Tax and Covid-19 Part 2

(This post will be updated as more clarification comes to light)

On 7 June 2020, the Prime Minister of Malaysia had announced that the Conditional Movement Control Order (“CMCO”) will come to an end on 9 June 2020 and be replaced with Recovery Movement Control Order (“RMCO”) which is set to take effect from 10 June 2020 to 31 August 2020. During his speech, the Prime Minister addressed the public’s concerns about reopening the economy and also introduced various measures to stimulate the economy with the introduction of the National Economic Recovery Plan (otherwise known as “PENJANA”) which encapsulates the Government’s initiatives in 6 words: Resolve, Resilience, Restart, Recovery, Revitalise and Reform.

This Article aims to provide a summary of the tax initiatives under PENJANA from the corporate income tax, personal income tax, stamp duty, real property gains tax, indirect tax and other incentives perspective.

1. Corporate Income Tax

(1) Special Reinvestment Allowance (“SRA”)

Under Schedule 7A of the Income Tax Act 1967 (“the Act”), only manufacturing companies and selected agricultural activities are eligible to claim for Reinvestment Allowance (“RA”). Furthermore, the Act provides that a company may claim for RA only for up to 15 consecutive Year of Assessment (“YA”).


Where the company’s eligibility to claim RA has expired, the company can continue to claim SRA for up to 2 YAs. However, it is unclear whether the SRA would be the same rate as the RA and whether there are any further conditions to comply.

(2) Deduction and capital allowance for expenses incurred in relation to prevention of Covid-19

The Government had previously announced in the first stimulus package that taxpayers are allowed to claim tax deductions or capital allowances in relation to expenses incurred on Covid-19 prevention measures such as personal protective equipment (“PPE”), thermal scanners and testings.


This seems to be a repetition of the same incentive to ease the cost burden of adopting measures under the SOPs issued by the Ministry of Health

(3) Incentives to adopt Flexible Work Arrangements (FWA)

As social distancing measures are encouraged, the government aims to further incentivise companies to have in place FWA to prevent a gathering of large number of employees.

Currently, under the Income Tax (Deduction for Consultation and Training Costs for the Implementation of Flexible Work Arrangements) Rule 2015 allows taxpayers to claim double tax deductions for consultation fees and costs of training in implementing or enhancing FWAs for up to 3 consecutive YA and a cap of RM500,000 per year subject to approval by Talent Corp.


Tax deduction for FWA will begin from 1 June 2020 onwards. Further clarification on the type of expenses and corresponding conditions will be required.

(4) Small and Medium Enterprise (“SME”) tax incentives


Where an SME commences operation between 1 July 2020 to 31 December 2021, a special annual income tax rebate of up to RM20,000 will be given for up to 3 YAs.

(Please refer to stamp duty relief available to SME below)

(5) Incentives to encourage employment


To further encourage employment, the Government had announced the following tax incentives:

      1. Employment of youth for apprenticeships: RM600 per month for up to 6 months
      2. Employment of person >40 years old and been unemployed for 6 months: RM800 per month for up to 6 months
      3. Employment of persons >40 years old or persons with special abilities: RM1,000 per month for up to 6 months
      4. Employees retrenched but are not covered under the Employment Insurance Scheme: one-off RM4,000 training allowance.

(6) Other incentives


The Government further announced the extension of various incentives currently already in place but due to expire soon.

      1. Special tax deduction for rental reduction for business premises rented to SMEs of at least 30% to be extended to 30 September 2020.
      2. Accelerated capital allowance of 40% for ICT equipment to be extended to 31 December 2021.
      3. Special tax deduction for renovation and refurbishment expenses of business premises up to RM300k to be extended to 31 December 2021.
      4. Extension of the Wage Subsidy Program to be extended for a further 3 months.

2. Personal Income Tax

(1) Personal income tax reliefs for purchase of handphone, notebook and tablet

At present, individuals may claim income tax relief of up to RM2,500 for lifestyle expenses such as the purchase of books, personal computer, smartphone or tablet (not for business use), sports equipment, gym membership payment and monthly bill for internet subscription


      1. From 1 July 2020 onwards, individuals who receive a handphone, notebook or tablet can claim personal income tax relief of up to RM5,000.
      1. Similarly, individuals can claim further claim a tax exemption of RM2,500 for purchase of handphone, notebook and tablet.

Further clarification is required whether a claim under the PENJANA tax incentive operates exclusively to the current tax relief or in addition i.e. can a person claim for a total of RM5,000 for purchase of 2 tablets?

(2) Personal income tax relief for childcare

At present, individuals can claim an income tax relief of up to RM2,000 for child care expenses at a registered child care centre/kindergarten for a child aged 6 years and below


The income tax relief is increased to RM3,000 for YA 2020 to 2021.

The child care centre must be registered with the Department of Social Welfare or the Ministry fo Education.

(3) Personal tax relief for travelling expenses

Previously, a special personal income tax relief of up to RM1,000 allowed for resident individuals for expenses incurred domestic travelling between 1 March 2020 to 31 August 2020.The expenses eligible for tax relief are accommodation fees with registered accommodation providers and entrance tickets to tourist attractions spots.


The period is extended to 31 December 2021.

3. Stamp Duty

(1) Special stamp duty exemption for instruments executed in connection with Mergers and Acquisition for SMEs.


For any instruments executed between 1 July 2010 and 30 June 2021 by SMEs, there will be a stamp duty exemption if it is for the purpose of mergers and acquisitions.

(2) Stamp duty exemption for instruments executed in connection with the purchase of residential properties


With the reintroduction of the Home Ownership Campaign, a stamp duty exemption will be given for the purchase of residential properties between the value of RM300k to RM2.5million ON THE CONDITION THAT at least a 10% discount is given by the developer & the instrument was executed between 1 June 2020 to 31 December 2021.

The stamp duty exemption given is:

      1. Instrument of transfer: Restricted to the first RM1million of the property price
      2. Loan agreement: Full stamp duty exemption

4. Real Property Gains Tax (“RPGT”) Exemption

At present, taxpayers are subject to an RPGT at the rate of between 5 – 30% depending on the period in which the taxpayer acquires and subsequently disposes of the property.


Taxpayers are exempted from RPGT for properties disposed between the period of 1 June 2020 to 31 December 2021 for up to 3 units of residential property.

Note: caution must be taken as the exemption appears to apply only where the disposal of real property is subjected to RPGT and not income tax. Where the disposal of real property is subject to income tax instead, the exemption may not apply.

5. Indirect Tax

(1) Tourism tax exemption

Currently, a tourism tax of RM10 is charged on foreign travellers on a per room per night basis.


Hotels are exempted from charging the tourism tax between 1 July 2020 to 30 June 2021.

(2) Sales tax exemption on automotive vehicles

Under the Sales Tax (Rates of Tax) Order 2018, a sales tax of 10% is imposed on the sale price of locally assembled cars and final price of imported cars.


A full sales tax exemption (100%) on locally assembled passenger vehicles and a 50% sales tax exemption for imported passenger vehicles purchased between the period 15 June 2020 to 31 December 2020.

(3) Service tax exemption

At present, hotel operators are exempted from imposing service tax on accommodation and related services for the period 1 March 2020 to 31 August 2020.


The service tax exemption is to be extended up to 30 June 2021.

(4) Export duty exemption

Currently, an export duty of between 0-30% is imposed on the export of crude palm oil, crude palm kernel oil and refined bleached deodorised palm kernel oil. The Government had previously announced that the export duty for crude palm oil had been reduced to 0% for June from 4.5% in May.


There will be a full export duty exemption on the export of the aforementioned commodities between the period 1 July 2020 to 31 December 2020.

(5) Remission of penalties for late payment of Sales and Service Tax

The Royal Malaysia Customs Departments had previously announced that any penalty imposed on late payment of Sales and Service Tax due at the end of the month between the period of March to May will be fully remitted if the payment is received on or before 30 June 2020 for the taxable period ending 29 February 2020, 31 March 2020 and 30 April 2020.


There will be a 50% remission on penalty for late remission of Sales and Service Tax due and payable between the period 1 July 2020 to 31 September 2020, which correlates to the taxable period ending 30 June, 31 July and 30 August 2020. 

However, further clarification is required for the taxable period ending 31 May and tax due on 30 June whether any remission on penalty for late payment is given. 

6. Other incentives

(1) Incentives to encourage Foreign Direct Investments (“FDI”)

At present, there are various incentives available in addition to the Promotion of Investments Act 1986 where companies with a Pioneer status may enjoy a full income tax exemption of the statutory income for a period of up to 10 years.


Foreign companies can enjoy a full income tax exemption of 0% if they relocate their manufacturing business operations into Malaysia and make new investments in the manufacturing industry. Depending on the amount of the FDI made, this will affect the corresponding period in which the company can enjoy the income tax exemption:

      1. For FDI between RM300mil to RM500mil: 10 years
      2. For FDI above RM 500mil: 15 years

Applications must be made to the Malaysia Investment Development Authority (MIDA) for approval between 1 July 2020 to 31 December 2021. The company must shift and commence manufacturing operation within 1 year after approval.

(2) Relocation of manufacturing operations by Malaysian companies


If a resident company moves its manufacturing operations from overseas into Malaysia, the resident company would be eligible to claim a 100% investment tax allowance for a period of up to 5 years, subject to approval by MIDA.

Applications can be made between 1 July 2020 and 31 December 2021.

Tax and Covid-19 Part 1

As the Covid-19 pandemic’s effect on the global economy is predicted to last for another year, taxpayers may be forced to take extraordinary measures in handling their business affairs during these extraordinary times. When making any financial decisions, taxpayers should take note that there may be tax repercussions arising from these decisions.


