SH 5053 Webinar 4

COMMERCIAL LAW
AND
LEGAL DOCUMENTATION
FOR
ISLAMIC FINANCIAL
SERVICES
1. LEGAL DOCUMENTATION
2. TYPES OF SECURITY
3. REQUIREMENTS OF LEGAL DOCUMENTATION
4. THE QUR’AN ON DOCUMENTATION
5. PARTS OF AN AGREEMENT
1. LEGAL DOCUMENTATION
LEGAL DOCUMENTATION
• The terms and conditions of the granting of any financing

facility by the bank to the customer are formally written
down in legal documents and signed by both parties.
[These documents are called the ‘facility documents’].
• Securities taken for the payment of the amounts due to
the bank are documented in the form of legal documents
and signed by both parties and, where necessary,
registered (e.g. at the land office, the Companies
Commission). [These documents are called ‘security
documents’].
4
LEGAL DOCUMENTATION
• Facility Agreement/Master Facility Agreement
• Security Documents
5
LEGAL DOCUMENTATION
FACILITY AGREEMENT
• Defines the method of financing.
• Incorporates all terms and conditions for the
facility as stated in the Letter of Offer.
• Templates of aqad transactions according to
the Shariah principles will be attached in the
Attachment parts.
6
LEGAL DOCUMENTATION
MASTER FACILITY AGREEMENT

• Defines the method of financing.
• Incorporates all terms and conditions for each
facility (if it involves several types of facilities with
different types of Shariah principles) as stated in the
Letter of Offer.
• All templates of aqad transactions according to the
respective Shariah principles will be attached in the
Attachment parts. 7
LEGAL DOCUMENTATION
SECURITY DOCUMENTS
• Securities will be provided based on the
nature of the project/contract financed by the
bank.
• Sometimes, it requires involvement of third
parties under the project/contract.
8
LEGAL DOCUMENTATION
Example:
ISTISNA’ FACILITY
• Financing Documents:-
1. Istisna’ Agreement
2. Settlement Undertaking
9
LEGAL DOCUMENTATION
Example:
IJARAH FACILITY
i. Purchase Agreement
ii. Ijarah Agreement – Main and to be stamped ad valorem
iii. Service Agency Agreement
iv. Purchase Undertaking
v. Sale Undertaking
vi. Security Documents 10
LEGAL DOCUMENTATION
Example:
IJARAH MUNTAHIAH BITAMLEEK/IJARAH

THUMMA AL-BAI’ FACILITY
i. Purchase Agreement
ii. Ijarah Agreement – Main and to be stamped ad valorem
iii. Sale Agreement
iv. Security Documents 11
LEGAL DOCUMENTATION
Example:
TAWARRUQ FACILITY
i. Facility Agreement - Main and to be stamped ad valorem
ii. Requisition Form
iii. Murabahah Sale Agreement
iv. Agency Agreement
v. Security Documents 12
LEGAL DOCUMENTATION
Example:
MURABAHAH FACILITY
i. Facility Agreement - Main and to be stamped
ad valorem
ii. Requisition Form
iii. Security Documents 13
LEGAL DOCUMENTATION
Example:
MUSYARAKAH MUTANAQISAH FACILITY

i. Facility Agreement - Main and to be stamped
ad valorem
ii. Ijarah Agreement
iii. Security Documents 14
LEGAL DOCUMENTATION
• Take for example a murabahah facility. The bank has sold

an item to the customer at a price (the sale price) which
comprises the bank’s purchase price of the item and its
profit. The customer will agree in the murabahah
agreement that it will pay the sale price in one lump sum
payment at a certain date or over a period of time in
instalments. This is the primary obligation of the
customer. The murabahah agreement will be the facility
agreement. From a contractual point of view, that
agreement is sufficient to record the liability of the
customer to pay. 15
LEGAL DOCUMENTATION
It is prudent banking practice to require a

customer to furnish security for his financing.
This is necessary even though the customer’s
current financial position may appear to be
sound for there is no certainty that his position
will not change. The fact is, a customer’s
position can change. Security, hence, constitutes
a very important part in a bank’s deliberation of
a customer’s request for a financing facility.
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LEGAL DOCUMENTATION
• Osborn’s Concise Law Dictionary (7 th Edition) defines ‘security’ as:
‘a possession such that the grantee or holder of the security holds

as against the grantor a right to resort to some property or some
fund for the satisfaction of some demand, after whose satisfaction
the balance of the property or fund belongs to the grantor.’
• In Lien Chung Credit & Leasing Sdn Bhd v. Chang Chin Choi
(1994), High Court, it was held that the word ‘security’ would
seem to imply something which the creditor could resort to in
order to aid him in realising or recovering the debt, in case the
debtor failed to pay.
17
LEGAL DOCUMENTATION
• In the earlier example for a murabahah facility,

the bank will require the customer to provide
some security for the payment of the sale
price of the murabahah facility. The security
provided will ensure the bank will be able to
obtain the payment by the realisation of the
security in the event the customer is unable to
pay the sale price at the due date or dates.
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2. TYPES OF SECURITY
TYPES OF SECURITY
The following are the types of security normally taken by banks to secure a financing facility:
a. Money (Memorandum of Deposit/Set-off/Lien)

b. Land (Charge/Assignment/Lien)
c. Stocks, Bond and Shares (Assignment/Lien)
d. Assets of Company (Debenture/Specific Debenture)
e. Charges of Ships and Aircraft (Charge/Lien)
f. Goods, Book Debts, Accounts and Contracts (Assignment)
g. Guarantee (Individual/Corporate/Bank Guarantee)
h. Indemnities
i. Performance Bonds (Guarantee)
j. Takaful/Insurance Policies (Assignment)
k. Life Insurance Policies (Assignment)
l. Intellectual Property (Assignment)
m. Letters of Credit (Guarantee)
n. Pledge
o. Hypothecation
p. Power of Attorney
q. Letter of Subordination
r. Letter of Undertaking
s. Contract Proceeds (Assignment)
t. Sale Proceeds (Assignment)
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u. Rental Proceeds (Assignment)
TYPES OF SECURITY
• There are different types of security that may

be taken by the bank for facilities granted by
it.
• The purpose in taking the securities is to
ensure that the bank will receive the amount
due to the bank when it is payable either
from the customer or by enforcing the
securities. 21
LAND
TYPES OF SECURITY
Land - Governing law
The laws governing land in Malaysia are:

