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available where special resolution is passed by shareholders or in situations
exempted by statute in section 206C of the Corporations Act 2001. 57
In Malaysia, financial assistance is strictly prohibited unless it falls under the
exceptions under section 67(2). Due to this, the CLRC in its report in 2007 suggested
amendments to be made to relax the existing law. The proposal includes a special
resolution by shareholders and a solvency test need to be satisfied. 58 Nevertheless,
the CLRC did not suggest all directors but it is sufficient for a majority of directors
to make solvency declaration. 59 The CLRC also proposed personal liability to
directors who made solvency declaration without reasonable grounds. 60 To date, the
proposals have not been adopted.
7.3.3.3 Distribute its Capital to Members
One of the fundamental propositions generated by the doctrine is that distribution
could not be made out of the capital and the company can only declare dividends
from its trading profits. 61 The common law rule on distributions rule has been
incorporated into provisions in the statute. 62 Creditors are concerned whether they
will be paid on time, and in the event of insolvency, unsecured creditors, particularly,
are concerned whether there are enough assets to meet their claims. 63 Problems with
57 Malaysian Corporate Law Reform Committee “A Consultative Document on Capital Maintenance
and Share Capital: Simplifying and Streamlining Provisions Applicable to the Reduction of Capital,
Share Buy Back and Financial Assistance” (2007) at [3.7]-[3.8]. [CLRC Capital Maintenance and
Share Capital].
58 Ibid.
59 Ibid.
60 Ibid.
61 Re Exchange Banking Co, Flitcroft’s Case (1882) 21 ChD 519 at 533; see section 254T Australian
Corporations Act 2001; section 365 of the Malaysian Companies Act 1965.
62 See section 365(1) of the Malaysian Companies Act 1965 and also section 60(3)(c); section 830 of
the UK Companies Act 206; section 254T of the Australian Corporations Act 2001.
63 Austin and Ramsay above n 31 at [20-160].
161