I received an email from an aggrieved purchaser of an abandoned housing project. The email reads as follows:
abandoned housing project; company’s liquidation; liquidator; duties and responsibilities of liquidator; false architect certificate; false claims; unlicensed housing developer; bridging loan lender; charge; cause to the contrary; public interest; purchasers’ interests on charged lands; islamic banking; non-conversion of lands; conflict of interests between the chargee and the purchasers.
Dear Encik Nuarrual,
I read about your areas of expertise and interest from your blog and am writing to appeal for your help to work with us towards achieving a settlement of our abandoned housing scheme.
I am a purchaser of a plot of bungalow land in an abandoned housing project called…, Selangor. I am also the Secretary of …. which comprises over 400 purchasers (and their families) from all five phases of our development.
From 2000 to 2003, over 600 purchasers bought plots of bungalow land from a developer called …., owned and managed by … and his family. In 2004, the developer abandoned the project. End financiers include Bank Rakyat Malaysia (Islamic Banking with, we believe, the largest number of borrowers,…), EON Bank (now HLBB), Ambank, Public Bank, Bank Negara.
The bridging financier, Hong Leong Bank Berhad (HLBB), obtained a Court Order to wind-up the company in 2007. They hold the charge to the developer’s lands (2 Master Titles under which our plots exist, and another 2 Master Titles which was for future development). Their nominated liquidator, A, was appointed by the High Court of Malaya. Since 2006 we have sought the aid of many institutions, in Federal and State Governments, and in the private sector but to no avail.
The developer applied for conversion and sub-division for three phases but did not apply for two phases (our development has five phases). As they did not pay the full premium, the plots in the 3 phases were not converted or sub-divided). The developer gave vacant possession to purchasers who paid 100% of the SPA in one phase and HLBB has given Letters of Disclaimer to many purchasers in the five phases (Bank borrowers and cash purchasers whose redemption sums they received). HLBB informed us that they did not receive the redemption sums for many plots which were purchased for cash.
About 30 members whose redemption sums were not passed to HLBB by the developer made police reports in 2009. We understand that an investigation was carried out by the police and that the police referred the case to the Attorney General’s Chambers. However, our checks with the AG’s Chambers have revealed that the AG’s Chambers have not received the investigation papers from the Royal Malaysian Police although requested by a DPP.
Since 2007, we have been communicating with HLBB and A but somehow both these institutions appear reluctant to find an amicable resolution to our issue. As such, we have been left to resort to our own devices to find a resolution because no one will help us. We decided that doing nothing was not an option for us.
We believe that the developers walked off with about RM50-60 million. In 4 phases, the developer billed purchasers 80% of the SPA price but on the ground, they probably only carried out 20-30% of the work. The banks released the loans, and cash purchasers paid too, based on the schedules of payment stipulated in the SPAs certified by the developer’s engineer.
In 2008, A attempted to sell the undeveloped and unsold lands to a RM2 company at RM1 per sq ft even though at the time we were all in discussion with the Lembaga Perumahan dan Hartanah Selangor on ways to solve the problem. These lands are an asset of the company, the sale proceeds of which could be utilised to rehabilitate our abandoned project. In order to protect our plots and attempt to stop the sale of the lands, about 50 of us placed caveats on the 2 Master Titles on which our plots sit.
In 2009 we learned from the Estate Land Board (ELB) that this development is unlawful in that the developer did not seek the ELB’s permission to convert Estate land into residential land. The Chair of the ELB refused the transfer of the lands and requested A, HLBB and our Group to agree a settlement. However, in August 2011 we were shocked to learn from A that the ELB had agreed to the transfer of the 2 Master Titles which contain the developer’s future phases because we had appealed to the ELB not to agree the transfer until our issue was settled. We strongly felt that if A and HLBB were successful in transferring the lands, they would not reach a settlement with us. The lands have since been transferred to the RM2 company.
A and HLBB told us that they would not work out a settlement. We responded that our Group would find a way out. Following a long period of negotiation, in July 2010, HLBB and our Group agreed that HLBB would sell to a white knight (WK) the unsold plots and the undeveloped lands for a total of about RM9.5million. The arrangement would also include giving the white knight the “rights” to the … scheme so that any unpaid balance would be payable by the existing purchasers to the white knight.
HLBB also agreed to waive the redemption sum paid by cash purchasers to the Developer but which was not passed to them as Chargee Bank. The amount of this was estimated at RM 9 million. In return for this purchase the white knight would be obliged to rehabilitate the existing 627 sold plots without any additional charge to the existing purchasers. In addition, the proposed new arrangements would be submitted for sanction by the High Court under Section 176 of the Companies Act 1965.
On that basis, we searched for a white knight. After many discussions with a number of WKs, and by the deadline of early September 2011 set by A, only one WK emerged. They submitted their proposal in accordance with the terms set out by HLBB. However, A informed us that they would have to forward the proposal to HLBB for consideration. Then all became silent. It was only after we appealed to Bank Negara and with their intervention, we understand, HLBB agreed (after 4 months) to accept the proposal.