• National Land Code 1965, which covers
Peninsular Malaysia
• Sarawak Land Code in the State of Sarawak
• Sabah Land Ordinance in the State of Sabah
23
TYPES OF SECURITY
- Types of Land
THE TYPES OF LAND IN MALAYSIA ARE:
• Freehold, which means the land is granted by the state authority in

perpetuity.
• Leasehold, which means the land is granted by the state authority for a
term of years (not exceeding 99 years) and when that period expires the
state authority can take back the land, or grant a renewal of lease.
• Malay reserved land and customary land, which are reserved only for the
Malay race and can be transacted only between members of the Malay race.
• Native land, which applies to land in Sabah and Sarawak and can only be
transacted between natives.
24
TYPES OF SECURITY
- Types of titles
There are two types of land titles: final title and qualified title.
Both titles can be registered at the Land Registry of the State
(Registry) or the Land Office. A Registry title is evidenced by a
grant or state lease, or by any document of title registered in a
Registry. A Land Office title is evidenced by a "mukim" grant or
"mukim" lease, or by any document of title registered in a Land
Office.
A transfer of land must be registered at the Land Office or the

Registry of the State in order to confer indefeasible title to the
new proprietor.
25
TYPES OF SECURITY
- Definition of “Land”
Section 5 of the National Land Code, 1965 provides that ‘land’

includes:
a. that surface of the earth and all substances forming that
surface;
b. the earth below and all substances forming the surface;
c. all vegetation and other natural products, whether or not
requiring the periodical application of labour to their
production, and whether on or below the surface;
d. all things attached to the earth, whether on or below the
surface; and
e. land recovered by water.
The use of the word ‘includes’ in the definition seems to suggest
that the list given above is not exhaustive (it may include others). 26
TYPES OF SECURITY
- Charge
Land may be secured by 3 ways:
1. CHARGE
• In a case whereby the separate document of title to the land in question has been issued, the
customer will create charge over the land belonging either to the customer or to a third party in
favour of the bank.
• The charge is a formal document taken under the National Land Code 1965 and registered at
the appropriate land office. If there is default in the payment of the amount due at the due
date, the land will be sold by a process of public auction under a court order and the amount
realised on the sale will be used to pay the bank (chargee); any surplus amount will be paid to
the customer (chargor). (See generally Sections 241 to 269 of the National Land Code 1965.)
• Additionally, the charge must be lodged with the Companies Commission for registration within
30 days after the creation of the charge. If this is not done the charge will be void against the
liquidator and any creditor of the company.
• In countries with different land law system, security over land is taken by a mortgage.
• If there is default, there will be foreclosure of the right of redemption of the mortgaged land
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and the land will be sold.
TYPES OF SECURITY
- Assignment
2. ASSIGNMENT
• In a case whereby the separate document of title to the
land in question has yet to be issued, the customer will
create an assignment over the land belonging either to the
customer or to a third party in favour of the bank.
• It is an assignment of the right, title and interest in land of
the assignor to an assignee (e.g. bank) as security for a
facility granted by the bank to the assignor.
• The assignment contract does not require registration at
the Land Office.
28
TYPES OF SECURITY
- Assignment
When outstanding sums are settled in full, the

assignee usually executes a deed of receipt and
re-assignment in favour of the assignor whereby
the property in question is reassigned to the
assignor. The assignee also revokes the power of
attorney registered at the High Court.
29
TYPES OF SECURITY
- Lienholder caveat
3. LIEN
The term ‘lien’ signifies a right to hold the property of another as
security for the performance of an obligation. The word ‘lien’ can be
understood to be the right of a bailee to retain the possession of a
chattel entrusted to him until his claim upon it is satisfied. A bank
may create a lienholder caveat as security to its advances to enforce
its claim upon the land until the debt is repaid. This is recognised in
the National Land Code. A lienholder’s caveat is a notice to third
parties that the land is encumbered by that lien. A lien is a form of
security. Its effect is to prohibit further dealings on that land. A
common law lien lasts only so long as possession is retained, but
while it lasts it can be asserted against the whole world.
30
TYPES OF SECURITY
- Lienholder caveat
The bank can release a lien over real estate by

giving a notice in writing to the Land Office or
the Registry of the State to withdraw the
lienholder's caveat on the real estate.
31
TYPES OF SECURITY
- Why Land?
• Land offers the best form of security for a financing. It is the

most sought after security by a bank. Be they banks, finance
companies or chettiars, land is, no doubt, their first choice of
security to secure the financing.
• Land is the most tangible form of security. Its value can be
easily calculated so that an acceptable level of margin can be
computed which will form the basis of the financing. If a
forced sale becomes necessary, it can be sold quite readily
and the proceeds of sale be utilised to satisfy the outstanding
amount.
32
TYPES OF SECURITY
- How to enforce?
• A security over land can be enforced by obtaining

an order of sale either from the High Court (if it is
a Registry title) or the Land Administrator (if it is
a Land Office title). Where there is a shortfall in
the realisation on sale of the real estate, the bank
can sue the borrower under a personal covenant
in the charge annexure for any difference
between the debt owing and the amount
recovered from the sale of the real estate.
33
TYPES OF SECURITY
- Discharge of Charge
• To release a charge registered over land, the

bank must execute a discharge of charge form
prescribed by the National Land Code 1965
and file the form (Form 16N) at the relevant
Registry or Land Office. Notification must also
be lodged with the Companies Commission for
the release of the charge through the filing of
forms as prescribed by the Companies Act
1965.
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TANGIBLE MOVABLE
PROPERTY
TYPES OF SECURITY
-Tangible movable property
Tangible movable property include:
• Aircraft and ships
• Motor vehicles
• Plant and machinery
• Stock-in-trade
• Equipment
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TYPES OF SECURITY
The most common forms of security over tangible movable property are:
• Mortgages. Security is created over aircraft and ships by a statutory

mortgage in accordance with the Civil Aviation Regulations 1996 and the
Merchant Shipping Ordinance 1952.
• Debentures. A debenture is a security document that is usually entered

into when creating a fixed and floating charge over the assets and
undertaking of a borrower. It is common for tangible movable property
such as plant and machinery, motor vehicles (which are not the subject of
a hire-purchase agreement) and equipment to be charged by way of a
fixed charge in a debenture. However, stock-in-trade is charged by way of
a floating charge to enable the borrower to continue to deal with it.
Where specific property is the subject of a charge, it is common for a list
containing details of such property to be attached to the debenture.
37
TYPES OF SECURITY
Mortgages:
• An application to enter an aircraft mortgage in the Aircraft
Register must be made in the prescribed form and accompanied
by a certified true copy of the mortgage. A security interest in
an aircraft and aircraft engine falling within the scope of the
Convention on International Interests in Mobile Equipment and
the Protocol to the Convention on International Interests in
Mobile Equipment on Matters Specific to Aircraft Equipment,
may be registered in the International Registry.
• A ship mortgage must be made in the prescribed form and
presented for registration at the ship's port of registry whereby
the mortgage is recorded in the register book.
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TYPES OF SECURITY
• A mortgage over an aircraft can be enforced

through a sale under the provisions of the Civil
Aviation Regulations 1996.
• Enforcement proceedings for ship mortgages

are commenced as an admiralty action in the
High Court.
39
DEBENTURE
TYPES OF SECURITY
Debenture - Definition
As defined under Section 4(1) of the Companies