This article aims to lay out some applicable principles of deductibility of different types of expenses that a taxpayer may incur during this period. The types of expenses to be explored are compensation for early termination, bad debts, compensation for retrenchment, subsidy received by the government and donations.


Under Section 33(1) of the Income Tax Act 1967 (“the Act”), the conditions in order to qualify for a tax deduction are:

  1. The expense was incurred in the basis period; and
  2. The expense is wholly and exclusively for the production of the taxpayer’s gross income.

根据所得税法1967 第33(1)条,获得扣税的条件如下:

  1. 该费用在此准基期限招致;以及
  2. 该费用是完全以及专门用于产生收入。

However, Section 39 of the Act provides that notwithstanding an expense fulfils the conditions under Section 33(1), no deduction is allowed. For example, Section 39(1)(c) provides that expenses incurred which are capital in nature are not tax-deductible.


1.Deductibility of compensation expense for early termination


Parties seeking to put a contract to an end unilaterally may be required to compensate the counterparty for early termination. Before Covid-19, parties may have entered a contract in the course of trade with the vision that the contract would be profitable. If the contract now proves to be more a liability than an income source, any compensation payments made to terminate the contract generally ranks for a deduction.

假设合同当事人想单方提前终止合约,该合同当事人也许必须赔偿对方。在新型冠状病毒肺炎疫情爆发,合同当事人也许预期该合作会产生利润。如果该合同是明显的无法企及反而成了一个累赘, 为了提前终止合约所导致的赔偿金是可以扣除的。

However, if the early termination compensation is capital in nature, it is not tax-deductible. For example in CH & Co (Perak) Sdn Bhd v DGIR, the taxpayer had claimed a deduction for compensation expense to compensate the ground floor tenant for trade fixtures and fittings and loss of business as the taxpayer had a prospective tenant who wanted to lease the entire building for 14 years. The court found that the compensation was a capital expense. The reason for the court’s finding was twofold:

      1. The termination was to remove of a disadvantageous asset; and
      2. To make the building more advantageous and beneficial.

然而如果此赔偿金是资本支出,该赔偿金是不可扣除的。在CH & Co (Perak) Sdn Bhd v DGIR,该纳税人扣除了支付给在一楼的租户与所有固定装置和可拆除设备以及营业亏损所造成的赔偿金。为了提前解约的原因是因为有另一位准租户有意租用纳税人所属的楼宇长达14 年。法庭裁定该支出是中资本支出因为

    1. 纳税人终止合约是为了去除不利的资产;以及
    2. 为了使楼宇更有利和增加吸引力。

Generally, if the termination gave the taxpayer an enduring benefit, compensation for the early termination may not be deductible. Courts will scrutinize the surrounding circumstances and events that led to termination to determine the purpose of compensation payment and thereafter decide if it is revenue or capital in nature.


2. Deductibility of bad debt

2. 坏账的税务扣除

As demand for goods and services slumps amidst economic uncertainty, many companies may be in a precarious position where they are unable to pay creditors for goods. If parties have a cordial business relationship, it is common to write off debts as a sign of goodwill. However, in doing so, creditors inevitably expose themselves to the risk of being challenged that the bad debt expense is not deductible.


It is trite law that when taxpayers take a deduction for bad debt incurred, he would need to demonstrate that there were efforts to recover the debt and any waiver of debts were based on sound commercial reasoning. The Public Ruling 1/2002 (“Public Ruling”) defines bad debt as “a debt that is considered not recoverable after appropriate steps have been taken to recover it”. The Public Ruling also suggests that reasonable steps taken to recover debts include debt restructuring scheme, legal action or reminder notices. Therefore, reasons such as “goodwill” or “personal relationships” will likely be insufficient.

当纳税人要扣除坏账时,他必须证明他已采取适当努力以追回债务以及任何坏账是基于合理的商业理性。在税务局所发布的公共裁决 1/2002 (“公共裁决”)对于坏账的定义是 “采取合理的步骤后还是无法追回的债务”。公共裁决也提出为了追债的合理步骤包括了债务重组计划,采取法律行动以及提醒同知。因此,理由犹如 “信誉“和”人际关系” 是不足以获取税务扣除。

Based on our body of case law, the Malaysian courts had held along the same tune as the Public Ruling. Taxpayers must take reasonable steps to recover sums owed such as timely legal action, referring matters to dispute resolution and/ or settlement agreements.

根据我国的判例法, 马来西亚法院的裁定和公共裁决是一致的。纳税人应采取适当的步骤来追回债务例如尽快采取法律诉讼,提交仲裁或和解协议。

3. Deductibility of compensation expense for retrenchment of employees


In efforts to reduce cost, companies may be forced to undergo a retrenchment exercise in endeavours to keep afloat. According to the respective employment contracts, the company may be required to pay compensation to the employees for loss of employment. Taxpayers would need to evaluate whether such payments are deductible or otherwise.


If compensation payments paid to employees are part of the taxpayer’s strategy to reduce cost and sustain business continuity, the payments are deductible. In Kulim Rubber Plantations v DGIR, the Federal Court held that where a taxpayer makes a payment “in order to get rid of … a servant whose continuance in service is undesirable in the company’s interest”, it should be treated as a revenue payment and a deductible expense. Accordingly, compensation payments made to employees pursuant to a restructuring exercise are deductible if the purpose is to keep the company in operation.

如果裁员行动是为了减低营业费用和业务可以持续性发展,相关的赔偿金时可在税前扣除的。在 Kulim Rubber Plantations v DGIR,联邦法院已裁定如果纳税人支付赔偿金“为了摆脱…… 一个从公司的利益的角度想不理想的员工” 该赔偿金是属于公司营运费用和可扣除的。因此,如果裁员的目的是为了确保公司可以继续营业, 因企业重组所致的赔偿金是可扣除如果。

However, if the compensation payments are made due to the cessation of business, such payments are not deductible. The rationale is due to the fact that these payments were not made in the production of the taxpayer’s gross income but were made to put an end to the business. The court in Ampat Tin Dredging Ltd v DGIR held that it was not sufficient that the expense incurred is related to the production of income, but it must be wholly and exclusively incurred in the production of income. In this case, the retrenchment due to closure of business was found to have nothing to with the production of gross income.

然而,如果该赔偿金是为了停业而造成的,该赔偿金是不可扣除。原理是因为这赔偿并不是用于产生收入而招致的费用,而是为了停业的费用。法院已在 Ampat Tin Dredging Ltd v DGIR 指出任何费用不仅必须和产生收入有关系,该费用必须是完全以及专门的产生收入。在该案例里,为了停业而裁员所支付的赔偿金和产生收入毫无关系。

Taxpayers are advised to maintain contemporaneous documentation by stating the purpose and reason of any compensation payment made. Where retrenchment benefits were made to save the taxpayer from extinction, it would qualify for a tax deduction as expenses incurred in the production of gross income.


4. Deductibility of employee wages under the govt grant

4. 政府雇员工资补助的税前扣除

On 6 April 2020, the Prime Minister of Malaysia had announced the Additional PRIHATIN SME Economic Stimulus Package (“PRIHATIN SME+”) in efforts to stimulate the Malaysian economy with emphasis placed on maintaining the sustainability of SMEs. In Malaysia, SMEs accounted for more than 98.5% of all business establishments but compared to larger multinationals, they are often strapped for cash and have lower liquidity ratios. With that in mind, the PRIHATIN SME+ had, amongst others, offered a wage subsidy program to assist in maintaining the job security of its employees and reduce the burden on expenses (“Program”).

于 4 月 6 日,马来西亚首相宣布了经济振兴中小企配套(增加版)(“配套”)来协助企业可持续发展。在马来西亚,中小企业占了所有企业的98.5% ,可是与大型企业相比,中小企业通常拥有较为紧张的现金周转压力而且拥较低的流动性比率。考虑到这方面的苦扰,政府在配套里介绍了万众期待的工资补贴计划目以提供雇员的保障以及减低企业开支的消费。

The Program would fall within the scope of the Income Tax (exemption) (No.22) Order 2006 (P.U.(A) 207/2006) (“Exemption Order”). Under the Exemption Order, where eligible persons receive income in the form of a grant or subsidy from the State or Federal Government, such sums received are exempted from tax. In light of the foregoing, the subsidy received by an SME company having fulfilled necessary conditions would be tax-exempted.

该配套应在所得税法令(豁免) (第。22) 2006 (P.U.(A) 207/2006) (“豁免法令”)。在该豁免法令,当有资格的纳税人获得由州政府或联邦政府给予的补助或补贴形式的收入,该收入是免税的的。正因如此,中小企业从配套里收到的工资补贴是,在满足了所有的条件后,将是免税的的。

However, expenses spent using the sums received under the Program is also not deductible. Therefore, if the taxpayer received RM50,000 under the Program, expenses incurred for its employees’ wages to the value of RM50,000 is not deductible.

然而,任何使用了配套中的补贴所支付的的费用是不可扣除的。因此,假设纳税人在配套中领取了RM50,000的补贴,相等于RM50,000 的雇员工资是不可扣除的。

Taxpayers should be aware that Clause 4 of the Exemption Order imposes an obligation to maintain separate accounts for income received as a grant or subsidy. With this in mind, taxpayers must maintain appropriate records detailing the amount of subsidy received under the Program and amount of deduction claimed in respect of expenses on employee wages.


5. Deduction for donation to Covid-19 fund

5. 捐献给冠病基金的税前扣除

In endeavours to raise funds to combat the pandemic, the Malaysian Government has announced that donations to the Covid-19 fund will qualify for a tax deduction. Taxpayers may choose to donate by cash or in-kind to the Covid-19 fund set up by the Prime Ministry Department and Ministry of Health (“Tabung Covid-19”), Organisations with Section 44(6) status or other approved community and charitable projects. The Act has various provisions which allow for deduction hence taxpayers must accurately identify which provision is relevant to their form of donation.

