Court backs financier in RM21.1mil pre-factoring dispute

 Court of Appeal overturns High Court's finding that the pre-factoring facility amounted to unlicensed moneylending.

The Court of Appeal ruled that SA Puncak Management Sdn Bhd was engaged in debt financing, not moneylending.

PUTRAJAYA:

The Court of Appeal has ruled that a financing arrangement involving future receivables was legitimate debt financing and not unlicensed moneylending, allowing a financier to recover RM21.1 million from an oil and gas company.

A three-member bench comprising Justices Wong Kian Kheong, Ismail Brahim and Shahnaz Sulaiman said the Moneylenders Act 1951 regulated the business of moneylenders, not every financier.

The bench allowed SA Puncak Management Sdn Bhd’s (SAPM) appeal and dismissed a cross-appeal by KL Petrogas Sdn Bhd (KLP).

SAPM, a factoring and financing company, provided KLP with two Islamic facilities to fund its Kawasari natural gas project and other working capital needs.

One was an Islamic factoring facility, under which SAPM purchased KLP’s unpaid invoices.

The other was an Islamic pre-factoring facility, under which SAPM financed KLP’s future billing and made payments directly to its suppliers, subcontractors, employees and creditors.

KLP later challenged the arrangement, claiming the pre-factoring facility was in substance moneylending and that SAPM therefore required a licence under Section 5(1) of the Moneylenders Act.

It argued that the financing agreements were consequently unenforceable under Section 15 of the Act.

The High Court partly agreed with KLP, ruling that the ordinary factoring facility was genuine factoring but that the pre-factoring facility constituted moneylending.

It held that the agreements relating to the pre-factoring facility were unenforceable, although SAPM could recover about RM9.44 million in principal.

In a written judgment, Wong said the High Court had erred by considering whether the arrangement amounted to an “activity of moneylending”.

He said the issue was whether SAPM was carrying out the business of moneylending.

The Court of Appeal found that SAPM was instead engaged in debt financing and that the pre-factoring facility was granted in the ordinary course of its business.

It also held that whole-turnover agreements involving future book debts and receivables were not prohibited by the Moneylenders Act.

In any event, the court said, SAPM was exempted from the Act under the 2005 exemption order applicable to factoring businesses.

The court consequently set aside the High Court’s decision and ordered KLP to pay SAPM RM21,122,459.02, representing the advances and profits due as at Oct 24, 2025.

KLP was also ordered to pay 5% annual interest on the judgment sum until full settlement.

The court ordered KLP to pay SAPM RM50,000 in costs for the proceedings in the High Court and Court of Appeal, and a further RM50,000 in costs for KLP’s appeal.

Wong also said Malaysia should not be left behind in allowing debt financing. Otherwise, he said, Malaysian companies would need to seek such financing abroad.

The judge said courts should uphold genuine financing transactions unless it was abundantly clear they were prohibited by written law.

Yudistra Darma Dorai, Melody Tham and R S Balasubramaniam appeared for SAPM while Mak Lin Kum, Layyin Teh Hassan and Sean Low represented KLP. - FMT