Act 1965, the word ‘debenture’ includes:
‘debenture stock, bonds, notes and any other

securities of a corporation whether constituting
a charge on the assets of the corporation or not’.
41
TYPES OF SECURITY
Debenture - Definition
A debenture of a company is a legal

document acknowledging the
indebtedness of the company to the
debenture holder invariably
creating a charge on the assets of
the company to secure the
indebtedness. 42
TYPES OF SECURITY
- Charge of fixed and floating assets
Debenture, normally is a charge of the

fixed and floating assets of the company.
It will state the payment schedule for the
payment of a financing at a given profit
margin. It is a financing agreement
between the customer and the bank
which creates contractual rights.
43
TYPES OF SECURITY
- Types of charges – Fixed charge
The following types of charges can apply:
• Fixed charges. The creation of a fixed charge

has the immediate effect of appropriating a
specific asset to the satisfaction of a debt in
the event of a default by the
borrower/chargor. It deprives the chargor of
the right to deal with the appropriated asset
without the consent of the chargee.
44
TYPES OF SECURITY
-Types of charges – Floating charge
• Floating charges. A floating charge is a charge on
the assets that allows the assets to be dealt with
in the ordinary course of business until some
event occurs that causes the floating charge to
crystalise into a fixed charge. When a floating
charge crystalises into a fixed charge, the chargor
then can no longer deal with those assets. A
crystallised floating charge fastens on all assets
presently owned as well as all future assets from
the moment the company acquires an interest in
the assets.
45
TYPES OF SECURITY
- Crystallisation of floating charge
A floating charge crystallises:-
• When a company is wound up
• When a company ceases its business
• When there is a default in paying interest or principal sum
• When there is a breach of the charge instrument
• When the company has allowed the value of the assets which
are subject to the charge to decline below a certain minimum
amount as provided in the charge instrument
• When the company does not deal with the assets in its
ordinary course of business or
• When a liquidator or receiver is appointed – UMBC Bhd v
Official Receiver of Soon Hup Seng (1986).
46
TYPES OF SECURITY
- Characteristics of floating charge
• Floating charges:
In Re Yorkshire Woolcombers’ Association (1903), it was stated that a
charge will be a floating charge if it has the three characteristics
mentioned below:
(i) It is a charge on a class of assets present and future.
(ii) The class of assets fluctuates in the ordinary course of business.
(iii) Until such time that the lender takes steps to enforce his security, the
company is free to deal with the assets in the ordinary course of business.
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FORM 34
TYPES OF SECURITY
- Requirement for registration
Under Section 108 of the Companies Act 1965, any

creation of charge by a company must be registered as a
security with the Registrar of Companies (Companies
Commission). This is done by filing Form 34 at the
Registrar of Companies and accordingly, the Registrar of
Companies (Companies Commission) will send Form 40
which confirms the registration of the charge.
Where registration of a security is required under the
law, registration of the security documents with the
appropriate authority is essential to ensure priority and
status of the bank as a secured creditor. 49
TYPES OF SECURITY
- Requirement for registration
• Section 108(1) of the Companies Act (CA) 1965 deals

with the registration of charges. Under the section,
where a registrable charge is created by a company,
there shall, within 30 days of the creation of the
charge, be lodged for registration with the Registrar
of Companies a statement of the prescribed
particulars in the prescribed form.
• In the event the charge is not registered, the

company may apply to the court for late registration
subject to the court’s approval (s. 114, CA 1965).
50
TYPES OF SECURITY
- Effect of non-registration (including criminal offence)
If the charge has not been registered within 30 days:-

i. The charge shall be void against the liquidator and
any creditor of the company.
ii. Where a charge becomes void under s.108 (1), the
money secured thereby becomes immediately
repayable (s.108 (2)).
iii. The creditor will rank only as an unsecured creditor.
iv. Under s.109 (1), if default is made in registering the
particulars, the company and any officer of the
company who is in default shall be guilty of an
offence under the Companies Act 1965. Section 109
provides a default penalty of RM1,000. 51
TYPES OF SECURITY
- Priority of Charges
• The fixed charge given to a Bank is void for want of registration and
need not be considered for the purpose of priority of charges.
• The contest for priority is between the floating charge given to Bank B
and the fixed charge given to Bank A. The general rule is that as
between a floating charge and a fixed charge, the fixed charge has
priority even if the fixed charge was created subsequent to the floating
charge.
• This arises from the fact that a holder of a floating charge impliedly
permits the company to deal with the assets charged. The fact that the
fixed chargee knew of the existence of the earlier floating charge is
immaterial (see United Malayan Banking Corporation v Aluminex (M)
Sdn Bhd (1993)). This is one of the disadvantages of the floating charge
as a form of security. 52
TYPES OF SECURITY
- Priority of Charges
• If 2 fixed charges are created on the same property and both charges have
been registered, the fixed charge which is created earlier is in priority to the
fixed charge which is created later.
• If 2 floating charges are created on the same property and both charges
have been registered, the floating charge which is created earlier is in
priority to the floating charge which is created later.
• If 2 charges are created on the same property and both charges have not
been registered, then the charge which is created first is in priority.
• If there is a fixed charge and a floating charge on the same property, the
fixed charge is in priority.
• If the floating charge is supported by a negative pledge clause and it is
registered, then the floating charge is in priority to the fixed charge
provided the holder of the fixed charge had notice of the negative pledge.
53
TYPES OF SECURITY
- Negative Pledge
• A floating charge may contain a ‘negative pledge’. A negative pledge is a

stipulation inserted into a charge that the chargor shall not create another
charge ranking in priority to or in pari passu with it.
• A negative pledge in a floating charge will not affect the priority of a

subsequent fixed charge unless the holder of the fixed charge took the fixed
charge after he had notice of the negative pledge (see Re Valletort Sanitary
Steam Laundry (1903) and Wilson v Kelland (1910)).
• Thus, as a general rule, the fixed charge given to Bank A will have priority
over the floating charge given to Bank B unless Bank A had notice of the
negative pledge which was inserted into Bank B’s floating charge.
54
TYPES OF SECURITY
- Disadvantages of floating charge
• Floating charges:
The disadvantages of floating charges as a form of security are
summarised below:
(i) The value of the security will be uncertain as the company is free
to deal with the assets in the ordinary course of business.
(ii) The floating charge ranks lower in priority in comparison with a
fixed charge over the same assets, even if the floating charge was
created before the fixed charge, unless the floating charge restricts
the creation of subsequent charges ranking in priority to the
floating charge and the subsequent fixed chargee has notice of it.
(iii) Assets subject to a floating charge may themselves be subject to a
retention of title clause in favour of a seller of goods. In such a
case, if the chargor had not paid for the goods, the seller of the
goods may be entitled to those goods and the floating chargee
would have no claim to them.
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TYPES OF SECURITY
- Disadvantages of floating charge
(iv) The assets subject to a floating charge may be lost to judgement

