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

In a landmark ruling, the Court of Appeal has declared that a financing agreement between a factoring company and an oil and gas firm is legitimate debt financing rather than unlicensed moneylending. This decision allows the financier to recover RM21.1 million from the oil and gas company. The three-member bench, consisting of Justices Wong Kian Kheong, Ismail Brahim, and Shahnaz Sulaiman, stated that the Moneylenders Act 1951 only regulates the business of moneylenders and not every financier.

SAPM, the factoring and financing company, had provided KL Petrogas Sdn Bhd with two Islamic facilities to support its Kawasari natural gas project and working capital needs. One facility was an Islamic factoring arrangement where SAPM purchased the company's unpaid invoices, while the other was an Islamic pre-factoring facility that financed the company's future billing and made payments directly to its suppliers, subcontractors, employees, and creditors.

Despite KLP's challenge, claiming the pre-factoring facility was in substance moneylending and thus required a licence, the High Court initially ruled that the ordinary factoring facility was genuine but that the pre-factoring facility constituted moneylending, making the agreements unenforceable. The Court of Appeal overturned this decision, finding that SAPM was engaged in debt financing and that the pre-factoring facility was granted in the ordinary course of its business.

The Court also exempted SAPM from the Moneylenders Act under a 2005 exemption order applicable to factoring businesses. KLP was ordered to pay SAPM RM21,122,459.02, including 5% annual interest, and costs for legal proceedings. The ruling emphasizes that Malaysia should not be left behind in allowing debt financing, as companies should be allowed to seek such financing domestically unless it is clearly prohibited by written law.