Yes, friendly loan agreements are legal in Malaysia. The parties can lend and even collect interest on the loan as long as the lender does not make loans “as an activity”. Only institutions with the required licences issued under the Moneylenders Act 1951 may carry out money lending operations as businesses. Land (i.e. real estate) is a good method to insure the amount borrowed. To achieve this, there are five steps: sometimes borrowers fail to repay the amount borrowed. It may be that the borrower is difficult and uncooperative, or the borrower simply does not have money to repay the loan. Lenders can avoid these frustrations by ensuring that the borrower agrees to provide security in exchange for the loan. The types of securities described below are personal guarantees, land and shares. Step 2 – Prepare a sharing document. The aim is to create a guarantee on the shares that can be exercised in the event of a breach of the loan agreement. Unlike a commercial loan agreement, a loan under an administrator/associate loan can be interest-free and repayable upon request.

If the borrower and the guarantor do not repay the loan, the borrower can take legal action against both the borrower and the guarantor to recover the credit. Although the lender has the right to sue both the borrower and the guarantor, the repayable amount is still only the outstanding amount of the loan. The lender cannot recover twice, as the result is what is called a “double recovery” and the lender is unduly enriched. The court will consider factors such as: how many times the lender has lent money; whether the interest calculated on the loan is high; and what is the relationship between the parties? Step 5 – After receipt of the judgment and with the reservation of the holders of pledge rights, the lender can file an application with the court to obtain a sale order. The property is then sold, and the lender has the right to take the remaining balance of the loan from the proceeds of the sale. And any balance of the sale goes to the borrower. The first implication is that the Friendly Loan Agreement is legally considered inconclusive. This does not mean, however, that the borrower does not have to repay the amount borrowed. The loan must be repaid in accordance with section 66 of the 1950 contract, which provides that “if an agreement is found to be void or if a contract becomes void, any person who has benefited from the agreement or contract is obliged to reinstate or compensate for it. to the person from whom he received it” (see also the case of Muhibbah Teguh Sdn Bhd v Yaacob Mat Yim [2005] 4 CLJ 853). However, if the lender has made several loans in the past, if the calculated interest rate is high, or if the parties do not have a personal relationship, the court may conclude that the lender is lending money as a transaction, which constitutes illegal activity if the lender does not have the required license.

Each case is judged on its own facts, and these are just examples of factors that the Court will consider. .

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