When a Helping Hand Becomes a Moneylending Business: Are All Financial Assistance Regulated under Moneylenders Act?

Introduction

In today’s business landscape, financial assistance between companies, directors, or any individuals is a common and practical means of support. Whether framed as a short-term advance, bridging finance, or business support funding, such assistance can help sustain operations, manage cash flow, or facilitate project execution — all seemingly harmless gestures of commercial goodwill. 

However, recent judicial developments have cast a spotlight on how such certain forms of financial assistance may, in law, fall within the scope of moneylending activity. In particular, the Federal Court’s decision in Triple Zest Trading & Suppliers & 2 Ors v Applied Business Technologies Sdn Bhd [2023] 8 AMR 225 (“Triple Zest”) underscores that even a single loan made at interest can trigger a presumption of moneylending under Section 10OA of the Moneylenders Act 1951 (“MA 1951”). 

The implications are significant: if a financial assistance arrangement is deemed to constitute moneylending by an unlicensed entity, the agreement may be rendered unenforceable, and the lender may face statutory penalties. 

Triple Zest – A Cautionary Tale

The Federal Court in Triple Zest provided significant guidance on the approach to determining whether an individual or company not licensed under the MA 1951 may nonetheless be regarded as carrying on the business of moneylending. 

The two key takeaways from the decision by the Federal Court are as follows:  

1. Substance over form: 

The Court emphasised that the true nature of the transaction – not its label – determines whether it involves “interest”. Amounts described as “profit”,  “administration fee”, or other similar terms will still be treated as interest if, in substance, they represent a return exceeding the principal. The Court expressly rejected attempts to disguise interest under alternative terminology such as “agreed profit”.

In Triple Zest, the respondent company had extended a loan of RM800,000 to the appellants with a corresponding profit of RM800,000. The Court held that, in the absence of evidence rebutting the presumption, the respondent was deemed to be carrying on the business of moneylending within the meaning of the MA 1951. Further, evidence shows beyond the shadow of a doubt that the RM800,000 loan carried an exorbitant interest rate of 100% which the respondent cleverly described as his “agreed profit”.

2. A single loan may suffice: 

Under Section 10OA of the MA 1951, even a one-off loan made at interest raises a presumption that the lender is carrying on a moneylending business. The onus then shifts to the lender to rebut this presumption by showing that the transaction was not part of a moneylending business. Such imposition is legal, as opposed to evidential, burden of proving, that it was not carrying on the business of “moneylending” when it lent monies at a profit. 

For example, in Triple Zest, the lender argued that it was an information technology company, not a moneylending business, and that it had never previously advanced loans. The Federal Court nevertheless held that to successfully rebut the presumption under Section 10OA of the MA51, the lender must prove on the balance of probabilities that by entering into the loan agreement, it was not engaging in an act of “lending of money at interest, with or without security, by a moneylender to a borrower”, which is the meaning ascribed to the word “moneylending” by Section 2  of the MA 1951. 

However, Section 10OA of the MA 1951 may not be applicable to any person specified in the First Schedule of the MA 1951, which includes as follows: 

• authorities or bodies established under any written law; 

• co-operative societies registered under the Co-operative Societies Act 1993; 

• licensed financial institutions and Islamic financial institutions under the Financial Services Act 2013 and Islamic Financial Services Act 2013; 

• pawnbrokers licensed under the Pawnbrokers Act 1972; 

• development financial institutions under the Development Financial Institutions Act 2002; 

• companies lending money to their related corporations or to their directors, officers, or employees as part of employment benefits; 

• persons subscribing to or purchasing debt securities, including government bonds, treasury bills, or debentures; 

• entities licensed, registered, or regulated under the Capital Markets and Services Act 2007; and 

• prescribed financial or Islamic financial institutions, and Labuan banks or insurance licensees under the Labuan Financial Services and Securities Act 2010.

Implications

The rebuttable presumption under Section 10OA of the MA 1951 places a significant burden on lenders to demonstrate that their advances are not part of a moneylending business. 

Where a company and/or individuals provides a loan to another entity and charges any form of return, even once, it risks being treated as a moneylender unless it can show otherwise. In particular, where such loans are made and interest or profit is charged, the Federal Court has confirmed that the MA 1951 can apply, and a moneylending licence would be required. 

If the lender fails to rebut this presumption, the loan agreement may be declared void and unenforceable, and any recovery of the principal or interest may be barred by law. 

Conclusion

The Federal Court’s decision in Triple Zest serves as a timely reminder that financial assistance, even when extended as an act of support or convenience, can inadvertently fall within the definition of moneylending. 

As the law currently stands, a single interest-bearing loan – regardless of how the “interest” is described – may be enough to invoke the presumption under Section 10OA of MA 1951. Once triggered, the lender bears the burden of proof to demonstrate that it is not in the business of moneylending. Failure to do so can have serious legal and financial consequences. 

In essence, one loan too many could transform a “helping hand” into an unlawful moneylending activity. Companies and individuals should therefore exercise due care when extending financial assistance – and when in doubt, seek legal advice to ensure that their goodwill remains compliant, and their loan agreements are enforceable.