为了筹募基金助于对抗新型冠状病毒肺炎疫情,马来西亚政府已宣布任何为捐给了冠病基金可税前扣除。纳税人可选择以金钱还是以实物的方式捐款给首相署和卫生部的冠病基金,所得税法 第44(6)条认可的任何组织或合格机构将享受减免。所得税法拥有多个相关的条规所以纳税人必须准确的鉴定哪条与他们捐款形式一致。

Scenario 1: Cash donations made to Tabung Covid-19

      • Treatment: Section 34(6)(h) OR Section 44(6)
      • Condition: Approval required if claiming under Section 34(6)(h)

Scenario 2: Donation in kind to Tabung Covid-19

      • Treatment: Section 34(6)(h)
      • Condition: Approval required

Scenario 3: Cash donation to Organisations with Section 44(6) status

      • Treatment: Section 44(6)

Scenario 4: Donation in cash or in-kind to approved community and charitable projects

      • Treatment: Section 34(6)(h)
      • Condition: Approval required

范例 1:现金捐款给冠病基金

      • 待遇: 第 34(6)(h) 条规 或 44(6) 条规
      • 条件: 如果是 第34(6)(h) 条内,纳税者必须获得批准

范例 2:实物捐赠给冠病基金

      • 待遇: 第 34(6)(h) 条规
      • 条件: 纳税者必须获得批准

范例 3:现金捐款给第44(6)条认可的组织

        • 待遇: 第 44(6) 条规

范例 4:现金或实物捐赠给合格机构

      • 待遇: 第 34(6)(h) 条规
      • 条件: 纳税者必须获得批准


Taxpayers would need to reassess whether expenses incurred makes commercial sense, revenue or capital in nature or disallowed for deduction under the Act. Although case laws have been helpful in clarifying rules on deductibility such as which expenses are revenue and capital in nature, the question of whether tax deduction is allowed is often a question of fact as cases on the same facts but with different purposes may have different tax implications.



Note: If there is any inconsistency between the English and Chinese versions, the English version shall for all intent and purposes prevail. 


Finance Bill 2019 and Budget 2020 highlights for the millenials

The highly anticipated Budget 2020 was announced by the Pakatan Harapan Government on 11 October 2019. This was a momentous event not only because it was a budget created where the government of the day had a full year of being in power but also to address the elephant in the room – debt crisis. The Budget’s theme was “Shared prosperity: Sustainable and inclusive growth towards high-income economy” and although there were not as many changes as anticipated compared to the previous budget, it was a well-thought one.

The Budget 2020 includes policies and recommendations as well as the allocation of funds into various parts of the country. On the other hand, the Finance Bill 2019 addressed the more legal side of things where it involves amendment in, amongst others, the following acts: Income Tax Act 1967, Real Property Gains Tax Act and Stamp Duty Act.

Below includes some of the policies recommended to be in place for the year 2020:

1 Policies affecting the labour market

Under the Budget

  • The minimum wage in major cities will be increased to RM1,200 from the current RM1,100.
  • Maternity leave will be increased to 90days from the current 60 days effective 2021
  • Eligibility to overtime will be extended to those earning less than RM4,000 from the current RM2,000 per month
  • Disabled persons and singles above the age of 40 and earning less than RM2,000 will receive RM300 Bantuan Sara Hidup aid.
  • To encourage women participation in the workforce, the current tax exemption for women returning to work is extended for another four years.


2 Improving traffic accessibility and cost

Under the Budget

  • RM450mil will be spent on electric buses for public transport.
  • A Targeted Subsidy Programme will be implemented and aimed at individuals who do not own more than 2 cars and 2 motorcycles. The subsidy will be allowed on only one motor vehicle.
  • Plus Highway tolls are to be reduced by at least 18%.
  • The cost of passing through highways will be dependent on the time of travel with the implementation of a congestion charge which will be lowered by up to 30% from the present charge rate whilst travelling outside peak hours will be free.

3 Reducing property overhang

Under the Budget

  • Foreign ownership of highrise properties will be reduced to Rm600k from the current RM1mil.
  • RM10billion Rent to Own financial scheme will be implemented where the individuals will rent the property for 5 years and thereafter decides if he wants to purchase the property.


4 Affecting corporate tax

Under Finance Bill 2020

  • It is recommended that the threshold of chargeable income for SME for enjoying a lower tax rate of 17% will be increased to RM600,000 from the current RM500,000 before being charged the higher rate of 24%. (effective YA 2020)
  • Special allowance for small value assets will be increased to RM2,000 from the current RM1,300 and the collective amount of special allowance claimed will be restricted to RM20,000, higher than the current RM1,300. (effective YA 2020)
  • Previously, the P.U. (A) 336/2014 Income Tax (Deduction for expenses in relation to secretarial fee and tax filing fee) Rules 2014 allows a maximum deduction of RM5,000 on secretarial fees and RM10,000 on tax fees. Currently, it is proposed that a resident company is entitled to a deduction of not exceeding RM15,000 collectively of both secretarial and tax fee.
  • For players in the electrical & electronics (E&E) industry and in line with the government’s vision of Industry 4.0, the Budget proposes an income tax exemption for up to 10 years on investments in selected knowledge-based services. The Budget further proposes for a special investment tax allowance to encourage E&E players to continue investing in Malaysia after exhausting the Reinvestment Allowance.
  • Accelerated Capital Allowance and automation equipment capital allowance for the manufacturing sector on the first RM2 million and RM4 million incurred on qualifying expenditure to be extended to YA 2023. Currently, this incentive is due to expire in YA 2020.
  • Technology-based companies and SMEs listing on the ACE Market or the LEAP Market (but not the Main Market) of Bursa Malaysia will be allowed to claim a tax deduction of up to RM1.5 million for listing fees to the authorities, professional fees and underwriting, placement and brokerage fees for from YA 2020 to YA 2022. Such expenses are currently not eligible for a tax deduction when computing the corporate tax.
  • Adopting the Modified Nexus Approach (which supersedes the previous one expiring 31 December 2018), the Bill proposes that 100 per cent of income tax exemption up to 10 years on income derived from patent and copyright of qualifying activities. The added restriction is that this only applies to intellectual property in Malaysia.


5 Affecting personal tax

Under the Finance Bill

  • There will be a new tier of personal income rate of 30% to be imposed on those earning RM2mil and above. The highest tier currently is 28%.


6 Affecting real property gains tax

Under Finance Bill 2020

  • For real property acquired before 2013, the market value of the property as of 2013 will be deemed to be the acquisition cost of the property for the purposes of calculating real property gains tax.
  • Companies incorporated outside of Malaysia who disposes of real property will be subjected to the same real property gains tax rate as an individual.
  • Companies incorporated inside of Malaysia and trustee of a trust will be subjected to the prevailing real property gains tax rate. Previously, there was no such distinction of companies incorporated in Malaysia or outside.


8 Affecting stamp duty

Under Finance Bill 2020

  • Only Malaysian citizens will qualify for a 50% remission of stamp duty for transfer of real property between parents and children and vice versa for natural love and affection. Currently, it applies to both citizens and non-citizens.
  • To assist in Malaysians acquiring their first home, it is proposed that there will be a stamp duty exemption under the Rent-to-Own scheme on the following instrument of transfer of property valued up to Rm500k subjected to obtaining approval.


7 Affecting other legal implications

Under Finance Bill 2020

  • Section 103 of the Income Tax Act 1967 is amended by removing further penalties on non-compliance of delay in making tax payment after the due date. It is proposed that the penalty remains 10% regardless of the time span of delay from the current increase of 5% if payment is delayed after 60 days.
  • Persons who understated its tax payable and makes an amendment return will be penalised 10% of the amount understated regardless if the amendment was made 60 days before or after the date of deemed assessment. This is different from the current additional penalty of 5% if the amendment is made after 60 days but before 6 months after the filing of a deemed assessment tax return.
  • A time restriction of 7 years is imposed for taxpayers wishing to apply for an extension of time to appeal against assessments made by the IRB. Currently, there is no time restriction.
  • Assessment under the Mutual Agreement Procedure will not be subjected to any time limitation.
  • The Special Commissioner of Income Tax and the Customs Appeal Tribunal will merge to form the Tax Appeal Tribunal which is expected to be in operation in 2021.

Focus update: Reinvestment allowance


  1. KPHDN v Nulogitec Industries Sdn Bhd (High Court)


This case concerns the taxpayer’s claim for reinvestment allowance (RA) used to purchase a factory and machineries. The taxpayer had in the year 2004 relocated to a new and larger factory to house its manufacturing business.

  1. The RA was refused as the factory was a first-time purchase of a factory by the taxpayer

The overall contention by the tax authorities was that the factory does not sit well with its view of the circumstances in which a factory is eligible for RA. Pursuant to Public Ruling 2/2008, the tax authorities were of the view that “a company moving from a rented factory to its own factory… does not qualify for RA”.

The flaw in the above argument is threefold. Firstly, the operative and governing words in para 8(a) of Schedule 7A are the words “its existing business”. Therefore, reinvestment must be made in the existing business and not the existing factory. This is fulfilled as the taxpayer had invested in the business for many years by operating in an alternate factory prior to this purchase.

Secondly, the Public Ruling is inapplicable as it was stipulated in para 13 that “This Ruling is effective for the year of assessment 2008 and subsequent years of assessment.” Therefore, the Public Ruling does not apply to the taxpayers as the acquisition was made in 2004.