creditors, who have levied and completed execution on the goods
charged. Prior to crystallisation, the floating chargee cannot prevent
judgement creditors from levying execution.
(v) Prior to crystallisation, the assets may be seized and sold by a
landlord who has taken distress proceedings for overdue rent.
(vi) The assets subject to a floating charge may be utilised to pay off
certain preferential creditors, if the company does not have sufficient
funds to pay them. See: ss.191 and 292(4) Companies Act 1965.
(vii) Floating charges created within six months of the commencement
of a winding up will be invalid except to the amount of cash paid to the
company at the time of, or subsequent to, the creation of the charge,
unless the company was solvent immediately after the creation of the
charge. See: s.294 Companies Act 1965.
56
TYPES OF SECURITY
- Security against assets yet to be owned
• Security can be granted over future tangible assets

that are not yet owned. This is done by creating a
charge attaching to the future assets as they come
into the security provider's ownership. These
charges are normally created by a debenture.
However, future assets (for example, rights to
rental proceeds) cannot be assigned unless a
tenancy or contract is entered into. As a result,
security cannot be created until the assets come
into existence.
57
TYPES OF SECURITY
- Subsequent fixed charge
A company can create a subsequent

fixed charge over the assets under a
floating charge even if the chargee has
notice of the prior floating charge. This
is because a fixed charge takes priority
over a floating charge.
58
TYPES OF SECURITY
- Prohibition on subsequent charges
The debenture holder may prevent the

company from creating a fixed charge
by including a provision in the
debenture prohibiting the company
from creating subsequent charges on
the assets which is subject to a floating
charge.
59
TYPES OF SECURITY
- Bona fide chargee?
A bona fide chargee for value will take priority to
the floating charge so long as he does not have
actual notice of the restriction in the debenture.
Thus, the chargee must actually see a copy of the
debenture if he is to be affected by the restriction
contained therein. Thus, it is important for the Form
34 which is required to be filed at the Companies
Commission to explicitly spelt out the restriction
clause as per the debenture. This will give the actual
notice of the restriction in the debenture to the
60
TYPES OF SECURITY
- Receiver and Manager
• Security created under a debenture (for assets other than land)

can usually be enforced by the appointment of a receiver and
manager. The receiver and manager, in the enforcement of the
security is liable for debts incurred by him in the course of the
receivership.
• The function of a receiver and manager is to realize the assets
which are subject to the charge for the benefit of the
debenture holders.
• The function of a receiver and manager is to preserve and
realize the assets which are subject to the charge for the
benefit of the debenture holders.
• Prior to carrying out its functions, the receiver and manager
must have the power to enter and take possession of the
property which is subject to the charge. 61
TYPES OF SECURITY
- Power of a Receiver and Manager
• Prior to carrying out its functions, the receiver and

manager must have the power towards the property
which is subject to the charge.
• Power of a Receiver and Manager:-
i. To enter and take possession of property
ii. To lease, let, hire or dispose of the property
iii. Borrow money on the security of the property
iv. Convert the property into money
v. Carry on the business’s if it is necessary to do so
vi. Execute documents
vii. Bring or defend any proceedings in or on behalf of the
company’s name. 62
CLAIMS AND RECEIVABLES
TYPES OF SECURITY
- Claims and Receivables
COMMON TYPES OF CLAIMS AND RECEIVABLES INCLUDE:
• Debts and other rights to the payment of money.
• Rights to require (in project financing, for example)

performance of a non-financial obligation.
• Rights to claim under insurances.
• Cash deposited with banks.

64
TYPES OF SECURITY
• Thus, security is created over claims and receivables by an

assignment by way of security.
• Assignments of rights and benefits in and to claims and
receivables are effected in writing and created when the
security provider enters into the assignment.
• The assignment must be stamped.
• A power of attorney in favour of the security holder is
usually included in the security document.
• The power must also be stamped and particulars of the
security must be registered with the Companies
Commission.
65
TYPES OF SECURITY
THE FOLLOWING CONDITIONS MUST BE FULFILLED FOR THE PERFECTION OF A

LEGAL ASSIGNMENT:
• The assignment must be for a debt or other legal chose in action.
• The assignment must be in writing and signed/executed by the security provider.
• Express notice in writing of the assignment must be given to the debtor, trustee
or other person from whom the security provider would have been entitled to
claim the debt or chose in action.
• The assignment must be absolute and not purporting to be by way of charge only.
• By law, a legal assignment by way of security must be perfected by the security

provider serving a notice of assignment on the debtor, trustee or other relevant
counterparty. 66
LIFE INSURANCE POLICIES
TYPES OF SECURITY
- Life Insurance Policies
•Normally, the life insurance policies will be

assigned to the bank as a security for a facility.
•It is the surrender value of the policy that is
valuable under this type of assignment.
•Subject to regular payment of the premium by
the customer, the surrender value of the
insurance policy will increase the longer it is
held. 68
TYPES OF SECURITY
- Life Insurance Policies
WHAT NEED TO BE EXAMINED BY THE BANK BEFORE TAKING THE SECURITY

OF A LIFE POLICY:
a. Examine the policy closely, which includes taking note of the name of the
insurance company.
b. Consider whether the bank is satisfied with the financial strength of the
insurance company.
c. Take note on the special conditions attaching to the policy such as suicide
clause, a clause limiting the amount recoverable in the event of death.
d. Check whether the insurance policy is still in full force and effect.
e. Check whether the last premium has been paid.
f. Check whether the bank has ever received any other notice of assignment. 69
CASH DEPOSITS
TYPES OF SECURITY
- Cash Deposits
• It is common to grant security over cash deposits by

charging and assigning the bank accounts that contain the
deposit in favour of the bank/security holder. Where the
bank is the account bank, it is common to reinforce that
charge by granting set-off rights to the bank with respect
to the deposit.
• In order to perfect the security created over the cash

deposits and bank account, the account bank must be
notified of the assignment and charge over the bank
account. Additionally, the charge cum assignment must be
stamped and particulars of the security lodged for
registration with the Companies Commission. 71
TYPES OF SECURITY
- Cash Deposits
• The security is created by the security

provider executing a charge and
assignment in favour of the bank.
• Where the deposit is in the form of a

fixed deposit, the security holder usually
takes possession of the fixed deposit
certificate.
72
SET-OFF
TYPES OF SECURITY
- Set-Off
A set-off is a form of security. The

customer will deposit some money
with the bank. The bank will have the
right on the monies deposited with the
bank against the customer in the event
of default by the customer to pay up
his debts. 74
ASSIGNMENT OF
PROCEEDS
TYPES OF SECURITY
- Assignment of Proceeds
Assignment of proceeds (monies) as a security

for a facility from a bank is common in project
financing. It involves assignment of proceeds
(monies) due to the assignor from a third party
(e.g. the employer under a construction contract
between the employer and the assignor) to the
bank as security for a facility granted by the
bank to the assignor.
76
TYPES OF SECURITY
- Assignment of Proceeds
EXAMPLES OF ASSIGNMENT OF PROCEEDS:

