Belmont Finance Corp v. Williams Furniture Ltd & Ors. (No.

2)
In Belmont's case, Grosscurth wanted to obtain control of Belmont
Finance. He sold all the shares of a company which he controlled to
Belmont. The fund which he obtained as a result of the sale was used to
purchase shares of Belmont from Belmont's holding company, City. It was
held that there was illegal financial assistance given by Belmont for the
purchase of its shares. The transaction was not an ordinary commercial
transaction. It was held that:
It was an exceptional and artificial transaction and not in any sense an
ordinary commercial transaction entered into for its own sake in the
commercial interests of Belmont. It was part of a comparatively complex
scheme for enabling Mr. Grosscurth and his associate to acquire Belmont
at no cash cost to themselves, the purchase price being funded not from
their own funds or by realization of any asset of theirs but out of
Belmont's.12
Lori (M) Bhd. (Interim receiver) v. Arab-Malaysian Finance Bhd,
MARA was the holding company of Lori (M) Bhd with a 99% shareholding.
MARA made an offer to sell its shares in Lori Bhd to Technivest. Technivest
wrote to obtain a loan from the respondent bank (Arab-Malaysian Finance
Bhd) and the bank made an offer of a term loan to Lori. The security for
the loan included several guarantees from directors of Lori (M), a charge
over land belonging to Lori Bhd, debentures over assets of Lori and
Technivest as well as a corporate guarantee given by Technivest. The bank
was informed that the loan was for the purpose of paying Technivest's
liabilities to MARA. The shares will be transferred upon full payment of the
price. Subsequently, MARA was informed that the loan facility transaction
amounted to a financial assistance and contravened s. 67 of the
Companies Act 1965. MARA then informed Technivest that the offer was
withdrawn. Both parties agreed that this transaction, had it been carried
out, amounted to giving financial assistance in contravention of the
section since the agreement stated that unless the money is paid, the
shares will not be transferred.16About three months later, Lori obtained a
loan from the respondent bank as working capital and this was secured by
Lori's asset. The bank had also obtained a confirmation from Technivest
that the shares which Technivest purchased from Mara had been
transferred as fully paid up prior to the giving of the loan and the creation
of a security in favour of the bank. Techinvest defaulted on the loan and
the bank applied to court to enforce the security and to sell the charged
land under s. 256 of the National Land Code. It was argued on behalf of
Lori (M) that the charge was a financial assistance transaction and was

therefore illegal but the High Court rejected the company's application
and held that the transaction did not amount to a financial assistance.
The company, Lori (M) Bhd appealed to the Court of Appeal that the High
Court's decision that the loan facility agreement was not a financial
assistance transaction was wrong. In the appeal, the appellant
contended that the High Court was wrong in law in holding that the loan
facility arrangements was not in the nature of a financial assistance
given directly or indirectly by Lori for the purpose of, or in connection with,
the purchase by Technivest of its shares; and therefore not in
contravention of s. 67 of the Companies Act 1965 read with s. 24 of the
Contracts Act 1950. However, the Court of Appeal decided on the facts
that the lender had acted bona fide and had entered into the agreement
to provide the loan and accept the security after clear representation has
been made by Lori (M) Bhd that the shares have been transferred fully
paid-up to the purchaser prior to the loan-cum security agreement. Thus
the requirement of s. 67(1) that the financial assistance must be " for
the purpose of or in connection with a purchase or subscription ... has not
been fulfilled. Lori appealed to the Federal Court and the Federal Court
upheld the decision of the lower courts.

Chung Khiaw Bank Ltd. v. Hotel Rasa Sayang Sdn. Bhd. & Anor.33
Chung Khiaw Bank involved a loan given by the bank to finance the acquisition of shares in
Hotel Rasa Sayang where the security for the loan was provided by Hotel Rasa Sayang itself.
When the creditor defaulted on the loan, the bank brought an action to realise the security.
The hotel argued that the security was a financial assistance transaction and cannot be
enforced by the bank.
The Supreme Court in Chung Khiaw Bank held that the lender could not enforce the security
created by the company which was given in contravention of s. 67(1) of the Companies Act
1965. The Supreme Court cited the explanatory statement in the Bill introducing the
Companies Act 1965 (M'sia) which is as follows:
Clause 67 prohibits a company from dealing in its own shares and from giving financial assistance to anyone
dealing in those shares. It covers the same matters as sections 47 and 48 of the existing legislation but in a much
broader fashion. Sub clause (4) is designed to preserve the right of the company to recover loans made in
contravention of the provisions of this clause. It is suggested that it is wrong to punish the company and
therefore the shareholders because of the default of the company's officers.

The counsel for the bank in Chung Khiaw Bank's case argued that s. 67(6) should be
interpreted to allow the company to recover the amount of any loan made by the bank to
purchasers in contravention of this section. The counsel for the bank also argued that the

section should be interpreted so that the section shall not prevent the company from
recovering any amount for which it may become liable on account of any financial
assistance given in contravention of the section. The argument by the bank was that the
words 'for which it may become liable' meant that the company's liability to third parties
remain unaffected by the prohibition contained in the section.
In its decision the Supreme Court relied on s. 24 of the Contracts Act 1950 (M'sia) which
states that if an agreement is forbidden by law or prohibited by law or is of such a nature that
it would defeat the law, that agreement is unlawful and void. The Supreme Court referred 34 to
several English authorities like Cope v. Rowlands35 and Yango Pastoral Co Pty Ltd v. First
Chicago Australia Ltd.36 that laid down the proposition that where the contract which
expressly or by implication is forbidden by the common or statute law, no court will lend its
assistance. The prohibition may be found where the statute inflicts a penalty because such a
penalty implies prohibition. However, it is possible that the statute prohibits the contract but
provides either expressly or impliedly that the contract is enforceable.
The Supreme Court stated that due to the fact that s. 67 provides a penalty for contravention,
the statute impliedly forbids the transaction and this means that the financial assistance
transaction is void and unenforceable. However, since s. 67(6) itself saves the loan given in
contravention of s. 67(1), the company may recover the loan. The words 'recovering the
amount of any loan made in contravention of this section' in s. 67(6) of the Act can only mean
any loan made by the company itself. Thus in Chung Khiaw Bank it was decided that the
lender could not enforce the security