  1. The RA should be refused as the revenue did not rise but plummeted after the acquisition

Although agreeing on the point that there were automation, modernization and expansion, the tax authorities raised the objection of whether RA should be allowed since sales did not increase after the acquisition.

To this, the Court stated that there was no statutory provision that expressly stipulates proof of increased sales post-reinvestment. It would be unfair to impose such a burdensome condition in the vaguer of the economic climate.


  1. Lavender Confectionery and Bakery Sdn Bhd v KPHDN (High Court):


The case involves the claimant’s claim for RA and Industrial Building Allowance (IBA). For the claim under RA, the claimant made the claim on the following items:

  1. Sinmag spiral mixer – RM16,000
  2. Sinmag autobun divider – RM40,000
  3. 2 units of electric donut fryers – RM4,590
  4. 2 units of electric donut fryers – RM3,500

Paragraph 1 of Schedule 7A of the Income Tax Act 1967 stipulates the conditions for a company to qualify to claim RA:

  1. In operation of not less than 36 months
  2. Had incurred capital expenditure on a factory, plant and machinery used in Malaysia for the purposes of the qualifying project.

Qualifying project would, in turn, mean a project undertaken in expanding, modernising, or automating its existing business of manufacturing. Public rulings further clarify that not all plant and machinery are eligible for RA such as those for packaging purposes.

  1. The RA was refused due to illegality

The basis in which the RA was refused is due to the fact that they were not used in the factory but rather they were used in one of the claimant’s outlets, the 1 Utama outlet did not carry a license for manufacturing pursuant to Industrial Co-ordination Act 1975 (‘ICA 1975’) and/or they were not part of a qualifying activity. Therefore, the RA should be refused according as it should not be regarded as “business of manufacturing” due to an element of illegality.

In determining whether it is a factory, the court alluded to the use of the “functionality test” in determining the word “factory”. The test then becomes the functionality of the claimed items in the overall context of production in the manufacturing process ought to be taken as a valid factor. The requirement for a license under the ICA 1975 has no application in the instant case as the IRB should not be reading into the act to impose further conditions.

  1. The RA was refused due to the fact that the machineries were not used in the factory

The court held that RA is not limited to ‘production area’ as such criteria was not stipulated within the act but only as internal guideline of the IRB. As long as the plant and machineries were used for expansion, modernisation, automation or diversification, the RA claim should be allowed.

Additionally, reinvestment allowance should be allowed as long as it is used in the taxpayer’s existing business as in Nulogitec Industries Sdn Bhd.

Additionally, the relevant statute provides that RA is available where it is incurred on “a factory, plant and machinery” which suggests that each element is independent. Therefore, in so far as the expenditure is made on either a factory OR a plant OR a machinery and it is for the purposes of a qualifying project, RA should be allowed.

Based on the above points, the taxpayer’s claim for RA was allowed. The decision was upheld in the Court of Appeal as well.


In 2012, the word ‘factory’ was given a new definition vide the Finance Act 2012, which provides that

“factory” means portion of the floor areas of a building or an extension of a building used for the purposes of qualifying project to place or install plant machinery or to store any raw material, or goods or materials manufactured prior to sale”

I am of the opinion that the definition does not materially affect the both taxpayer’s ability to claim Reinvestment Allowance as the taxpayer is entitled to claim as long as it is a qualifying project in the business.

I think Lavender Bakery is a good example of how, for the purposes of claiming RA, the plant and machinery need not be used in the factory as long as it is used to expand the business. Additionally, RA is also available where a continuing part of the manufacturing process albeit in a different place from the factory.

Understanding RPGT 2: Real Property Companies

Following the previous post on Real Property Gains Tax (RPGT), this post aims to shed a spotlight on another field of transaction which will also attract RPGT- sale of shares in a Real Property Company (RPC).

Generally, Malaysia does not charge any capital gains tax (neither does Malaysia have a CGT regime) on sale of shares. The exception being profit accruing from the sale of Real Property Company’s shares pursuant to RPGT Act 1967.

The general background of why RPGT is imposed on the sale of RPC shares is because such shares are considered to be a sale of any sort of interest of real property itself. It exists to cover the tax loophole that was exploited to avoid paying RPGT on sale of real property.

Characteristics of an RPC

Following Para 34A(6) Schedule 2, an RPC is defined as a controlled company who owns real property or shares and the defined value is equal or more than 75% of its total tangible assets (TTA).

i) Controlled company

A controlled company is a company that has less than 50 members but is mainly controlled by not less than 5 members.

ii) Real property or real property shares

Real property is “any land situated in Malaysia” and any interest, option or other rights in or over such land” whilst real property shares are well… shares in a real property company.

iii) Total tangible assets (TTA)

TTA means the total value of tangible assets the company has which includes but not limited to fixed assets ie plant and machinery, buildings and land, current assets ie cash, inventory and cash receivables as well as investment. What isn’t included are intangible assets i.e. intellectual property like patents and copyrights.

Once an RPC share, always an RPC share

A company ceases to be an RPC when it either fails to fulfil either of the criteria which is either when it has more than 50 members or is controlled more than 5 people or that the defined value of real property/ RPC shares falls below 75% of the company’s TTA.

However, the understanding of “once an RPC share, always an RPC share” is that if a person acquires RPC shares, or it holds shares in the company which subsequently becomes an RPC, the shares in which the person holds will be RPC shares even if the company ceases to be an RPC. Therefore, the disposal of such shares will be subjected to RPGT.


Scenario 1: A purchases shares in Company XYZ on 1 January 2012 which is not an RPC. Subsequently on 30 June 2012, Company XYZ becomes and RPC as consequent of purchasing a valuable piece of land. When A decides to dispose of his shares in Company XYZ on 10 January 2019, the profit made on the sale of the shares will be subjected to RPGT of 5%.

Rationale: When A purchased shares in Company XYZ, they were not RPC shares. However, when Company XYZ becomes an RPC, A is deemed to now be holding RPC shares and therefore the sale of such shares are RPC.

The purchaser of shares on 10 January 2019 is considered to have purchased RPC shares.

Scenario 2: A purchases shares in Company XYZ on 1 January 2012 which is not an RPC. Subsequently on 30 June 2012, Company XYZ becomes and RPC as consequent of purchasing a valuable piece of land. On 30 July 2018, Company XYZ disposes of the said piece of land and hence is no longer an RPC. When A decides to dispose of his shares in Company XYZ on 10 January 2019, the profit made on the sale of the shares will be subjected to RPGT of 5%.

Rationale: Despite the cessation of the company being an RPC on 30 July 2018, the shares held by A are deemed RPC shares from 30 June 2012 onwards and will be as such during disposal.

However, since Company XYZ ceases to be an RPC from 30 July 2018, the shares purchased from on 10 January 2019 are not RPC shares because the company is no longer an RPC. Hence there can be a situation where on seller’s side, he is selling RPC shares but on the buyer’s side, they are not RPC shares.

Therefore, it is important for the intended seller to analyse and consider whether the shares held are RPC shares and subject to RPGT. Failing to remit the required taxes and the buyer and seller will be subject to penalties and fines.

Timing for determination of an RPC

Quite apparent from the situations above, a company can “accidentally” become an RPC by virtue of purchasing real property. Companies would often avoid being an RPC for the reason that the members may find it difficult to sell the shares in the company thereafter because of the RPGT.

Whether or not a company becomes an RPC depends on whether on the day when the company purchases the interest of the real property, whether the defined value of the real property exceeds 75% of the company’s TTA. Where there is a contract, the disposal is on the day that the contract is signed; where there is no contract, the disposal is on the day of completion of disposal (Para 15 Schedule 2 RPGT Act 1967).

Para 34A(6)(b) Schedule 2 RPGT Act 1967 reads “a controlled company to which subsubparagraph (a) is not applicable, but which, at any date after 21 October 1988, acquires real property or shares or both whereby the defined value of real property or shares or both owned at that date is not less than seventy-five per cent of the value of its total tangible assets”

So a company becomes an RPC on the day acquires real property and the defined value of the property is not less than 75% of the company’s TTA. Therefore, the financial position of the company on that day is of paramount importance for the company to determine whether the shares in the company turns into RPC shares.

Computation of RPGT

The calculation of RPGT from the sale of RPC shares differs slightly from the calculation of real property slightly because more often than not, there is no market value attached to them since it is quite unlikely that public listed companies are a controlled company, hence nevermind being an RPC.

In the event of Scenario 1 and 2, whereby A’s shares become RPC shares years after the acquisition of the shares, the deemed acquisition price of the RPC shares is as follows:

Screenshot 2019-04-28 at 9.01.33 PM

Therefore, the computation of RPGT payable is as follows:

Step 1: Chargeable Gain = Disposal Price – Purchase Price – Miscellaneous Charges/ Incidental cost

Step 2: Net Chargeable Gain = Chargeable Gain – Exemption waiver (RM10k or 10% of the chargeable gain, whichever is higher)

Step 3: RPGT payable = Net Chargeable Gain x RPGT Rate


Determination of whether a company is an RPC is especially important during a corporate exercise or merger & acquisition operation owing to the logic that “once an RPC share, always an RPC share”. Note that both the seller and buyer have to file RPGT returns within 60 days from date of transaction and failing to do so will risk incurring penalties.

The differences between Income Tax Act, Public Rulings and PU order

Unknown to most, the Income Tax Act 1967 is not the only piece of document that has the force of law. When determining the deductibility of expenses and whether income from a certain source is subject to tax, tax consultants (me) would refer to several places and with reference to various other documents to make a rational judgment for the client. To supplement the Income Tax Act, it is common, amongst others, to refer to the Public Rulings and PU orders.

What are Income Tax Act, Public Rulings and PU orders?

