Section 224. Loans to director

(1) A company shall not—

(a) make a loan to a director of the company or of a company which by virtue of section 7 is deemed to be related to that company; or

(b) enter into any guarantee or provide any security in connection with a loan made to such a director by any other person.

(2) Nothing in this section shall apply—

(a) to an exempt private company;

(b) subject to subsection (3), to anything done to provide such director with funds to meet the expenditure incurred or to be incurred by him for the purposes of the company or for the purpose of enabling him properly to perform his duties as an officer of the company;

(c) subject to subsection (3), to anything done to provide such a director who is engaged in the full-time employment of the company or its holding company, as the case may be, with funds to meet expenditure incurred or to be incurred by him in purchasing or otherwise acquiring a home; or

(d) to any loan made to such a director who is engaged in the full-time employment of the company or its holding company, as the case may be, where the company has passed a resolution to approve a scheme for the making of loans to employees of the company and the loan is in accordance with that scheme.

(3) Paragraph (2)(b) or (c) shall not authorize the making of any loan, or the entering into any guarantee or the provision of any security except with the prior approval of the company on the resolution in which the purpose of the expenditure and the amount of the loan or the extent of the guarantee or security, as the case may be, are disclosed.

(4) If there is no prior approval given under subsection (3), the company may authorize the making of any loan or the entering into any guarantee or the provision of any security—

(a) in the case of a public company, at or before the next following annual general meeting; or

(b) in the case of a private company, within six months from the making of the loan, the entering into any guarantee, or the provision of any security.

(5) If there is no authorization given by company under subsection (4), the loan shall be repaid or the liability under the guarantee or security shall be discharged, as the case may be—

(a) in the case of a public company, after six months from the conclusion of the annual general meeting referred to in paragraph 4(a); or

(b) in the case of a private company, after twelve months from the making of the loan, the entering into any guarantee, or the provision of any security.

(6) Where the approval of the company is not given as required by any such condition, the directors authorizing the making of the loan or the entering into the guarantee or the provision of the security shall be jointly and severally liable to indemnify the company against any loss incurred.

(7) Nothing in this section shall operate to prevent the company from recovering the amount of any loan or amount for which it becomes liable under any guarantee entered into or in respect of any security given contrary to this section.

(8) This section shall not apply to the extent that a financial institution in the ordinary course of business makes a loan to a director of a financial institution or of a company which by virtue of section 7 is deemed to be related to that financial institution, or enter into any guarantee or provide any security in connection with a loan made to such a director by any other person, in accordance with specifications made by the Central Bank of Malaysia under the laws enforced by it.

(9) For purposes of this section, “financial institution” refers to a licensed institution and a development financial institution prescribed under the Development Financial Institutions Act 2002 [Act 618].

(10) If a company contravenes this section, any director who authorizes the making of any loan, the entering into of any guarantee or the providing of any security contrary to this section commits an offence and shall, on conviction, be liable to imprisonment for a term not exceeding five years or to a fine not exceeding three million ringgit or to both.