This WK was introduced to us by Bank Rakyat (BR) as we have been keeping BR informed of all our efforts. We had expected BR to provide a loan to the WK to rehabilitate our project but they declined. Since then, the WK embarked on a search for investors, developers, financiers. Initially, these parties showed a lot of interest but at the last minute, they all declined. While the search was going on, the WK was in discussion with A and their lawyer on the terms and conditions of the sale and purchase of all the lands and our development, and the Scheme of Arrangement under S176.
HLBB set a final deadline for the signing of the SPA on 17 August 2012. Although this deadline was a result of 3 postponements, these postponements were not entirely due to our WK. The T&C of the SPA could not be agreed so postponements were required.
On 13 August, A set up a meeting with our Pro Tem Committee. At that meeting, A informed us that each purchaser in our Group has to pay them a verification fee of RM500 but our Group has to do all the work. Purchasers outside our Group would have to pay 2% of the SPA price.
We asked A why this meeting was held just 4 days before the signing of the SPA when, for many months, we wrote several letters to them asking for a meeting so we could discuss the issue and inform our members early. We felt under pressure as A’s demand did not give us time to negotiate nor consult our members. In fact, we think A expected us to agree as the Liquidator allocated 20 minutes only for this meeting. He left early and his colleagues continued because we refused to agree as we had queries.
After the meeting members who attended had questions and comments so we wrote to A the following day to ask them to put their request in writing (and to reply to our queries/comments as we envisaged other members asking the same questions) so that we could circulate to members for their views. However, we did not get a response. Our questions are still unanswered. Even if we wanted to cooperate, A has not told us the level of work it wants us to carry out nor whether we have to make any more additional payments.
We also do not have the answer to our question as to the source of law that stipulates we have to pay a verification fee. A has our files from the developer, a list of purchasers filed with the High Court, and conducted a Proof of Debt exercise in 2009. A is demanding our list of members and their contact details before they will give us the letter we requested for members. We are unable to understand this stance. Sometime in 2008 A said that they are Officers of the Court and threatened to obtain a Court Order to compel us to give them our list of members’ contact details. We declined.
On the deadline of 17 August, our WK did not sign the SPA because they were concerned that if purchasers did not pay the verification fee, they would not be admitted to vote for the Scheme of Arrangement. As a result, there would be no scheme and no deal. It is worthwhile mentioning here that A would get more than RM500,000 from purchasers and a substantial non-refundable amount of RM250,000 from the WK.
We have been meeting with the Jabatan Insolvency in Putrajaya over the issue of the liquidation process and the hardships it is causing all of us. However, Officers we have met say that they are unable to do much. Control lies with the Prime Minister, it seems, who has the power to issue and terminate Liquidators’ licences. The other option is the Court. It appears to us that there does not seem to be a written Code of Ethics for liquidators.
We understand that JIM has taken A to Court on this verification fee issue (it seems other liquidators are imposing the charge too) on behalf of purchasers in another scheme but we do not know if there is a decision. From our experience, the Heads of the relevant Departments in JIM do not stay long enough to make substantial changes or improvements to the system.
Despite the deadline, the WK and our Group have continued to look for parties to help us with the rehabilitation. HLBB and A were informed about this in writing. A few days ago, the WK secured a public listed company whose Main Board agreed, in principle, to take on the deal. Our happiness was short-lived.
HLBB was informed about this in writing and personally, but we were told to deal directly with A. A was also informed in writing but remained silent. A few days later, A wrote to our WK that A is at liberty to sell the unsold and undeveloped lands to any third party (without considering the rehabilitation) because our WK’s time has lapsed. If this happens, we can be sure that we will not be able to get our project out of the abandoned status. A may then take us through the liquidation process where we lose our plots and our money. During the Proof of Debt exercise all of us nominated to hold on to the beneficial interest in our plots and not exchange it for money. Through the years, we feel we have and are being bounced between A and HLBB.
Needless to say, most of us purchased our plots from the developer not only because we wanted to live in Batang Kali but also because we relied heavily on the good reputation and creditability of Hong Leong Bank Berhad as Bridging Financier, and Bank Rakyat and Ambank as the End Financiers. That we would not have any concerns about the development being completed. Alas, that is not the reality.
Most of our members are retirees who spent their savings to buy their plots, and still have no home. Some are young families who are repaying their bank loans but still have no home. Some have passed away and their children now attend our meetings. This episode has caused a lot of pain and suffering. The Court appointed Officer, A, does not appear to want to collaborate to arrive at a fair and just resolution for all parties.
We have invested six years of our lives in trying to obtain what is rightfully ours, and fairness and justice for all our members and their families. We have done all our own research and our own negotiations, and have persevered. However, success seems to elude us because we are not on a level playing field. We have tried to find an amicable solution, out of Court, because we know that A and HLBB have deep pockets which can keep us all in Court for many years. We have no real access to justice.
I hope you will consider our case and let me know if you are able to advise us on our options under the Malaysian legal system so that we can form an action plan to pursue our goal. If we are successful, we may be the first abandoned scheme that has depended totally on self-help. There is much to assimilate in all this, not surprisingly after a period of 6 years of the liquidation process. If you are interested to explore the … case a little further, I would be pleased to arrange a meeting between you and our Pro Tem Committee. We are aware that there are a large number of abandoned projects and perhaps this will inspire and motivate purchasers in other schemes.
Many thanks for reading my note. I look forward to hearing from you.