The Income Tax Act requires no extensive introduction. It is the authority which mandates taxpayers to pay taxes, the types of income subjected to tax and where the IRB draws its power and jurisdiction from. It is also perhaps the only Act which is amended almost every single year following the passing of a new Finance Act every year owing to the always highly-anticipated Budget announced by the government each year.

The lesser-known nephew of the Income Tax Act called the Public Ruling can be found on the IRB website. These are guidance to taxpayers on the interpretation of the Income Tax Act and its various treatments. The preamble of every Public Ruling provides that “A Public Ruling is published as a guide for the public and officers of the Inland Revenue Board of Malaysia. It sets out the interpretation of the Director General in respect of the particular tax law and the policy as well as the procedure applicable to it.”

On the other hand, the Income Tax Act’s child called the PU order is a piece of subsidiary legislation that has passed through parliament and has the force of law. PU stands for “Pemberitahu Undangan” or “Legal Notification”. PU(a) contains all Royal Proclamations, orders, rules, regulations and by-laws, whilst the PU(b) contains all subsidiary legislation other than that which is required to be published in the Legislative Supplement A and generally deals with appointments and notifications.

What are the differences between the Income Tax Act, Public Rulings and PU order?

Now that I’ve outlined a very brief description of each, we’ve come to the main crux of this blog post.

  1. Force of Law

If you had been reading meticulously till here, you would have noticed that I called the Public Ruling as a “nephew” of the Income Tax Act whereas the PU order is the “son”.

This is the first difference: PU order and the Income Tax Act carries the force of law whilst the Public Ruling doesn’t. The PU order is a supplementary legislation of the Income Tax Act hence why it is “child” of the PU order whereas the Public Ruling, whilst deriving its power from Section 138A of the Income Tax Act 1967, is merely an interpretation of the Income Tax Act and a lawyer’s job is to always dispute on “interpretation” of the law. It is a guideline, opinion, point of view or advice by the IRB.

Therefore, whilst the Public Ruling’s interpretation of various issues are non-binding, any deviation from the public ruling would attract a tax audit, tax investigation and tax penalty. If aggrieved or discontent with the Public Ruling, taxpayers will always have the choice of challenging it via the legal route (which if you didn’t know, goes to the Special Commissioners of Income Tax, High Court and ends at Court of Appeal. The Federal Court does not hear tax cases.)

2. The contents

The contents of each document also differ and it is only when a taxpayer reads all three comprehensively would he have a better understanding of whether an item is taxable or not.

The Income Tax Act is first, an outline about the rights and responsibilities of taxpayers, secondly, a source of power for various bodies (most notably the IRB) and thirdly, a provision for institutional mechanisms. It is separated into 2 parts: the main body and the schedules. Just to briefly provide some example of its contents: Section 4 provides the types of income to be taxed, Section 20 conveys the basis period for a year of assessment of taxes, Section 33 is about the deductibility of expenses and encapsulates the “wholly and exclusively”, Section 42 aggregate income, Section 43 statutory income and Section 45 chargeable income. Schedule 6 concerns the deductibility of expenses and Schedule 7 is about capital allowances.

The PU order supplements the Income Tax Act as subsidiary legislation and it provides clarity on certain issues in which taxpayers can be 90% sure that the treatment will be correct (90% because anything can be an issue on interpretation). The contents are usually very short and sweet and deal with one issue per notification.

An example on the interaction between Income Tax Act and PU Order is on the deductibility of certain expenses. For example, under S33 on determining whether an expense is deductible or not, Audit fees, Tax services fees and Secretarial fees are non-deductible. This is because section 33 provides that for an expense to be deductible, it must be “wholly and exclusively in the production of gross income”. Audit fees, Tax services fees and Secretarial fees whilst being a requirement under law to continue operation, is not in itself involved in the “production of gross income” and hence would be added back in the computation of chargeable income. Audit fees, Tax services fees and Secretarial fees can be very substantial especially to a public listed company with various statutory obligations to obliged by. Hence after lobbying by various parties, a PU order called Income Tax (Deduction for Expenses in relation to Secretarial Fee and Tax Filing Fee) Rules 2014 and also Income Tax (Deduction For Audit Expenditure) Rules 2006 to provide for this deduction.

As mentioned previously, Public Rulings are guidelines and interpretations of the Income Tax Act. The contents are simple to read and understandable to the masses. It provides many examples and scenarios, how the treatment of various issues should be and breaks down the statutes into piecemeal by interpreting the statute into common English parlance (that lawyers may or may not agree haha).

3. Relief procedures

If say you made a mistake on your tax returns based on interpretation of the law, appeal against the IRB on their judgement on your tax return or if you wish to object to the treatment of certain items under the public ruling, each would entail a different process.

The relief procedure is more or less the same depending on the type of relief sought.

  1. Appeal against assessment

Under the Income Tax Act, the IRB has the power to conduct tax audit and perhaps issue a notice of assessment which will increase the tax payable on an entity with the penalty added. This is when the IRB is of the opinion that you have under-declared your income, claimed deductions in excess of what should be permitted etc.

Under Section 99 of the Income Tax Act, a person aggrieved by the decision may make an application to the Director General within 30 days upon service of the Notice of Assessment stating the grounds of appeal (except for Advanced Assessment, the application would need to be done 3 months). Extensions are allowed under Section 100.

However, the right to appeal under Section 99 is disallowed if it is to claim relief against a deemed assessment or deemed assessment on amended return from 24 January 2014 onwards unless it was made in disagreement with the public ruling made under section 138A or any practice of the Director General generally prevailing at the time when the assessment is made. Therefore, according to PR 7/2015, what is allowed to be appealed under this is section are:

  • Assessment/ additional assessment/ advanced assessment/ notification of non-chargeability (NONC) by the IRB
  • Best judgement assessment made without ITRF or late submission of ITRF
  • Deemed assessment and deemed amended assessment where the taxpayer does not agree with the tax treatment stated in any PR made under section 138A of the ITA or known stand, rules and practices of the DGIR prevailing at the time when the assessment is made.

Reduced assessment is also allowed if there are issues in the notice disputed by the taxpayer.

B) Relief on mistake and error

A taxpayer may make an application for relief under section 131 in respect of error or mistake in the in his Income Tax Return Form. The determination of whether a taxpayer has made an error or mistake is a question of fact and law.

The conditions under subsections 131(1) and (4) of the ITA are:

(a) Application for relief under Section 131 of the ITA will not be considered if the ITRF is made in accordance with the known stand, rules and practices of the DGIR prevailing at the time when the assessment is made. (b) The taxpayer must pay all taxes that have been made for the year of assessment in which an application in respect of the error or mistake is made. (c) The taxpayer must make a written application by way of a letter or Form CP15C to the DGIR within five (5) years after the end of the year of assessment in which the assessment is deemed.

Previously, it was assumed that if you willingly and knowingly followed a Public Ruling without knowing that the treatment in the Public Ruling is wrong or challenging it, you are prevented from appealing. This was interpreted under Section 131(4) which provides that “No relief shall be given … in respect of an error or mistake… if the return … was in fact made on the basis of … the practice of the Director General generally prevailing at the time…” where “practice of the Director General” was understood to be referring to the Public Ruling. This was overturned on appeal in RGTSB v Ketua Pengarah Hasil Dalam Negeri where it was held that “practice of the Director General” does not include the Public Rulings. The basis was that the preamble of the Public Ruling does not mention that it is a Practice of the Director General, a distinction between the Public Ruling and practice of the Director is made under Section 99(4) and on the basis of fairness. Therefore, where taxpayers have erroneously followed a public ruling, relief is allowed.

C) Relief other than in respect of error or mistake

Introduced in the Finance Act 2017, Section 131A supplements the Act by providing more avenues for relief for a taxpayer on the basis that the return is excessive by reason where any exemption is approved AFTER the year of assessment in which the return is furnished or issues regarding the deduction of withholding tax.

The conditions under this new provision are: the Tax Return must be in accordance with S77 and S77A (which means the Tax Return must be filed on time) and all taxes for the relevant year of assessment has been made.

To be eligible for the relief, the application must be made within 5 years, after the end of the year, from which the exemption was Gazetted or approval was granted (whichever later) but in the case of withholding tax, 1 year after payment was made. A taxpayer will resort to this provision when he is, for a year assessment, eligible to claim exemption, allowance or deduction but the approval for such is only granted after the end of the year of assessment. For example, Company A ends its accounts on 30 June 2016 and submits it’s Form C (Income Tax Return Form for Companies) on 30 November 2016. It had applied for pioneer status and approval was granted on 30 May 2018 for the period 1.1.2016 to 31.12.2020. The taxpayer may apply for relief under S131A to have its tax paid for YA 2016 and YA 2017 to be reduced accordingly before the end of 5 years from 31st December 2018, which is 31st December 2023.

Exclusion clause, a turning point ?

So I was just casually browsing the web when an article piqued my interest. ‘Bank can’t use exclusion clauses to escape liability, court rules’. This piqued my interest for several reasons. However, let me simply explain what is exclusion clause and what this ruling means.

The word ‘exclusion clause’ would be familiar to law student. It is of general knowledge that when parties to contract sign a contract, they are bound by the terms of the contract. This is based on the reasoning that both parties have negotiated the contract, and provided their consent and willingness to be bound by the terms of the contract. Hence, if a party refuses to follow or abide by the terms of the contract, the other party would be able to claim legal action.

