Gan Eng San & Anor v Alliance Investment Bank & Ors – [2010] 7 MLJ 615

Banking—Security for advances—Charge—Guarantor’s equity of redemption — Shares pledged by borrower as security for advances — Exercise by guarantor of right under guarantee to purchase or redeem shares —Whether permissible as of right without full satisfaction of debt due and owing to lender — Whether securities redeemable at market value

The first defendant was the lender and the second defendant was the principal borrower who had pledged 51% of its shareholding in the third defendant as security. The plaintiffs had guaranteed the repayment of the debt. The plaintiffs were not shareholders of the three defendant but were only directors. The minority shareholders of the third defendant were calling an EGM to remove the plaintiffs as directors. In consequence the purchase of the 51% shares was important to the plaintiff to control the third defendant as the second defendant had already been wound up. The plaintiff tendered a sum to the first defendant purportedly in their exercise of their right under the guarantee to purchase or redeem the shares. The defendant claimed that this was not permissible in law as of right without the full satisfaction of the debt due and owing to the first defendant. The plaintiffs filed this suit seeking a declaration relating to the deed of guarantee and indemnity executed by them in favour of the first defendant. The issue arising for determination was whether a guarantor has the right only to purchase the securities with other third parties or does this guarantee by the other terms of the guarantee and his status entitle to redeem the securities at the market value.

Held, dismissing the claim with parties to bear their own costs:
(1) The plaintiffs were entitled to compel the first defendant to allow the plaintiff to purchase or redeem the shares provided they were prepared to pay all the sums due and owing pursuant to the deed of indemnity and guarantee (see para 6(a)).

(2) The equity of redemption applies to all the interested parties in the security, including even the guarantors. It all depends on the facts and provision of the respective agreements (see para 6(b)).