1. Assignment of Contract and Contract
Proceeds
2. Assignment of Sale Proceeds
3. Assignment of Rental Proceeds
4. Assignment of Takaful/Insurance Policies
5. Assignment of Life Insurance Policies 77
SHARES AND DEBT
SECURITIES
TYPES OF SECURITY
- Shares and Debt Securities
• The financial instruments over which security is

most commonly granted are shares and debt
securities (for example, bonds).
• Security can be granted over the security
provider's rights in shares, both certificated (for
example, unlisted shares in private companies)
and non-certificated (for example, shares in listed
companies), owned by the security provider, and
bonds and other tradable/untradeable debt
securities.
79
TYPES OF SECURITY
• A fixed charge cum assignment is the most

common form of security created over
certificated and non-certificated (listed) shares
and debt securities.
80
TYPES OF SECURITY
- Pledge of Shares
A pledge of shares is created by an

instrument under which the pledgor deposits
certain shares with the pledgee as security
for the payment of the indebtedness. If the
indebtedness is not paid by the principal
debtor, the pledged shares will be sold and
the amount realised paid towards settlement
of the whole or a part of the indebtedness.
81
TYPES OF SECURITY
- Pledge of Shares
• It is important to be reminded that the

volatility of the stock exchange may have a
devastating effect to the value of the
securities held.
• It is prudent for a bank to request for a board

resolution authorising the transfer of the
shares to the bank. 82
TYPES OF SECURITY
The formalities for creating security over financial instruments are as follows:
Certificated and non-certificated shares, and debt securities. A fixed charge over the shares or debt securities
and assignment of the rights and interests in and to such shares and debt securities (for example, dividends,
interest or coupon) is the most common way of creating security. It is in writing and created by both security
provider and security holder entering into a document evidencing the charge cum assignment.
• Certificated shares. The security holder usually requires custody of the original share certificates and an
executed but undated share transfer form (in prescribed form) from the security provider with the
transferee details left blank. When the security is enforced, the security holder can transfer the title of
the shares to itself or a nominee by exercising powers of attorney granted by virtue of the charge
instrument.
• Non-certificated (listed) shares. The shares are transferred from the securities account of the security
provider to the securities account of the security holder. This account is established to receive the
charged shares and is designated a ‘pledged securities account’ in accordance with the Securities Industry
(Central Depositories) Act 1991.
• Debt securities. For non-certificated debt (listed) securities, security is created in the same way as non-
certificated (listed) shares.
83
TYPES OF SECURITY
Private debt securities (PDSs) and Malaysian Government Securities (MGSs) are
recorded and maintained with the Malaysian Electronic Clearing Corporation Sdn Bhd
(MyClear). MyClear is a subsidiary of the central bank (Bank Negara Malaysia), which
provides among others securities depository services for PDSs and MGSs. The security
over PDSs or MGSs is usually created via a charge cum assignment. Only certain users,
such as issuers of PDSs or the facility agent for an issue or Scripless Securities
Depository System (SSDS) Participants (entities, usually financial institutions, which are
permitted to hold PDS and MGS for their own account and on behalf of their
customers) can use the MyClear systems (for example, Real-time Electronic Transfer of
Funds and Securities [RENTAS] and Fully Automated System for Issuing/Tendering
[FAST]). Therefore, the security holder should be an SSDS Participant in order to hold
the security. If it is not, then an SSDS Participant must be appointed as security agent.
However, as PDS and MGS are usually subscribed by financial institutions, it is not
common for security to be created over these debt securities. Where the debt
securities are listed, security may be created by the holder in the same way as for non-
certificated (listed) shares.
84
GUARANTEE
TYPES OF SECURITY
- Guarantee
It is a form of contract by which a person agrees to be liable to the

creditors in the event of default by another person.
Section 79 of the Contracts Act 1950 reads:
‘Contract of guarantee’, ‘surety’, ‘principal debtor’ and ‘creditor’
A ‘contract of guarantee’ is a contract to perform the promise, or

discharge the liability, of a third person in case of his default. The
person who gives the guarantee is called the ‘surety’; the person in
respect of which default the guarantee is given is called the
‘principal debtor’, and the person to whom the guarantee is given is
called the ‘creditor’. A guarantee may be either oral or written.
86
TYPES OF SECURITY
- Guarantee
• A guarantor will be liable to the bank upon default

committed by the principal debtor. If the contract entered
by the principal debtor becomes void or invalid, the
liability of a guarantor will also lapsed (see Leong Weng
Choon v Consolidated Leasing (M) Sdn Bhd [1998]).
• Liability as guarantor is similar to a principal debtor.
• In every contract of guarantee, there will be an implied
promise by the principal debtor to indemnify the
guarantor. Thus, the guarantor is entitled to recover from
the principal debtor any monies paid under the guarantee.
87
TYPES OF SECURITY
- Guarantee
A bank may loose rights towards a guarantee under the following circumstances:
a. Variance in terms of contract
The bank must obtain the guarantor’s consent for any changes or variation made to the
terms of the contract. If not, the guarantor will be discharged from any liability towards the
bank.
b. Release or discharge of principal debtor
If the principal debtor is discharged or released from any liability, the guarantor will also
not be liable for the liability.
c. When the creditor compounds with, gives time to, or agrees not to sue the principal
debtor
Unless the guarantor agrees to such contract, the guarantor will be discharged from the
liability.
88
TYPES OF SECURITY
- Guarantee
d. Creditor impairing surety’s remedy
The guarantor will be discharged if the conduct of the bank is inconsistent with the rights of the guarantor and
which such conduct impairs the guarantor’s eventual remedy against the principal debtor. For instance, a debt
is supposed to be paid by way of instalment payments according to stages of construction. Without the
guarantor’s knowledge the debt was fully paid in advance by the principal debtor. In such a situation, the
guarantor will be discharged from the liability.
e. Security as essential part of contract
If a bank has released the security which is fundamental to the contract, then the guarantor will be discharged
from the liability. This is because the release of the security has prejudiced the guarantor.
f. Death of guarantor
Upon the death of a guarantor, the guarantee contract will be terminated. No claim can be made against the
estate of the deceased. However, claims can continue to be made towards the other co-guarantors.
• However, the guarantor will remain liable if there is an express provision in the guarantee
contract to allow variance in the terms of contract etc. without the guarantor’s knowledge
etc.
89
INTELLECTUAL PROPERTY
TYPES OF SECURITY
-Intellectual property
THE FOLLOWING ARE THE COMMON TYPES OF