Having said that, it is also common fore a standard contract today, to have an exclusion clause, or at least a limitation clause. Depending on how the clause is worded, the party is able to exclude any liabilities in the event that something happen. A typical example would be if a person is staying in a hotel room. There is usually an exclusion clause, stating that the hotel will not be liable for any losses of items in the hotel room. Thus, if a person’s camera is stolen in the hotel room, the hotel will not be liable or responsible for the loss. If the person claims legal action, the hotel would merely claim that ‘look, you signed the contract. the contract has an exclusion clause. The exclusion clause says that we are not responsible for any loss suffer during your stay. Thus, we are not responsible for the loss.

In Anthony Lawrence Bourke v CIMB (2017), The appellant alleged that CIMB has breached the contract for not releasing progressive payment as per the contract. CIMB in respond, relies on the exclusion clause.

Learned counsel for the Appellant raised 3 grounds in regards to the interpretation and construction of the exclusion clause. At Para [44] of the judgment,

“The three grounds raised were that Clause 12 is void under Section 29 of the Contracts Act 1950; it is against public policy and it is not an absolute exemption on the liability of the Respondent Bank.”

In response, the Learned Counsel for the Respondent, relying on CIMB Bank v Maybank Trustees Berhad and other Appeals [2014] 3 MLJ 168 that the exemption clause must be enforced, however unreasonable the court may think.

Section 29 of the Contracts Act 1950 reads the followings:

Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent.

In other words, Section 29 renders a contractual clause which prohibits absolutely the right to enforce a contract by usual legal proceedings void. At para [52], the court noted that:

“It is obvious to us as well as to the learned counsel of the Appellants, and so to the Respondent, that Clause 12 has the effect of excluding the liability of the Respondent bank for any cause of action arising out of the Loan Agreement. Consequently it is a clause that negates the right of the Appellants herein to a suit for damages; the kind spelled out in that clause, which encompass all form of damages under a breach of contract or under a suit of negligence.”

After further consideration of primary and secondary obligation, the court noted that:

we are of the considered view that Clause 12 contravenes section 29 of the Contracts Act, because in its true effect it is a clause that has effectively restrained any form of legal proceedings by the Appellants against the Respondent bank. It can be clearly demonstrated by the current appeal that despite our findings on the breach by the bank in this case if Clause 12 is allowed to stay it would be an exercise in futility for the Appellants to file any suit against the Respondent bank.

The court is effectively noting that the Bank could not rely on the exclusion clause to exclude or avoid liabilities as ‘that particular exclusion clause’ contravenes Section 29. As Lawyer Ong Yu Jian, the learned counsel for the Bourkes noted that the ruling remove the ‘bulletproof vest’ of banks that prevent clients from filing suits on equal ground. He further noted that

“This decision would improve the standards of the banking industry as a whole, as it would make banks more careful and accountable to their customers in their day-to-day dealings,”

In addition to the legal interpretation of the applicability of the exemption clause, Judge Balia Yusof Wahi explains that “Parties are not on equal levels. In today’s commercial world, the customer has to accept the contract as prepared by the other party.” There is effectively an unequal bargaining power by both parties unlike the hypothetical scenario mentioned earlier. In the event where there is unequal bargaining power by both parties, it is of the public policy for the court to interfere to protect the public. If the public suffers unfairness, the court ought to intervene.

It is said that the commercial very much value certainty. Thus, in interpreting any contract between parties, the court would often want to uphold the contract rather than striking it down since it is a contract made with the consent of both parties. Thus, this decision can be seen to be a turning points of sort where the court is willing to rule the exemption clause to be void, despite being a term to a contract which both parties consented to. However, it is important to note that based on the judgment, it would seem that not all exclusion clause would contravene Section 29. It very much depending on the wording of the clause, and the bargaining power of both parties.

The Tea Tiff

La Kaffa International Co Ltd v Loob Holdings Sdn Bhd and Another


Franchise Law

Franchising is simply defined as a tit for tat strategy where on one side it helps smaller companies to develop and prosper under the guidance of a bigger company while simultaneously allowing the bigger company to increase and expand their distribution. Guidance in this scenario encompasses being bound by rules of the franchise agreement.

Franchising in Malaysia is governed by the Franchise Act 1998 (Franchise Act), as amended by the Franchise (Amendment) Act 2012 which came into force on 1 January 2013, and the Franchise Regulations 1999 (amended by the Franchise (Forms and Fees) (Amendment) Regulations 2007).

Loob Holding Sdn Bhd (“Loob Holding”) was appointed as a Chatime franchisee in 2011 by La Kaffa International Co. Ltd (“La Kaffa”) and entered into a franchise agreement called Regional Exclusive Representation Agreement (RERA). Chatime outlets mushroomed across Malaysia with 165 outlets being owned and operated by Loob Holdings. Loob Holdings is the master franchisee with the outlets being either directly owned, sub-franchised or a joint venture with sub-franchisee.

“Due to disagreements with Loob Holdings, we have no choice but to make this painful decision”

Teresa Wang

Executive Vice President, La Kaffa

On 5th January 2017, despite having 24 more years to go, La Kaffa terminated RERA with Loob Holdings. Among others La Kaffa alleged that :

  1. Loob Holdings has violated Article 7 of RERA which states that Loob Holding can only purchase raw materials from La Kaffa.
  2. Loob Holdings has violated Article 10 of RERA by delaying and denying La Kaffa’s request to exercise its rights to inspect and audit.
  3. Despite repeated demands, Loob Holding has failed to comply with the terms of RERA and/or failed to make payment of, amongst others, the purchase of raw materials from the Plaintiff.

The dispute between the parties was to be resolved through arbitration in Singapore. This is due to Article 18 of the RERA which states that the RERA is governed by Singapore laws and any disputes regarding the RERA shall be arbitrated at the Singapore International Arbitration Centre.

“The three franchisees with four stores will maintain the Chatime name. The rest will be rebranded into Tealive from Feb 18 onwards”

Bryan Loo

CEO, Loob Holdings

Following the termination of RERA, in what appeared to be a well calculated and well maneuvered move, Loob Holdings was able to convince 95% of existing Chatime outlets to join them in new venture under the Tealive brand. At the time of the takeover, Chatime Malaysia accounted for 20% of La Kaffa’s total revenue. La Kaffa therefore commenced proceeding in the Malaysian High Court to obtain injunction (prohibitory and mandatory) against Loob Holdings pursuant to section 26(1) and 27(1) of the Franchise Act 1998. The interlocutory proceeding was issued pending the disposal of the Singapore Arbitral Proceedings under provision relating to application for interim injunction under section 11 of the Malaysian Arbitration Act 2005. As La Kaffa did not seek a perpetual injunction, if the Court grants interim injunction, it would last until the disposal of the Singapore Arbitral Proceeding.

The High Court held that it could not close Tealive down because provision s. 27 of the FA 1998 was not incorporated into the RERA and Loob Holdings and its related parties did not give a written undertaking to cease business for two years. The High Court was of the view that Tealive does not need to close down because Loob Holdings did not promise to close down after the termination of the RERA. The High Court Judicial Commissioner Wong Kian Kheong (as then he was) was of the view that the issue before the Court was whether La Kaffa is entitled to an interim injunction so that it can be used to support, assist, aid or facilitate the Singapore Arbitral Proceedings. Further, the high court found that the balance of convenience lies against the granting of the interim injunction in view that it carries a higher risk of injustice than a refusal of the interim injunction. As such, La Kaffa’s claim was refused.

“the following third parties will be adversely affected by interim restraining injunctions awarded against Loob

(iia)  161 Tealive Franchisees have to close shop immediately;

(iib)  the livelihood of about 800 employees of Loob and 161 Tealive Franchisees (Tealive Employees) will be jeopardised;

iic)  the families and dependants of Tealive Employees; (iid)  the suppliers and contractors of Loob and 161 Tealive Franchisees;

(iie)  the bankers and creditors of Loob and 161 Tealive Franchisees; and

(iif)  the landlords of the office and business premises of Loob and 161 Tealive Franchisees”


Judicial Commissioner High Court (Commercial Division)


La Kaffa appealed to the Court of Appeal next and in granting the prohibitory injunction, overturned the High Court’s decision. The Court of Appeal held that firstly, a simple construction of Article 15 of the RERA as well as s. 27 of FA 1998 will demonstrate that there is an obligation for Loob not to compete with La Kaffa’s business even after the termination of the RERA. In simple terms, The Court of Appeal said that the franchise agreement and the Franchise Act both state that the franchisee (Tealive) cannot carry on a competing business after terminating the franchise agreement. The creation of Tealive was, on the face of it, in contravention of the prohibition (doing something despite not being allowed to do it) under the franchise agreement and the Franchise Act. Secondly, In light of Article 15 of the RERA and s. 27 of FA 1998, the High Court ought not to have refused the prohibitory injunction. When parties have agreed not to do certain acts and a statute also provides for such protection, the court is obliged to give effect to ensure the salient terms of the agreement as well as the statute is not breached. The Court of Appeal held that the court should not allow someone to continue doing something that they aren’t legally allowed to do in the first place. Moreover, The Court of Appeal found it unjustifiable for the High Court to rely that the Tealive bubble tea business consisting of 161 outlets and the livelihood of 800 employees will be affected.

“Courts should not lend its hand to persons who on the face of records are seen to be cheats”

Hamid Sultan Bin Abu Backer, JCA

(Majority Decision)

Court of Appeal


Fortunately for Loob Holdings, despite being dismissed on a majority of 2-1, the stay of execution was granted by the Federal Court. Nevertheless, Tealive will be forced to close down until the disposal of the Singapore Arbitral Proceedings if the Federal Court were to refuse leave for Loob Holdings to appeal to the Federal Court.


In a joint statement released on the 30th August 2018, Loob Holding Sdn Bhd (Tealive) and La Kaffa International Co Ltd (Chatime) announced that both companies have reached an out- of court settlement to amicably resolve all disputes arising from their one time franchise relationship of the Chatime bubble tea brand.

