Why Some Borrowers Are Defaulting On Purpose: Triple Zest, AJ Kasturi & a 2025 Update

TL;DR: After Triple Zest (Federal Court, 2023), illegal moneylenders can’t recover principal or interest. In 2025, the Court of Appeal clarified that licensed moneylenders whose agreements are void (but not illegal) may still claim restitution of principal to prevent unjust enrichment.

The short background

• Triple Zest (Federal Court, 2023).The loan carried a 100% “agreed profit.” The apex court treated it as interest and held the transaction was illegal moneylending. Result: lender gets nothing—no interest, no principal—and no restitution under s.66 CA 1950 (unclean hands).
  

• 2025 clarification (Golden Wheel Credit v Dato’ Siah, Court of Appeal, 19 Aug 2025).Here, the lender was licensed but the agreements were void for non-compliance (wrong form, rate above cap, etc.). The Court said “void ≠ always illegal” and allowed restitution of principal under s.66 to avoid unjust enrichment, applying proportionality (Detik Ria).
  

• AJ Kasturi (Court of Appeal, 21 Aug 2025).In a separate case about multiple lenders and property transfers, the loans were illegal under the Moneylenders Act 1951; transfers were set aside and damages ordered—reinforcing that courts will not uphold illegal moneylending arrangements.
  

What this means in practice (for lenders & SMEs)

1. If your loan is illegal moneylending (e.g., unlicensed lender charging interest): you cannot recover interest or principal, and restitution is barred. Triple Zest is the leading authority.

2. If you’re a licensed moneylender and your agreement is void (technical non-compliance) but not illegal: the Court of Appeal indicates you may still recover principal via s.66 restitution—subject to proportionality and the statute’s purpose.

3. “Friendly loans”: charging interest without a licence risks being characterised as illegal moneylending. Courts have repeatedly refused principal and interest in such cases.
   

Why some borrowers now default tactically

• Borrowers (and their advisers) test “illegality” to defeat recovery entirely.

• Policy tension: deterring predatory/unlicensed lending vs preventing unjust enrichment of borrowers. The 2025 Court of Appeal stance moderates the harshness only for licensed lenders where the contract is void, not illegal.
  

Practical pointers (non-lawyers)

• Don’t disguise interest as “profit,” “admin fee,” etc.—courts look at substance over labels.

• If you regularly lend with interest, get licensed and follow MLA 1951 forms, caps and delivery rules. Non-compliance risks voidness; illegality is worse.

• Evidence trail matters: purpose, disbursement, and receipts affect whether restitution is proportionate.

  
  

FAQs

Q1. If my loan is declared illegal, can I at least get back my principal? Generally no. Triple Zest bars principal and interest where the loan is illegal moneylending.

Q2. What if my agreement is merely void due to a technical breach? The 2025 Court of Appeal suggests licensed moneylenders can still seek s.66 restitution of principal if voidness isn’t “central” to the statute’s mischief and recovery wouldn’t undermine the law.

Q3. Are “friendly loans” with interest enforceable? Risky—charging interest without a licence often crosses into illegal moneylending. Courts may deny everything.

AUTHOR PROFILE

Rudi Cheu is the principal of Rule & Co. Advocates & Solicitors; a Malaysian law firm focusing on practical and cost-effective solutions for debt recovery and commercial disputes. With nearly a decade of debt recovery experience under his belt; Rudi is passionate about helping businesses navigate debt recovery challenges and shares insights at www.rulecolaw.com/blog and recoverdebt.my

He can be reached via Whatsapp: +60102028095 or via email: rudi@rulecolaw.com