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Q：
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What is Corporate Guarantee in Malaysia?
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A：
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A Corporate Guarantee is a legal commitment given by a company (the guarantor) to fulfil the financial obligations of another party, such as a subsidiary or other related company, if that party fails to meet its obligations under a loan or other financial arrangement.
In Malaysia, companies should also consider the restrictions under Section 224 of the Companies Act 2016. In particular, Section 224(1)(b) generally prohibits a company from giving a guarantee or providing security in connection with a loan made to its director by another person, subject to the applicable statutory exceptions.
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When does a company need to provide a Corporate Guarantee?
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A company may be required to provide a Corporate Guarantee when a subsidiary, related company, or other group company obtains a loan or credit facility from a bank or financial institution. The lender may require the parent company or another company within the group to provide a Corporate Guarantee as additional assurance that the borrower will fulfil its financial obligations. However, a Corporate Guarantee is not automatically required for every financing arrangement and will depend on the requirements of the bank or financial institution and the terms of the facility.
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What approvals and documents are required for a Corporate Guarantee?
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Generally, a company intending to provide a Corporate Guarantee should obtain the necessary corporate approval by passing a Board Resolution before the guarantee is provided or the relevant financing documents are executed.
A Members’ Resolution may also be required depending on the company’s Constitution, applicable law and the circumstances of the transaction.
Where appropriate, the guarantor and the borrower may also enter into a separate Guarantee Agreement setting out the respective rights and obligations of the parties. This can help provide clarity and reduce the risk of future disputes.
The exact approvals and documentation required will depend on the company’s Constitution, the terms of the financing arrangement, and the requirements of the relevant bank or financial institution.
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What are the risks and obligations of providing a Corporate Guarantee?
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If the borrower fails to fulfil its repayment obligations under the loan or financing facility, the guarantor may become liable to the bank or financial institution in accordance with the terms of the Corporate Guarantee.
The extent of the guarantor’s liability will depend on the terms and conditions of the guarantee, which may include the outstanding principal, interest, fees, costs and other amounts payable by the borrower. Therefore, a company should carefully consider its potential financial exposure before providing a Corporate Guarantee.
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Can a Corporate Guarantee be revoked or terminated?
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Yes, a Corporate Guarantee may be released, discharged or terminated depending on the terms of the guarantee and the relevant financing arrangement.
Where the underlying loan or financing facility has been fully repaid, the guarantor’s obligations in respect of that facility may come to an end, subject to the terms of the Corporate Guarantee and any continuing obligations. The guarantor should obtain written confirmation or a formal release from the relevant bank or financial institution where applicable.
A Corporate Guarantee may also be released or terminated by agreement with the relevant parties, such as through a release, discharge or supplemental agreement, depending on the terms of the original guarantee and the requirements of the bank or financial institution.
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