In light of the amicable resolution, both parties have agreed to withdraw all ongoing proceedings in Malaysian courts as well as arbitration in Singapore.

Case comment: Of con men and chargees

The author discusses the case of CIMB Bank Berhad v AmBank Berhad & 2 Ors [2017] 5 MLJ 142. It is a Malaysian land law case on deferred indefeasibility, the position of chargees and the meaning of ‘purchaser’ in the National Land Code 1965 (‘NLC’). To appreciate this article, the reader must have a basic understanding of how to interpret section 340 of the NLC.

Many candidates who sat for the Certificate In Legal Practice must have collectively groaned (inaudibly, of course) when they laid their eyes on the Professional Practice paper last month. One of the questions bore some similarity to the case of CIMB v AmBank where the Federal Court made significant statements in its majority judgment and Jeffrey Tan FCJ delivered a dissenting judgment that, I believe, piques the interest of land law enthusiasts.

I thought that CIMB v AmBank was interesting because, unlike most other significant decisions on indefeasibility, this one involved two titans going head-to-head with one another in a decision that concerned many banks and financial institutions.

In this post, I will briefly outline the case facts. Then, I will summarize the decisions of the High Court, Court of Appeal and Federal Court here and offer my thoughts on the case here.

The brief facts

Diagram 2

On 17 March 2006, as security for a loan, a charge was granted over a piece of land owned by Ching Ting Seng and Ching Chong Lup (‘the Chings’) in favour of Southern Bank Berhad (‘SBB’). Soon after, CIMB Group Holdings Bhd acquired SBB, thus CIMB Berhad took over SBB’s assets. On 14 November 2008, Wong Chee Keong (‘Wong’) applied for a loan from AmBank to finance the purchase of said land from the Chings. Wong created a charge over the land in favour of AmBank as security for said loan.

Both Wong and AmBank appointed solicitors who dealt with each other extensively. Eventually, AmBank’s solicitors received the purported document of title, the duly stamped Memorandum of Transfer (‘MoT’), the purported Discharge of Charge executed by CIMB and the duplicate of the charge from Wong’s solicitors. It is undisputed that the purported document of title was not issued by the registering authority and that the purported Discharge of Charge was forged.

Following one failed registration attempt, AmBank’s solicitors tried again. They presented the purported Discharge of Charge, the MoT and the charge in favour of AmBank (‘the AmBank Charge’) for registration. The authorities registered the purported Discharge of Charge, the transfer to Wong, and the AmBank Charge.

Judging from the above, it appears that Wong had masterminded the transfer of title and discharge of charge of land in one fell swoop. Strangely, there may be a positive side to this story.

If the documents were in fact legitimate, the successful registration of title and charge would have been lauded as a testament to the system’s efficiency. However, it was this same efficiency that allowed Wong to hoodwink CIMB of its registered interest.

The decisions of the High Court and the Court of Appeal

The sole issue for determination in both the High Court and the Court of Appeal was whether AmBank was an immediate or subsequent purchaser.

The High Court found AmBank to be an immediate purchaser. The Court of Appeal found AmBank to be a subsequent purchaser and stated that the High Court failed to appreciate the two-stage nature of the transaction:

  1. First, CIMB’s charge was discharged and the transfer occurred from the Chings to Wong, resulting in Wong becoming the immediate purchaser.
  2. Then, AmBank derived their interest in the property from Wong, making AmBank the subsequent purchaser.

The blue arrow represents the High Court’s line of thinking and the red arrows represent the Court of Appeal’s argument that there was a two-stage transaction.

Now, what is an article on section 340 of the NLC without an excerpt of it?

340. Registration to confer indefeasible title or interest, except in certain circumstances
(1) The title or interest of any person or body for the time being registered as proprietor of any land, or in whose name, any lease, charge or easement is for the time being registered, shall, subject to the following provisions of this section, be indefeasible
(2) The title or interest of any such person or body shall not be indefeasible:
(a) in any case of fraud or misrepresentation to which the person or body, or any agent of the person or body, was a party or privy;
(b) where the registration was obtained by forgery, or by means of an insufficient or void instrument; or
(c) where the title or interest was unlawfully acquired by the person or body in the purported exercise of any power or authority conferred by any written law.
(3) Where the title or interest of any person or body is defeasible by reason of any of the circumstances specified in subsection 2:
(a) it shall be liable to be set aside in the hands of any person or body to whom it may subsequently be transferred; and
(b) any interest subsequently granted there out shall be liable to be set aside in the hands of any person or body in whom it is for the time being vested:
Provided that nothing in this subsection shall effect any title or interest acquired by any purchaser in good faith and for valuable consideration, or by any person or body claiming through or under such a purchaser.

Section 340(1) sets out the general rule that any registered title or interest is indefeasible. The exceptions to this is where one of the situations under section 340(2) applies. Holding AmBank to be an immediate purchaser has the effect of placing it under section 340(2). It is now trite law that section 340(2) cannot be read with the proviso under section 340(3). Following the High Court decision, AmBank was found to be an immediate purchaser and therefore its interest was defeasible.

The corollary to this is that holding AmBank to be a subsequent purchaser will enable the operation of section 340(3) and allows AmBank to rely on the protection under the proviso, which can only be read together with section 340(3).

Federal Court

At this point, you might be thinking that AmBank and its counsel thought to themselves “aiyah, no sweat” after receiving the Court of Appeal ruling. That is, until you learn that CIMB obtained leave to appeal to the Federal Court on the following question of law:

Whether a chargee comes within the meaning of ‘purchaser’ under the proviso to section 340(3) of the National Land Code?

But once again, AmBank’s counsel was victorious and CIMB’s appeal was dismissed by a majority of 4 to 1.

Md Raus Sharif CJ (as he then was) delivered the majority decision and concurred with the Court of Appeal in that AmBank was a subsequent purchaser, thus protected by the proviso. In answering the leave question, the majority judges referred to the definition of the word “purchaser” in section 5 of the NLC. The majority judgment agreed with the Court of Appeal that the transaction was done in two stages.

In his dissenting judgment, Jeffrey Tan FCJ held that both immediate and subsequent purchasers must be purchasers in good faith and for valuable consideration. His Lordship held that, since Wong was not an immediate purchaser in good faith, AmBank could not have been a subsequent purchaser. Thus, AmBank was an immediate purchaser and therefore its interest was defeasible.


1) On terminology

In the majority judgment, the former Chief Justice stated the following at Paragraph 14:

Thus, if a chargee does not come under the meaning of purchaser, then AmBank was an immediate purchaser and in such a situation AmBank’s interest as chargee was not protected by the principle of deferred indefeasibility. However, if a chargee comes within the meaning of purchaser, then AmBank was a subsequent purchaser, and thus was protected by s 340(3) of the NLC. (emphasis added)

This is confusing.

At face value, it looks like his Lordship suggested the following:

If a chargee WAS NOT a purchaser, then AmBank WAS an immediate purchaser;

If a chargee WAS a purchaser, then AmBank WAS a subsequent purchaser.

What his Lordship actually meant was:

If a chargee WAS NOT a purchaser within the meaning of the proviso, then AmBank was an immediate purchaser;

If a chargee WAS a purchaser within the meaning of the proviso, then AmBank WAS a subsequent purchaser.

I would like to humbly suggest that the use of the term “immediate purchaser” has the potential to bring about some confusion. This is because in section 340 the word “purchaser” only appears in the proviso and nowhere else. Perhaps a better term is “immediate transferee”.

My concerns are not imagined. In Paragraph 71, Jeffrey Tan FCJ stated,

With respect, the issue was not ‘whether a chargee comes within the meaning of s 340(3) of the NLC’ as proposed by the leave question. As rightly said by the Court of Appeal and agreed to by the first respondent before us, the issue was whether the first respondent was an immediate or subsequent purchaser. For if the first respondent, though purchaser, were not a subsequent purchaser, then the first respondent only acquired a defeasible interest. But of course, if the answer to the leave question were that a chargee does not come within the meaning of ‘purchaser’ under the proviso, then this appeal should be decided against the first respondent. (emphasis added)

In the highlighted text, Jeffrey Tan FCJ seems to have suggested that, following the leave question, if the respondent, though purchaser within the meaning of the proviso, were not a subsequent purchaser, then the first respondent only acquired a defeasible interest.

It is submitted that if the respondent is a purchaser within the meaning of the proviso, it must follow that it is a subsequent purchaser. In other words, it is impossible for a chargee to be protected by the proviso *and* be an immediate purchaser.

Aside from the highlighted text, I agree with his Lordship in that the true question was whether AmBank was an immediate purchaser or subsequent purchaser. His Lordship also expressed his disapproval over the framing of the leave question, which was “whether a chargee comes within the meaning of ‘purchaser’ under the proviso to s 340(3) of the National Land Code.” If answered in the negative, then it follows that chargees will never be able to benefit from the proviso. As Jeffrey Tan FCJ put it,

It would have far reaching consequences if financial institutions were excluded as purchasers.

His Lordship cited numerous authorities in support of the fact that a chargee comes within the ambit of “purchaser” within the meaning of the proviso. At one point, he even answered the leave question in the affirmative at Paragraph 90 even though he ultimately found in favour of CIMB.

I would like to propose that even though this case was a ruling on the meaning of “purchaser” within the meaning of the proviso, the most noteworthy comments were related to whether AmBank was protected by the proviso or not (i.e. “immediate purchaser” or “subsequent purchaser”) because it appears to conflict with OCBC Bank (M) Bhd v Pendaftar Hakmilik, Negeri Johor Darul Takzim [1999] 2 MLJ 511 (‘the OCBC case’).

