MALAYSIA

The Dividing Line between Indemnities and Guarantees

In GJ Consultancy Sdn Bhd v Gan Teck Lim [2021] MLJU 933, the facts pertained to a contractual dispute of a Fixture Note ("Principal Contract") between GJ Consultancy Sdn Bhd ("GJ Consultancy") and Detik Timur Sdn Bhd ("Detik Timur") where Detik Timur chartered a vessel from GJ Consultancy to transport a cargo shipment from Malaysia to China. Detik Timur failed to perform the Principal Contract and incurred dead freight and demurrage cost. Although the parties reached a settlement on the payment of dead freight and demurrage, Detik Timur failed to keep to the settlement terms. 

Relying on the Letter of Indemnity and Guarantee ("Letter") signed by the Chairman of Detik Timur ("Promisor") where the Promisor would bear personal liability for any loss or damage suffered by GJ Consultancy, GJ Consultancy initiated a claim against the Promisor in the Kuala Lumpur Admiralty Court.

The Promisor made an application to strike out GJ Consultancy's claim on the basis that the Letter was a guarantee and not an indemnity and therefore, Detik Timur's liability against GJ Consultancy must first be established before any claim could be made against the Promisor.

Pursuant to these facts, the Admiralty Court Judge undertook a detailed examination of the Letter by reviewing the scope of indemnities and guarantees as well as identifying the differences between the two. Following this, the Admiralty Court Judge dismissed the Promisor's application by deducing the parties' intentions based on the content and nature of the Letter rather than the heading of the Letter itself. 

For more information, click here to read our Legal Update.

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BNM Issues Exposure Draft of Policy Document on Bancassurance/Bancatakaful

On 30 August 2021, Bank Negara Malaysia ("BNM") issued the Bancassurance/Bancatakaful Exposure Draft ("Exposure Draft") for industry feedback. The Exposure Draft outlines the requirements for Bancassurance/Bancatakaful arrangements which will apply to existing and new Bancassurance/Bancatakaful arrangements, including renewals.

The Exposure Draft aims to:

1. ensure Bancassurance/Bancatakaful subsists as a viable, widely accessible channel for consumers to purchase insurance and takaful products;
2. promote sound market conduct practices which safeguard consumers’ interest through needs-based sales, disclosure, and enhanced transparency; and
3. promote market competitiveness while preserving consumer choice.

The Exposure Draft, which is more comprehensive relative to the existing Bancassurance Guidelines, sets out, inter alia:

1. the responsibilities of the Board and senior management about the governance and management of its Bancassurance/Bancatakaful arrangements;
2. the conditions or appropriate targets tied to the payment of upfront fees, to ensure all parties to the Bancassurance/Bancatakaful arrangement deliver quality sales and prevent misaligned incentives from developing;
3. the requirements that all upfront fees (including service fees, facilitation fees or any type of fees related to or forming the upfront fees) payable by a licensed person to its Bancassurance/Bancatakaful partner, or any other party on its behalf, shall come from the licensed person’s shareholders fund;
4. the quality of sales, including formulating robust internal policies, procedures, and controls with respect to its Bancassurance/Bancatakaful persistency rates;
5. the clear demarcation of responsibilities and accountability between the licensed person and the Bancassurance/Bancatakaful partner;
6. the transparency and disclosure requirements in marketing; and
7. the minimum qualifications and training requirements, including minimum eight hours of annual professional development requirement (CPD) for staff of Bancassurance/Bancatakaful partners.

The deadline for providing feedback on the Exposure Draft was 30 September 2021. BNM is presently contemplating an effective date six months after the issuance of the final policy document.

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Recent Malaysian Court Decision Sheds Light on Proof of Debt Exercise in Schemes of Arrangement and the Test for Granting Leave to Proceed against Restraining Order

The recent Malaysian High Court decision in Re Top Builders Capital Bhd & Ors [2021] 10 MLJ 327 sets out the procedures to be followed for the proof of debt in a scheme of arrangement ("SOA") and the principles for granting leave for a creditor to proceed with legal proceedings against a company, despite the company having an existing restraining order barring legal proceedings against it.

Procedures to be Followed for Proof of Debt Exercise

The creditors must first submit proof of debt to the company or an appointed scheme manager ("decision-maker"). The decision-maker will then evaluate the claims based on the information and documentation provided, which may require the decision-maker to make fair estimates of certain claims. The decisions made, based on the proof of debt, ought to be made known to the creditors before the creditors' meeting(s).

In practice, the adjudicated list of scheme creditors and their respective quanta will be submitted to Court for the purposes of distribution of payments pursuant to the terms of the scheme as approved by the requisite 75% of the creditors in value who attend and vote at the creditors' meeting(s). While acknowledging that the decisions of the decision-maker are made in a summary fashion, the creditors' interests are protected by way of an appeal to Court, if the parties so choose. The Court will, on appeal, examine the evidence placed before the decision-maker (together with fresh evidence, where appropriate), and decide on a balance of probabilities whether the claim against the company is established and if so, what amount is payable.

The Principle for Leave to Proceed with Legal Proceedings

When considering a leave application, the Court will only grant leave where there are 'exceptional circumstances', and the burden is on the applicant to satisfy this threshold. 'Exceptional circumstances' are circumstances or a combination of circumstances that must be of sufficient weight to overcome the strong imperative to have the claims dealt with under the existing machinery of the SOA. Leave will likely be granted where the commencement or continuation of the legal proceedings does not impede the achievement of the SOA, or where it would facilitate or assist the achievement of the SOA. Ultimately, it is the Court that will need to exercise its discretion in balancing the harm to the applicant – if leave is not granted – against the harm to the general body of creditors if leave is granted.

For more information, click here to read our Legal Update.

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The Enforcement of Accounting Fraud under the Capital Markets and Services Act 2007

This update underscores the growing global recognition that healthy capital markets require an effective regime of financial reporting. It highlights the enforcement outcomes surrounding false and misleading financial disclosures by public listed companies in Malaysia and the judicial approach in dealing with such breaches.

This update also highlights several Malaysian judicial decisions arising from the issue of false or misleading financial disclosures by listed companies – both in primary offerings of securities as well as post-listing – in the form of continuous disclosures. A factual analysis of the cases shows that a majority of those who breached the law were company directors who were handed deterrent sentences in the form of imprisonment terms.

This update also provides some useful pointers to directors to ensure that they can discharge their duties effectively, and tips on how to avoid some of the pitfalls associated with liability under capital market laws.

For more information, click here to read our Legal Update.

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