INTELLECTUAL PROPERTY IN MALAYSIA:
• Industrial designs
• Patents
• Trade marks
• Copyright
91
TYPES OF SECURITY
Security over intellectual property can be taken

by either:
• Assignment
• Fixed charge
92
TYPES OF SECURITY
• A registered industrial design can be the subject of a security interest in the same way as other
personal or movable property (section 29(5), Industrial Designs Act 1996). An assignment of a
registered industrial design is not effective unless it is in writing and signed by or on behalf of the
assignor and the assignee. The assignee must then apply to the Registrar of Industrial Designs to
record his interest in the register.
• There is no equivalent legislation for patents, trade marks and copyright. It appears that similar
legislation to the Industrial Designs Act has been proposed and is in the drafting stage; however, it
is many years away from becoming law.
• If a charge is created on the goodwill; a patent, a trade mark, a copyright or licence under a patent,
a trade mark, a copyright, the charge must be lodged with the Companies Commission for
registration within 30 days after the creation of the charge (Companies Act). (It is presumed this is
in anticipation of legislation being passed eventually to enable security to be created over
intellectual property.)
• Intellectual property as a separate security class has not to date been generally taken as security in
Malaysia. It is most commonly captured by debentures creating fixed and floating charges over the
assets of the party providing the debenture.
93
PLEDGE
TYPES OF SECURITY
- Pledge
• A pledge is a bailment of goods as security for the payment of

a debt or performance of a promise.
• A pledge in law means the transfer of the possession (but not

ownership) of a chattel. It includes transfer of stocks and
shares and cheques by a debtor to his creditor as security for
the payment of a debt or performance of an obligation. In the
event a debtor defaulted in payment, the chattel may be sold.
• The goods will be delivered by the customer (pledgor) to the

banker (pledgee) as a security. The bank will have the right
either express or implied to resort to the goods upon default
by the customer. 95
HYPOTHECATION
TYPES OF SECURITY
- Hypothecation
Hypothecation is a form of charge on property as security for the

payment of a sum of money where the property remains in the
possession of the customer. The difference between pledge and
hypothecation is that in pledge, the customer assumes physical
possession of the things or goods pledged. In hypothecation, the
customer recognises the bank’s right to those goods or things
which are the subject of the security and still retains possession
of them. The charge of a ship or her freight or cargo may well be
by way of hypothecation. In this method of security, the owner
of the goods, things or ships may undertake to give possession
when called upon to do so.
97
3. REQUIREMENTS OF LEGAL
DOCUMENTATION
REQUIREMENTS OF LEGAL DOCUMENTATION
For legal documentation to be valid and binding,

certain requirements have to be met. They must
not only comply with certain requirements in
law to ensure their validity (such as registration)
but must clearly and correctly set out the agreed
terms. Parties are bound by the terms in the
written document and oral evidence cannot be
given to contradict the written terms.
99
There are 3 requirements of legal documentation:

All documents prepared in connection with the granting of a facility:
(i) should correctly set out the terms agreed between the parties.
Terms set out in written documents cannot be varied unless the very
stringent requirements under the law for the rectification of documents are
met;
(ii) should be legally valid, binding on the parties and enforceable in a court
of law. Under the Contracts Act 1950, various instances are given that would
make a contract void or voidable, e.g. coercion, undue influence and
fraud. If any such element is found in the contract, it would be declared to
be void. If there is any provision against public policy in the agreement such
an agreement will not be enforced by the courts. If a party has not been
correctly identified in the agreement that party could deny being the party
100
named in the agreement and claim not to be bound by it; and
(iii) must be stamped (or exemption from stamp duty obtained) and
registered (where necessary) with the appropriate authority.
Stamping is a revenue matter and if a document that is required to be
stamped is not stamped it would not be admissible in court as
evidence until it is duly stamped. But not stamping a document does
not make it void or voidable.
(iv) Certain documents are required by law to be filed/registered with
certain governmental authorities, for example, the creation of a
charge on land must be registered with the land office otherwise the
charge will not be regarded as a valid charge on the land and the
intended chargee will not be a secured chargee. Any charge created
by a company on its property must be registered with the Companies
Commission otherwise the charge will not rank as a secured chargee.
101
A Power of Attorney (by which document one

party gives certain powers to another to do
various acts and matters on his behalf and in his
name) is required to be registered with the High
Court (see Section 4 (1) of Powers of Attorney Act
1949). If it is not registered, the donee of the
power has no power in law to do those acts and
things on behalf of the donor. If he purports to do
them, those acts and matters will be not valid. 102
Under the rules of evidence in the

Evidence Act 1950, oral evidence
cannot be given to contradict what is
stated in a written document. The
parties are bound by the written
document. (see Sections 91 and 92 of
the Evidence Act 1950.) 103
Section 91 Evidence Act 1950
When the terms of a contract or of a grant or of any other disposition of property have
been reduced by or by consent of the parties to the form of a document, and in all
cases in which any matter is required by law to be reduced to the form of a document,
no evidence shall be given in proof of the terms of the contract, grant or other
disposition of property or of the matter except the document itself, or secondary
evidence of its contents in cases in which secondary evidence is admissible under the
provisions hereinbefore contained.
Section 92 Evidence Act 1950
When the terms of any such contract, grant or other disposition of property, or any
matter required by law to be reduced to the form of a document, have been proved
according to section 91, no evidence of any oral agreement or statement shall be
admitted as between the parties to any such instrument or their representatives in
interest for the purpose of contradicting, varying, adding to, or subtracting from its
104
terms.
INTRODUCTION TO BASIC PRINCIPLES OF LEGAL DOCUMENTATION
• If an error had been made in a duly executed written document an

application must be made to court for rectification, i.e. amendment of
the error.
• Rectification of errors can only be done if the court allows it. The error
or mistake must be one common to both parties and the rectification is
done in order to reflect the true intention of the parties. It will not be
allowed if the error is as to a point that was not in the contemplation of
the parties when they concluded the contract but later one party wishes
to have it included.
• If a document that has been filed with a governmental authority (e.g. in
the land office or Companies Commission) has been rectified by court
order, a copy of the order must be filed in the land office or commission
for the rectification to become effective. 105
4. THE QUR’AN ON
DOCUMENTATION
THE QUR’AN ON DOCUMENTATION
Surah 2: Al Baqarah, verse 282:

‘more suitable as evidence, and more convenient to
prevent doubts among yourselves; But if it be a
transaction which ye carry out on the spot among
yourselves there is no blame on you if ye reduce it not to
writing. But take witnesses whenever ye make a
commercial contract; and let neither scribe nor witness
suffer harm. If ye do (such harm), it would be wickedness
in you. So fear Allah; for it is Allah that teaches you. And
Allah is well acquainted with all things.’ 107
5. PARTS OF AN AGREEMENT
PARTS OF AN AGREEMENT
An agreement consists of several parts each of

which performs a different function. A well-
drafted agreement keeps these parts distinct
and does not place, for instance, what should be
an operative part of the agreement in the
recitals and vice versa.
109
THE FOUR MAIN PARTS OF AN AGREEMENT

