# Loans to Directors: the s.224 Prohibition and Its Exemptions

> When a Malaysian company may lend to a director under s.224 of the Companies Act 2016, the exempt private company carve-out, the s.225 extension to connected persons, and the repayment clocks if approval is never obtained.

- Category: company-secretary
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/company-secretary/loans-to-directors

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The company account pays the director's car instalment. It is coded to "director's
account", nobody signs anything, and at year end the balance is receivable from the
director. In a great many Malaysian Sdn Bhds this is lawful — but for a reason
most people involved could not name, and one that stops applying the moment the
company's shareholding changes.

Section 224 of the Companies Act 2016 **prohibits** a company from lending to a
director. What rescues the typical owner-managed company is a single carve-out in
s.224(2)(a).

## What does s.224 prohibit?

Section 224(1) provides that a company shall not:

- **(a)** make a loan to a director of the company, or of a company deemed related
  to it under s.7; or
- **(b)** enter into any **guarantee** or provide any **security** in connection
  with a loan made to such a director by any other person.

Two points are easy to miss. The ban reaches directors of **related** companies,
not only the lending company's own board. And it reaches guarantees and security,
not just cash — a company charging its property to support a director's personal
borrowing is caught even though no money leaves the company.

Section 224(10) makes any director who **authorises** a prohibited loan, guarantee
or security liable on conviction to imprisonment up to five years, or a fine up to
RM3 million, or both. The offence attaches to the authorisers, individually.

## The exemptions in s.224(2)

| Limb | What it exempts | Condition |
| --- | --- | --- |
| **(a)** | **An exempt private company** — the whole section does not apply | None |
| **(b)** | Funds to meet expenditure incurred, or to be incurred, for the purposes of the company or to enable the director properly to perform his duties | Prior member approval under s.224(3) |
| **(c)** | Funds for a director in **full-time employment** of the company or its holding company to purchase or acquire a **home** | Prior member approval under s.224(3) |
| **(d)** | A loan to a director in full-time employment under an **employee loan scheme** approved by resolution of the company | The loan must be in accordance with that scheme |

Section 224(8) adds a separate carve-out for **financial institutions** lending to
their own directors in the ordinary course of business, in accordance with
specifications made by Bank Negara Malaysia. Section 224(9) defines financial
institution as a licensed institution and a development financial institution
prescribed under the Development Financial Institutions Act 2002.

**Section 224(3)** governs limbs (b) and (c): neither authorises the loan,
guarantee or security **except with the prior approval of the company** on a
resolution **in which the purpose of the expenditure and the amount of the loan,
or the extent of the guarantee or security, are disclosed**. A generic resolution
approving "advances to directors" does not satisfy it — the purpose and the amount
have to be in the resolution.

## What if approval was never obtained?

The Act supplies a rescue window and then a hard stop.

**s.224(4) — after-the-fact authorisation.** Where no prior approval was given
under s.224(3), the company may authorise the loan, guarantee or security:

- **public company** — at or before the next following annual general meeting;
- **private company** — **within six months** from the making of the loan, the
  entering into of the guarantee, or the provision of the security.

**s.224(5) — repayment if it is still not authorised.** Where no authorisation is
given under s.224(4), the loan shall be repaid or the liability discharged:

- **public company** — after six months from the conclusion of that annual general
  meeting;
- **private company** — **after twelve months** from the making of the loan,
  guarantee or security.

**s.224(6) — the personal consequence.** Where the company's approval is not given
as required, the directors who authorised the loan, guarantee or security are
**jointly and severally liable to indemnify the company against any loss
incurred**. That is a civil liability sitting on top of the s.224(10) offence.

Section 224(7) preserves the company's right to recover: nothing in the section
prevents recovery of the amount of any loan, or of any amount for which the
company becomes liable under a guarantee or security given contrary to the
section.

## Section 225: loans to connected persons

Section 225(1) applies the same prohibition — again **other than to an exempt
private company** — to a loan to any person **connected with** a director of the
company or of its holding company, and to guarantees and security for such a loan.

"Connected with a director" is defined in **s.197(1)**: a member of the director's
family; a body corporate associated with the director; a trustee of a trust, other
than an employee share scheme or pension scheme, under which the director or a
family member is a beneficiary; or a partner of the director or of a person
connected with him. Under s.197(2)(a), family means spouse, parent, child
including adopted child and stepchild, brother, sister, and the spouse of the
director's child, brother or sister.

A body corporate is associated with a director under s.197(2)(b) where it is
accustomed to act on his directions, where he has a controlling interest, or where
he and persons connected with him are entitled to exercise, or control the
exercise of, **not less than twenty per cent** of the votes attached to its voting
shares.

Section 225(2) exempts loans within a group — to a subsidiary, holding company, or
fellow subsidiary of the holding company — money-lending and guarantee businesses
regulated under banking, insurance or takaful law or supervised by Bank Negara,
and home loans or approved employee-scheme loans to persons connected with a
full-time employee director. Section 225(4) carries the same five-year, RM3 million
penalty for the authorising director.

## Common mistakes

**Relying on the EPC exemption without checking EPC status.** Section 224(2)(a) is
what makes most Sdn Bhd director loans lawful. If the company ceases to qualify as
an exempt private company — a corporate shareholder is introduced, or the member
count changes — the exemption goes with it, and existing balances become live
exposures.

**Approving the loan generically.** Section 224(3) requires the resolution to
disclose the **purpose of the expenditure and the amount**.

**Forgetting the guarantee limb.** Charging company assets to support a director's
personal facility is caught by s.224(1)(b) exactly as a cash advance is.

**Lending to the director's spouse or family company instead.** Section 225 and
the s.197 definition of connected person are drafted precisely to close that
route.

**Assuming a prohibited loan is irrecoverable.** Sections 224(7) and 225(3) keep
the company's right of recovery intact. The illegality does not gift the money to
the director.

## What's next

A loan to a director will almost always also be a contract in which the director
is interested, so the declaration and minute rules apply in parallel — see
[disclosure of interest](/en/company-secretary/disclosure-of-interest). For money
paid to directors as remuneration rather than advanced as credit, see
[directors' fees and compensation approval](/en/company-secretary/directors-fees-approval),
and for the duty framework behind all of it,
[directors' duties](/en/company-secretary/directors-duties).

## Sources

- Companies Act 2016 (Act 777), reprint as at 1 August 2022 — https://www.ssm.com.my/Pages/Legal_Framework/Document/Companies%20Act%202016_Akta%20777_BI%20(1.8.2022).pdf (SSM)
- Companies (Amendment) Act 2024 (Act A1701) — https://www.ssm.com.my/Pages/Legal_Framework/Document/A1701%20BI.pdf (SSM)
- Practice Directive 1/2017 (Revised 1 October 2024) — Late Lodgement Penalties — https://www.ssm.com.my/Pages/Legal_Framework/Document/Practice%20Directive%201_2017%20(Revised)%201%20Oct%202024.pdf (SSM)

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