2) Is the OCBC case still relevant?

CIMB’s counsel cited the OCBC case in support of its case. On the facts, Ng Kim Hwa (‘NKH’) alleged that Ng See Chow (‘NSC’) had forged a transfer of a piece of land and subsequently charged the land to OCBC. NKH only discovered the fraud when he was notified of an entry of a Registrar’s Caveat over the land.

Diagram 3

The title to NSC was defeated, but OCBC wanted to remain as chargee. The Court of Appeal held that OCBC could not rely on the proviso within the meaning of section 340(3) because section 340(3) had not been ‘activated’ to begin with. The late NH Chan JCA also stated the following:

A person who has no right or title to the land has no right to charge it because the land is not his, in the first place, for him to grant any interest (like a charge or a lease) in the land to someone else (such as a chargee or a lessee).

In light of CIMB v AmBank, it is clear that the above statement cannot stand. It is now clear that a charge (in favour of AmBank) will subsist even though the person who made the charge was not entitled to the ownership of the property in question (Wong). The majority reasoning may have been a long time coming, considering that the Federal Court at Paragraph 26 of Tan Ying Hong v Tan Sian San & Ors [2010] 2 MLJ 1 disapproved of the OCBC decision in obiter.

It was unfortunate that the majority judgment did not comment on the OCBC case. I believe that it would have been beneficial to do so, considering that the OCBC case also related to a two-stage transaction (i.e. of transfer and charge), yet OCBC’s interest was defeated. Since it was not overruled, we may still see counsel distinguishing CIMB v AmBank on the facts and preferring the OCBC case to defeat a registered charge.

Concluding remarks

All in all, I agree with the outcome of this decision. Surely, it is not feasible to deprive innocent chargees of protection in the absence of any principal-agent relationship (see: Abu Bakar Ismail v Ismail Husin [2007] 3 CLJ 97). Thus, the answer to the leave question could have only been ‘no’. Also, I prefer the majority decision’s ruling that there was a two-stage transaction.

It is clear from CIMB v AmBank that the concept of deferred indefeasibility reigns supreme and that there is still much room to expand on the jurisprudence relating to indefeasibility, particularly with regard to charges. I look forward to witnessing the continued maturity of this area of law.

Protecting shareholders’ rights

In light of recent events, this would be a good time to refresh and get relevant about Company Law and as the title suggests, shareholders’ rights in a company. Shareholders, being investors of the company, pour their money into a company in hopes to get a return on investment from the company so what can they do if they find RM2.6 billion appear in one of the directors’ bank account?

At its most fundamental level, the determination of shareholders’ rights depends on the types of shares they hold but this needs to be spelt out in the constitution. The type of shares they hold may confer preferential rights to distributions of capital or income, confer special, limited or conditional voting rights and also not confer voting rights (known as preferential shares).

Section 71 of the Companies Act 2016 provides that a company share, other than preference shares, confers on the shareholder the following rights:

(a) the right to attend, participate and speak at a meeting

(b) the right to vote on a show of hands on any resolution of the company

(c) the right to one vote for each share on a poll on any resolution of the company

(d) the right to an equal share in the distribution of the surplus assets of the company, or

(e) the right to an equal share in dividends.

  1. The right to vote at the AGM

By law, all public companies are required to have an Annual General Meeting once a year and failure to do so is a contravention to the law (s340). The change to the Companies Act 2016 has done away with the compulsory need for private companies to have one.

This is perhaps the most fundamental and powerful right of a shareholder– the power to influence the decisions of the company (#GE14). No shareholders should be denied the right to vote unless the share held doesn’t give the right to do so or other extraordinary reasons.

A key case dates back to the 19th century in Pender v Lushington wherein the Articles of Association, no one is allowed to vote on more than 100 shares in any meeting. Mr Pender who held 1000 shares split his votes and registered them under the names of a number of nominees. The Directors refused to have his votes counted. The court allowed an injunction for the votes to be counted. In a meeting, the company cannot look behind the ownership. A right to vote is a property right and an individual right in respect of which the member can sue. (Ps, this also allows a personal claim against the Directors for refusing to let the shareholders to vote).

(2) Statutory derivative action

A derivative action is made by a member of the company in respect of a cause of action vested in the company and in which relief is sought on behalf of the company. This is because the company is incapable of taking action against the directors who are controlling the actions of the company hence an action is brought by the concerned shareholders. As with the rule under Foss v Harbottle, the proper plaintiff in the action is the company and not individual shareholders.

Of course, the courts have been creating exceptions to the Foss v Harbottle rule where it assumes the appropriate body to decide whether litigation should be brought is the shareholders in a general meeting and leaves minimal scope for shareholders to commence derivative litigation (Kershaw). However, the new Company Act 2016 has done away with Common Law Derivative action and we only have the Statutory Derivative Action under the Act under section 347.

Therefore, Derivative proceedings can only be brought with leave of court and it will consider if (a) the complainant is acting in good faith; and (b) it appears prima facie to be in the best interest of the company that the application for leave is granted. Complainant is defined under s345.

It appears to give wide discretion to the courts whether leave will be granted. In Mohd Shuaib Ishak v Celcom (Malaysia) Berhad (the first reported case under S181A Companies Act 1965 which was the statutory derivative action then) Indeed there was no need to prove ‘wrongdoer control’, doesn’t exclude negligence and no set bar to the claim. This case serves as a wake-up call for directors to carefully consider how they handle a company’s affairs as their decisions can be subject to scrutiny by minority shareholders who have a statutory right to challenge the same in court if the requirements under section 181A of the Act are satisfied.

However, as seen in the Federal Court case of Perak Integrated Networks Services Sdn Bhd v Urban Domain Sdn Bhd & Ors, Section 347 have since abrogated the common law derivative action. Any derivative actions can now only be done by way of statutory derivative action as canvassed under Section 347. However, the case was useful in highlighting that even where there are no minority shareholders, a case of derivative action can still be brought i.e. 50/50 in this case.

(3) Oppressive action

The difference between Oppressive action and Derivative action is that for the latter, any damages reaped after litigation will go to the company instead of the member of the company. In other words, a derivative action is brought when the member does it (out of the goodness/ anger/ dissatisfaction of his heart OR) when the company is unable to sue for any wrongdoings done against itself.

An oppressive action is where the rights and interests of a shareholder are affected and hence the aggrieved shareholder would want to bring an action to protect those rights. An action of this nature is that the shareholder would bring a claim in its own name and any damages goes to the shareholder directly.

This means that the shareholder can bring an action against the directors of the company (or whoever is exerting the oppressive force). First, the shareholder would be required to prove 2 things to the court: that there was an element of unfairness and that it has affected interests as members, shareholders or debenture holders of the company.

This is a remedy that allows shareholders to bring an action when they had suffered a personal wrong. The courts will also scrutinize at any agreements between the shareholders and the directors to see if there had been any understandings or legitimate expectations. If there are any, the shareholders would have a stronger case for proving oppression.

Whilst there is no one rule for all test as to what amounts to oppression, Kumagai Gumi Co Ltd v Zenecon-Kumagai Sdn Bhd [1994] 2 MLJ 789 has the following to say: “With the wide wording employed in the statute, it is clear that the categories or examples of actions which would constitute oppression are not closed or limited. Having said that, oppression of minority shareholders usually occurs when an act of the majority infringes upon the rights of the minority shareholders. Usually, this involves actions which are unfair or actions which depart from standards of fair dealing“.

Simply put, it is where the directors (or similar) was aware of the complainant’s rights and interests but had deliberately chosen to ignore or act against those interests. Examples include where the director has breached its obligations under the company constitution to call an AGM, to allow a shareholder to vote or non-disclosure of company affairs and even non-payment of dividends.

Just note the case of Ng King Chong & Anor Nation Park Sdn Bhd & 2ors that the name of the oppressors must be named as a party to the action as the court finds that it gives them an opportunity to defend themselves.

Brady Part: 113280 | STOP Sign |

(4) Statutory Injunction

The Companies Act 2016 now has inherited Section 368A of the Companies Act 1965 under Section 351 which allows for statutory injunction relief.

An injunction relief carries traits of an equitable relief hence parties claiming injunction must come with clean hands, must contravention or attempts to contravene of the law and that the Honourable Court is of the opinion that such relief is in the interest of justice.

Winding up of a Company - Meaning, Modes and Effect - Free BCom Notes

(5) Winding up

If all attempts to properly settle the matter had failed, a shareholder may apply to the court for just and equitable winding up.

A just and equitable winding-up situation is not a primary remedy given by the Courts as the general approach is that the majority shareholders should buy out the minority shareholders for sustainability of the business. Actions of this nature often connote elements of legitimate expectation, shareholders’ deadlock, breakdown of mutual trust and confidence among the shareholders and/or management of the company which may justify the request to wind up the company.

Being an equitable relief, Lord Wilberforce explained in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360. that through the just and equitable clause, certain obligations common to partnership relations may come in; the analogy to partnership is convenient because the concepts of probity, good faith, and mutual confidence, developed in partnership law, become relevant considerations once the elements stated above are found to exist


The Companies Act 2016 has provided for vast improvements in protecting minority shareholder rights such as lower thresholds to amend the Articles of Association and shareholders meeting and gained the right, inter alia, for management review.

In conclusion, the law does give shareholders remedies for when their rights are being infringed and those rights were illegally exercised. It will be also useful to know about what director’s duties are such as promoting the success of the company, duty to exercise independent judgment and duty to exercise reasonable care, skill and diligence are amongst the core duties of company directors. Active participation on the part of shareholders will ensure that directors are held accountable and will not accumulate RM38 billion debt. (Illustrations are inspired by real-life stories hence any similarities may be coincidental).