Stamp Duty Exemption on Rescheduling or Restructuring of Bank Loans

The Covid-19 pandemic has affected businesses and individual ability to service loans with financial institution. In view thereof, the government has come out with various special measures such as the six-months’ moratorium on selected type of loans to help affected businesses and borrowers to weather to adverse effects of Covid-19. While the granting of the automatic 6 month’s moratorium is one of the rescheduling exercise, loans may be rescheduled or restructured in many other ways to suit the financial circumstances of the borrower.

Rescheduling a loan refers to the modification of loan repayment terms where the principal terms and conditions of the contract are not changed significantly, namely lengthening the loan tenure and revision of monthly instalments. Restructuring, on the other hand, is the modification of the principal terms and conditions of the facility which includes a change in the type or structure of the loan or other significant change to its terms.

Depending on the extent of the rescheduling and restructuring of a loan, a borrower will be required to execute an instrument to reflect the rescheduling or restructuring exercise. If the borrower is applying for additional loan sum, he would be required to execute a facility agreement or any other security document for the additional loan sum and such instrument will be subject to ad-valorem stamp duty.

In order to help businesses affected by the Covid-19 pandemic, Malaysia has announced its Economic Stimulus Package 2020 on 27 February 2020 where one of the measures is to provide exemption on stamp duty for rescheduling or restructuring of business loans. This was followed by gazette PU(A) 165 on 21 May 2020 stipulating a 100% exemption of stamp duty to be granted on the loan/facility agreement entered into between the borrower and the financial institution for the purpose of restructuring or rescheduling of their business loan. This exemption is applicable only if the stamp duty on the original loan agreement has been paid and only for loan restructuring and rescheduling agreements executed from 1 March 2020 to 31 December 2020.

Where the rescheduling or restructuring of loan involves variation to the terms of the existing loan that is secured by third party security such as a guarantee, consent from the third party to such variation needs to be obtained, otherwise there may be an issue of whether the liability of such third party is discharged pursuant to Section 86 of the Contracts Act 1950.

Disclaimer: Halim Hong & Quek