Self purchase & financial assistance

Reduction of Capital
Dividend
The doctrine developed to protect the
creditors.
Creditors have the right to have the share
capital applied for the purpose of operating
the business of the company
The creditorgives credit to the company on
the faith of the representation that the capital
shall be applied only for the purpose of the
business and he has therefore a right to say
that the corporation shall keep its capital and
not return it to the shareholders.
Purchasing own shares
Lending money on the security of their own
shares.
Giving financial assistance to purchase own
shares
Reducing its capital except as provided by the
Act
Paying dividend out of capital
Sec 67 (1) A company is prohibited to:

Acquire its own shares.
Give financial assistance for the acquisition
of its own share.
Lend money on the security of its own
shares
Amount to return of the capital to the
members cannot be made except with the
court sanction.
To protect the creditors.
May allow the current board and senior
management to have control.
May allow for manipulation of share price.
F: The executors of W (deceased shareholder)
sold his shares in the company to it. Payment
by two installments. Prior second
installment - the company went into
liquidation. The executors claimed the
payment from the companys liquidator, T.
(The companys AOA authorised purchasing
own shares)
Held: A company had no power to purchase
its own shares even if its articles permitted
such acquisition.
they are entitled to assume that no part of
the capital which has been paid into the
coffers of the company has been
subsequently paid out, except in the
legitimate course of its business
per Lord Watson
F: An agreement between majority and
minority shareholders. The company would
purchase the shares of the minority at a
certain price.
H: Sec 67 clearly prohibits the purchase by
the company of its own shares or any direct
or indirect financial assistance by it for the
purchase of its own shares.
Prohibits purchase of shares in a holding by
its subsidiary.
Sec 17 (1) :reinforces the rule that a
subsidiary cannot own shares of its holding
it amounts purchase by the holding of its own
shares
(1) Public company if authorise by its articles
(2) A company shall not purchase its own
shares unless:
(a) Solvent will not cause insolvency
(b) Through Stock Exchange, in accordance with
its rules
(c) Good faith, company s interests
Reg 18A of Co. Regulation 1966
Declaration of solvency; send copies to CCM,
Stock Exchange, SC
Chapter 12 of BM Listing Requirement
12.03 - Ordinary resolution
12.15 - buying back should not result cos
issued/paid up below prescribed min.
Sec 67A (3) : may apply share premium
account for share buyback;
Sec 67A (3A) : cancel or retain as treasury
shares;
Sec 67A (3B) : distribute as dividends or resell
at the Stock Exchange
Sec 18 (2) (c)
-there is injustice or oppression
Sec 61
- redemption of redeemable preference shares
(b) Financial Assistance Sec 67 (1)
A company or its subsidiary cannot give FA to
any person whether directly or indirectly for the
purpose of enabling that person to purchase
the companys shares or of its holding
company.

Includes: giving loan, guarantee, security
(i) Making or giving loan
Where a company gives FA for the purpose of
acquiring shares in it in the form of loan.
Not repaid, the company lost part of its
issued capital
Effect same as purchasing its own shares
(ii) Lending money on the security of its shares

Chung Kiaw Bank Ltd v Hotel Rasa Sayang Sdn
Bhd & Anor

F: Bank gave loan to a company to buy shares in
H. The security for the loan is the Hs land
H: in breached of sec 67 (1).
KL Sdn Bhd & Anor v LGH & Ors
F: Co (Chen Hua Development) owned land
(Taman Hilltop) Developer (Kidurong) was
contracted to build houses. Dev agreed to
transfer some of the houses to the shareholders
in exchange for their shares. Dev financed the
development by charging cos land to the
finance company.
H: The transfer of shares in the company to D
was financed by the company by way of
charging a land owned by the company
infringed sec 67 (1)
Release of a debt if the release reduce the
price payable for the shares.
EH Dey Pty Ltd v Dey
EH Dey Pty Ltd v Dey
F: Dey was a shareholder in a Co. (Eh Dey Pty
Ltd) Dey owed money to the Co. (unpaid capital)
Mr & Mrs Paul wished to purchase shares in Co.
The Co reduced the amount owed by Dey. Mr
Mrs Paul then bought the share at lower price.
Assistance to vendor of shares
Armour Hick Northern Ltd v Armour Trust Ltd
F: A Ltd (subsidiary) B Ltd (Holding); C Ltd is the
shareholder of B Ltd (shareholder).
W & H directors in both A Ltd and B Ltd. B Ltd
owed money to C Ltd. W & H arranged A Ltd to
pay Bs debt in return C Ltd sell its hare in B to
H & W.
H: This amount to be FA by a subsidiary for the
purpose of acquisition of shares in its holding
company.
Acquisition of assets by a company
Belmont Finance Corporation Ltd
F: G wanted to acquire shares in Belmont
Finance. G controlled Maximum. G sold to BF all
shares in M. Fund he obtained was used to buy
shares in BF.
H: There was FA given to G in order to enable
him to acquire shares in BF. The sale of M to B
was not a bona fide commercial transaction but
a device to enable G to use BFs own funds to
acquire BFs shares.
Lori (M) Sdn Bhd v Arab Msian Finance Bhd
F: MARA offered to sell its shares in Lori to
Technivest. Tech obtained loan from Bank &
secured by land owned by Lori (transaction was
aborted)
Three months later Tech obtained loan from
Bank as working capital. Tech informed bank
that the shares purchased from MARA had been
transferred and fully paid up prior to the giving
of the loan and the creation of a security in
favour of the bank.
H: There was no FA a bona fide commercial
transaction. The security given by Lori was
given after the shares transaction had been
completed and after the shares had been
transferred and fully paid up.
ISSUE: Whether Sarjana had given FA to Pasti
Hasil for the purpose of subscription shares in
Sarjana
F: S sold land to PH, in the agreement RM1 mil
was to be treated as a purchase of Ss shares by
PH
H: There was FA by S in the acquisition of
shares by PH in S.
The transaction was structured in such a
manner that resulted PH acquiring the shares
without making any payment not bona fide
transaction.
S&P the amount of the sale was to be used to
pay for the shares issued by S to PH.
The assistance must come from the company
not from the shareholders

case : Cheah Theam Swee (1989) 1 MLJ
426 at 440.
Intraco Ltd (1995) 1 SSLR 313
F: City Carton (CC) owed Intraco. Multi Pak (MP)
would pay the debt and Intraco would subscribe
shares in MP. The transaction executed by MP &
Intraco issued a cheque & banked at the same
time
The transaction was a debt equity swap in the
context of corporate rescue.
Sec 67 (2) (a)
Where lending money is part of the ordinary
course of business
Sec 67 (2) (b) and (c)
The finance of a scheme by the company to
enable the purchase of its shares for the benefit
of its employees.
Sec 67 (3) officer in default shall be guilty
Sec 67 (4) the officer may compensate the
company or any other person
Datuk Tan Leng Teck v Sarjana Sdn Bhd & Ors

H: The Transaction which is in contravention of
the prohibition is still valid and enforceable as
the section itself saves the transaction.
Confirmed by Federal Court in Lori (M) Bhd V
Arab Msian Finance Bhd

Sec 67 (6) has the effect of saving a transaction
which contravened sec 67 (1) from invalidity.