It is common for shareholders to provide loan, which is also sometimes called shareholder’s advance, to a company for its funding requirements. The terms of such loan are sometimes set out in shareholders’ agreement.

Where the loan is provided by non-resident shareholders, the foreign exchange policy issued by Bank Negara Malaysia should be taken into consideration.

A Malaysian company is allowed to borrow any amount in foreign currency from an entity within the Malaysian company’s Group or from a shareholder who has at least 10% effective shareholding in the Malaysian company. “Group” as defined in the Foreign Exchange Notices has a wider definition than the usual reference to holding company and subsidiary.

If parties intend for the Malaysian company to borrow in foreign currency from its non-resident shareholders without triggering the requirement to obtain Bank Negara Malaysia’s approval, consideration should be given to the shareholding structure of the Malaysian company.

The above is not exhaustive. For full details on foreign exchange policy in relation to borrowing by a Malaysian company, please refer to Part B of Notice 2 of the Foreign Exchange Notices issued by Bank Negara Malaysia.

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This post was first posted on Linkedin on 21 July 2021.