The four parts are:
1. Date of the Agreement and Description of Parties – the date is
entered and the parties are clearly described.
2. Recitals (preamble) – give a brief background to the agreement and
the reason why the agreement is being entered into.
3. The Operative Part (Body) of the Agreement – contains all the
material terms and conditions of the agreement, including an
interpretation section.
4. The Signing or Execution Part – where the parties sign or execute the
agreement and the signing or execution is witnessed by witnesses.
110
The Agreement may also contain Schedules and

Annexures but these may or may not be present in
every agreement.
• Schedules are part of an agreement that contain
further terms or particulars related to the agreement.
These are usually put at the end of an agreement.
• Annexures are additional documents which are not
part of the agreement that are attached to the
agreement. 111
1. DATE OF THE AGREEEMENT AND THE DESCRIPTION OF THE PARTIES
The part of the agreement where the date is entered and the parties are
described is called the commencement. The date is an important part of the
agreement as otherwise there will be no reference point for doing certain acts,
e.g. if the agreement stipulates that payment should be made within 60 days of
the date of this agreement. The parties should also be correctly described; if
this is not done, unnecessary disputes could arise as to the identity of the
parties. In Malaysia it is common to include the identity card number (MyCard
number) or, if a party to an agreement is a foreign party, the passport number,
after the name so as to remove any ambiguity as to the identity of the party
concerned, e.g. there could be more than one person by the name of Ali bin
Shamsudin. So if there is an agreement between Ali bin Shamsudin and another
party it would not be immediately apparent which Ali bin Shamsudin is the
party to the agreement.
112
1. DATE OF THE AGREEEMENT AND THE DESCRIPTION OF THE PARTIES
EXAMPLE
THIS FACILITIES AGREEMENT (hereinafter referred to as “this Agreement”) is made on 25 November

2015
BETWEEN
ISLAMIC FUTURE BANK BERHAD (Company No.: 7890-W) a company incorporated in Malaysia under the
Companies Act 1965 with its registered office at 10th Floor, Menara Future, Jalan Hadapan, Hartamas
Perdana, 45601 Kuala Lumpur (hereinafter referred to as “Future Bank”) of the one part;
AND
ABCD SDN BHD (Company No. 1234-S), a company incorporated under the laws of Malaysia under the
Companies Act 1965 and having its registered and business address at 20th Floor, Jalan Cemerlang,
Taman Bandaraya, 43300 Kuala Lumpur (hereinafter referred to as the “Customer”) of the other part.
(Future Bank and the Customer are hereby collectively referred to as “Parties” and individually shall be
referred to as “Party”, as the context may require).
113
2. RECITALS (PREAMBLES)
These are narratives of the background to or the purpose of entering
into the agreement. These are not a legally necessary part of the
agreement but are included to set out the intention of the parties
and, if the need should arise, as an aid in the construction of
ambiguous provisions in the agreement. It would operate to restrict
the meaning of general statements used in the body of the
agreement to the real purpose of the agreement.
The recitals also serve to give a reader of the agreement, e.g. a judge
or an arbitrator, some background information as to why the parties
entered into the agreement so that the judge or arbitrator could
more fairly construe the agreement. 114
EXAMPLE
WHEREAS:
A. Application for the Facilities
The Customer has requested and Islamic Future Bank has agreed under the terms of its letter of offer dated
__________ (Ref. No.: __________) (hereinafter referred to as the “Letter of Offer” which expression shall include
any supplemental letter of offer and any amendments, modifications and variations thereto) to grant and make
available to the Customer the following financing facilities:-
(i) the Term Financing-i (“TF-i”) under the Shariah principle of Tawarruq of up to the maximum aggregate amount
of Ringgit Malaysia _________ Million (RM__________.00) only; and
(ii) the Bridging Financing-i (“BF-i”) under the Shariah principle of Tawarruq of up to the maximum aggregate
amount of Ringgit Malaysia __________ Million (RM________.00) only; and
making a total aggregate amount of Ringgit Malaysia _____________ (RM_________.00) only (hereinafter
collectively referred to as the “Facilities” and individually as “TF-i”and “BF-i” respectively).
B. Purpose: The parties have agreed for the Facilities shall be utilised by the Customer for the purposes as
stipulated in Clause 2.2 herein and in accordance with the terms and conditions of the Transaction Documents (as
defined herein).
C. Agreement: The Parties hereby agree to enter into this Agreement to set out the terms and conditions for the
115
Facilities subject to the terms and conditions of this Agreement and the Transaction Documents.
Take note that the recitals must but be
informative and not to put operative clauses in
them.
For example, to state that “Party(1) has agreed
to…“ and not to state that “party(1) “shall
provide…”.
This is bad drafting and should be avoided. 116
3. THE OPERATIVE PART OF THE AGREEMENT

• This part is known as the testatum and in this part are
stated the matters agreed between the parties, e.g. what
the agreement is for, the consideration, the terms and
conditions, representations and warranties, the governing
law of the contract, the dispute resolution method - by
court action or arbitration - and other usual provisions.
The actual provisions to be included will vary from one
type of contract to another but certain provisions are
necessary in all contracts and these must be included.
117
3. THE OPERATIVE PART OF THE AGREEMENT

• Most agreements will have an “Interpretation” section where important and recurring
terms and expressions are defined. This is a good practice as it defines terms and
expressions used in the agreement precisely and avoids repetitions of those terms and
expressions. It also helps to keep agreements short and removes the potential for
conflicts and ambiguity among provisions within the agreement.
• Among the ancillary but no less important provisions in agreements, especially in
agreements where the parties are from different jurisdictions, or which are cross-
border agreements, are:
(i) Governing law
(ii) Court jurisdiction
(iii) Disputes resolution either by court action or arbitration.
Careful consideration must be given to these matters and they should be taken up
preferably during the negotiation stage (unless there are reasons why they should not be
taken up at that stage) and agreed. 118
4. THE SIGNING OR EXECUTION PART

A written agreement needs to be signed or
executed although in certain cases an agreement
may be evidenced by a written document which is
not signed by either party, but this is rare and is
not encouraged. Oral agreements are those that
are not written down but as a rule commercial
and banking agreements are always in written
form. 119

