Alpha Bhd was incorporated in 1950 specialising in manufacturing audio equipment. Alpha Bhd took a loan amounting to RM1 million secured by a charge over all of its assets, property, business and undertaking. The charge was created on 15th October 2009.

On 22nd October 2019, Alpha Bhd took another loan amounting to RM500000 and created a charge over the company's buildings. However, on 7th November 2019, Alpha Bhd failed to pay the interest charges to the lenders holding the charges and the lenders now seek enforcement of their security. Furthermore, the lender who granted the RM1 million loan claims that Alpha Bhd acted ultra vires since the loan was used to venture into a new business of producing office furniture. The lenders claim that there were breaches of implied conditions of the charges; and that there is a dispute as to which charge is in priority. Although Alpha Bhd has its own constitution, it does not state anything about its power to take a loan or create charges. Hence, the Board of Directors claim that Alpha Bhd is not required to return the loan since in the first place, the company does not have the power to take a loan or create charges. Would your answer differ if the charge created on 15th October contained the following clause "Alpha Bhd hereby agrees not to create any subsequent charge. Even if it does, the charge will not override any charges created earlier."

"Use I(Issue) E(Explanation of Law) A(Application of Law) C(Concluding Advice) Rule"