuant to a loan
that was in contravention to S133 of the CA 1965, an equivalent to S224 of the Act,
was deemed invalid.

“From the judge's finding, it is clear that the charge in the instant case was intended to
provide the security in connection with a loan made to a director of the appellant company
so as to enable the borrowed funds to be used for the purposes of the appellant.

We do not think that the situation in the instant case, as found by the judge, absolves the
appellant company from the restriction against providing the security for the loan made to
its director by the respondent. We do not think that the appellant can be absolved by s
133(1)(a)
…
The upshot is this. Under the Code, the immovable property in the instant case could be
charged but the charge was subject to any prohibition imposed by written law. Section
133(1) of the Act forbade the appellant company from providing the security for the loan
made to its director by the respondent. The prohibition in s 133(1) had rendered the charge
unfit for registration under s 301(c) of the Code. The charge is therefore invalid.”

Decision
 It shows that when an agreement is entered into in contravention of S224, the courts
will render said agreement to be void for breaching a ‘prohibition imposed by
written law’.
Conclusion
Zikay, for all intents and purposes, is helping Kembang Serantau for the latter’s outstanding
overdraft. In return, Kembang Serantau would have to charge its own land as a security for
the loan.

S225 of CA 2016 prohibits the company from giving a loan or providing security for a loan
granted to a person connected with the director of its holding company. With the
exceptions to situations involving related corporations or in the ordinary course of business
of lending or full time employment.

Conclusion
 If the director of Zikay and Kembang Serantau are connected, S225 is applicable.
Therefore, Zikay is prohibited to give a loan to Kembang Serantau and the latter is
forbidden to give its land as a security for the loan. However, if both are related
corporations, S225 does not apply, hence, Zikay may give the loan to Kembang
Serantau while the latter may provide its land as a security for the loan.

2. 3rd party utilization for Bank Guarantee. Is it under S224 or S225?

It falls under S224. Zikay could not simply lend the loan and Kembang Serantau could not
provide security for the loan to them for whatever their purposes are. The loan is given only
to refinance Kembang Serantau’s overdraft, not to any of the following companies’ finances
incurred.