Where an individual is a party to an agreement the individual signs the agreement and
his signing is witnessed by a witness who also signs the agreement as a witness.
Where a company is a party to the agreement, the agreement may be signed or
executed in one of two ways:
(i) by an officer of the company authorized by the company to sign on its behalf. In
that case the officer signs his personal signature but he is signing on behalf of the
company. He is not personally a party to the agreement but the company is.
(ii) The second way is by the company itself signing the agreement. This is known as
execution of the agreement by the company and it does this by affixing its common
seal to the agreement. The common seal of a company can only be used by the
authorization of its use by the Board of Directors of the company. The resolution
authorizing the use of the common seal will state that the common seal may be
affixed on to the document in the presence of a director and the company secretary or
another director. 120

So before the common seal of a company may be
affixed on to an agreement it would be necessary to
sight the relevant resolution and ensure that the
named persons are the ones who witness the affixing
of the seal. The two persons named or referred to in
the Board resolution are the witnesses to the affixing
of the common seal and they sign the agreement as
witnesses. There is no need for any other witness.
121

There is another way by which an individual or a company may
sign or execute an agreement.
This is by the use of a Power of Attorney (PA). A PA is a
document that gives power to a person (called the ‘attorney’)
to sign the document in the name of and on behalf of the
donor of the power. The attorney may be any individual who is
of age and need not be a lawyer. Banks normally give powers of
attorney to their officers (e.g. branch managers or senior
officers) to sign agreements and other documents on behalf of
the banks. 122
SCHEDULES AND ANNEXURES

If there are schedules to agreements they form an integral part of the
agreement. There may be one or more schedules and these are usually
put at the end of the agreement. In some standard agreements the date
of the agreement, particulars of the parties, details of the facility granted
and other such particulars relevant to the agreement are contained in the
schedules. Sometimes certain special provisions that are applicable only
to that agreement will be contained in one of the schedules.
Annexures are other documents that are attached to the agreement, e.g.
valuation reports, annual accounts of companies or house plans. These
are not integral parts of agreements but are attachments to them.
123
SCHEDULES AND ANNEXURES

Example:
SCHEDULE 1
CONDITIONS PRECEDENT
(referred to in Clause 3.1 of this Agreement)
(To be taken as read and construed as an essential part of this

Agreement)
The utilization and disbursement of the Facilities may be allowed

only after fulfillment of the following terms and conditions:
124
"Letter of Offer" means the letter of offer issued

by the Bank to the Customer(s) set out in Item 6
of the First Schedule hereto, a copy of which is
annexed as the Fifth Schedule hereto and
includes any amendment(s), variations and/or
supplemental and/or notification made or
entered into from time to time thereto.
125
ENFORCEMENT OF
SECURITY
ENFORCEMENT OF SECURITY
The circumstances in which a bank can enforce its

loan are determined by the terms of the loan
agreement. The facility document usually provides
that when an event of default occurs or is declared
the bank can terminate the facility and accelerate
the loan. The security then also becomes
immediately enforceable. A guarantor's obligation
to pay under a guarantee usually arises once the
bank makes a demand in accordance with the terms
of the guarantee.
127
EFFECT OF INSOLVENCY
EFFECT OF INSOLVENCY
• Any disposition of the company's property made after the commencement of the winding-up by the court
is void unless the court orders otherwise.
• Any transfer, mortgage, delivery of goods, payment, execution or other act relating to property made or
done against a company within six months before the presentation of the winding-up petition may be
deemed fraudulent and void if the transfer (and so on) is intended to give a preferential status to any
creditor. Property disposed of may be "clawed back" by the liquidator of the insolvent company.
• A floating charge on the undertaking or property of the company created within six months of the
commencement of the winding-up is invalid unless it is proved that the company was solvent immediately
after the creation of the charge.
• A liquidator can challenge a transaction that was made at an undervalue in the purchase or sale of any
property, business or undertaking for a cash consideration entered into by a company where both:
1. The transaction was with any person who was a director of the company, or with whom a director was so
connected, within a period of the two years immediately preceding the date of commencement of winding-up
of the company.
2.The value of the consideration received by the company is less than the value of the consideration provided
by it.
129
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COMMERCIAL LAW

• The terms and conditions of the granting of any financing

• Facility Agreement/Master Facility Agreement

MASTER FACILITY AGREEMENT

IJARAH MUNTAHIAH BITAMLEEK/IJARAH

MUSYARAKAH MUTANAQISAH FACILITY

• Take for example a murabahah facility. The bank has sold

It is prudent banking practice to require a

• Osborn’s Concise Law Dictionary (7 th Edition) defines ‘security’ as:

‘a possession such that the grantee or holder of the security holds

• In the earlier example for a murabahah facility,

a. Money (Memorandum of Deposit/Set-off/Lien)

• There are different types of security that may

The laws governing land in Malaysia are:

THE TYPES OF LAND IN MALAYSIA ARE:

• Freehold, which means the land is granted by the state authority in

A transfer of land must be registered at the Land Office or the

Section 5 of the National Land Code, 1965 provides that ‘land’

Land may be secured by 3 ways:

When outstanding sums are settled in full, the

The bank can release a lien over real estate by

• Land offers the best form of security for a financing. It is the

• A security over land can be enforced by obtaining

• To release a charge registered over land, the

Tangible movable property include:

• Aircraft and ships

• Plant and machinery

• Mortgages. Security is created over aircraft and ships by a statutory

• Debentures. A debenture is a security document that is usually entered

• A mortgage over an aircraft can be enforced

• Enforcement proceedings for ship mortgages

As defined under Section 4(1) of the Companies

‘debenture stock, bonds, notes and any other

A debenture of a company is a legal

Debenture, normally is a charge of the

• Fixed charges. The creation of a fixed charge

(i) It is a charge on a class of assets present and future.

(ii) The class of assets fluctuates in the ordinary course of business.

Under Section 108 of the Companies Act 1965, any

• Section 108(1) of the Companies Act (CA) 1965 deals

• In the event the charge is not registered, the

If the charge has not been registered within 30 days:-

• A floating charge may contain a ‘negative pledge’. A negative pledge is a

• A negative pledge in a floating charge will not affect the priority of a

(iv) The assets subject to a floating charge may be lost to judgement

• Security can be granted over future tangible assets

A company can create a subsequent

The debenture holder may prevent the

• Security created under a debenture (for assets other than land)

• Prior to carrying out its functions, the receiver and

COMMON TYPES OF CLAIMS AND RECEIVABLES INCLUDE:

• Debts and other rights to the payment of money.

• Rights to require (in project financing, for example)

• Rights to claim under insurances.

• Cash deposited with banks.

• Thus, security is created over claims and receivables by an

THE FOLLOWING CONDITIONS MUST BE FULFILLED FOR THE PERFECTION OF A

• The assignment must be for a debt or other legal chose in action.

• The assignment must be in writing and signed/executed by the security provider.

• By law, a legal assignment by way of security must be perfected by the security

•Normally, the life insurance policies will be

WHAT NEED TO BE EXAMINED BY THE BANK BEFORE TAKING THE SECURITY

e. Check whether the last premium has been paid.