Abandoned housing projects in Peninsular Malaysia are one of the spillover problems of the housing industry. This problem is a nightmare for the affected purchasers and becomes a burdensome social obligation for the government to tackle. As of June, 2005, there were 28 new projects which had been listed under the category of abandoned housing projects.
These abandoned housing projects involve 5,716 purchasers, 7,946 units of houses and projects’ sales value of RM 479.67 million. From the overall newly identified abandoned housing projects, majority of the projects, as of June, 2005, occurred in Johor, Selangor and Penang which respectively have 5 projects (18%), followed by Kedah – 4 projects (14%), Perak – 3 projects (11%), and for Negeri Sembilan, Melaka and Terengganu, each of these states has 2 newly identified abandoned housing projects (7%). In other states (Perlis, Wilayah Persekutuan and Kelantan), there are no new abandoned housing projects which have been identified or reported.
WINDING UP OF COMPANIES
In Malaysia there are two (2) types of winding up of companies. These two types of winding up are as follows:
- Winding up by the court; and
- Voluntary winding up (section 211(a)(b) of the Companies Act 1965 (Act 125)
For the purpose of this issue, the author will only highlight the winding up of companies by the court. The reason is that this mode of winding up is the most popular and relevant in the winding up of the housing developer companies of abandoned housing projects in Peninsular Malaysia.
WINDING UP BY THE COURT
Section 217 (1)(a-h) of the CA provides that the following persons may petition for the winding up of a company:
- the company itself;
- a creditor;
- a contributory or any person who is the personal representative of the a deceased contributory or the trustee in bankruptcy or the Official Assignee of the estate of a bankrupt contributory;
- the liquidator of the company;
- the Minister of Finance;
- a licensed institution or a scheduled institution;
- Insurance company;
- The Registrar of Companies (now the Malaysia Companies Commission)
However, in the observation of the author, normally in the abandoned housing projects in Peninsular Malaysia, the petitioners who have petitioned to the court for winding up the defaulting housing developer companies consist of the creditors and aggrieved purchasers of the developer companies. This can be illustrated in:
- Taman Harmoni, Balakong, Mukim of Cheras, District of Hulu Langat, Selangor Darul Ehsan, the developer (K&T Development Sdn. Bhd) was wound up by the sewage contractor on the failure of the developer to settle the debt owed for sewage works done;
- Taman Lingkaran Nur, Kajang, Mukim of Cheras, District of Hulu Langat, Selangor Darul Ehsan, the developer (Saktimuna Sdn. Bhd) was wound up by the Inland Revenue Board (IRB) on the failure of the developer to settle the outstanding tax (Ministry of Housing and Local Government;
- Pangsapuri Seri Pertama, Mukim of Sungai Petani, District of Kuala Muda, Taman Seri Marina, Mukim of Kuala Kedah, District of Kota Setar and Taman Seri Simpang, Mukim of Kangkung, District of Alor Setar, Kedah Darul Aman, whose the developer (JB Kulim Development Sdn. Bhd) was wound up by the construction supplier on the failure of the developer to settle the debts owed despite the delivery the construction materials; and,
- Taman Junjong Jaya, Mukim of Junjong, District of Kulim, Kedah Darul Aman, the developer (Cayman Development (SP) Sdn. Bhd), was wound up by the purchasers of the housing project for failure of the developer to complete the construction of the houses within the time period prescribed under the sale and purchase agreement and failure of the developer to settle the late delivery damages to purchasers.
CIRCUMSTANCES UNDER WHICH COMPANY MAY BE WOUND UP BY THE COURT
Pursuant to section 218 of the Companies Act 1965 (“CA”), among the circumstances under which companies may be wound up by the court on the application of the petitioners, are as follows:
- a) …;
- b) …;
- c) …;
- d) …;
- e) The company is unable to pay its debts;
- f) …;
- g) …;
- h) …;
- i) The court is of opinion that it is just and equitable that the company be wound up;
- j) …;
- k) …;
- l) …;
- m) …;
- n) The company is being used for any purpose prejudicial to national security or public interest.
Insofar as the winding up the housing developer companies of abandoned housing projects are concerned in Peninsular Malaysia, the ground for the winding up of the companies is the inability of the company to pay its debt. A company shall be deemed to be unable to pay its debt if the company is indebted to the creditor a sum exceeding RM 500.00 (ringgit Malaysia five hundred only) then due after the creditor has served on the company a demand and that the company has for three weeks after the receipt of the demand neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor (section 218(2)(a) CA).
The second situation is where if execution or other process issued on a judgment, decree or any order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part (section 218(2)(b) CA) on what whatever amount indebted to creditors. Thus, under this situation the sum of the debt may be below RM 500.00 (Ringgit Malaysia: Five Hundred only) as the provision (section 218(2)(b)) is silent on the amount.
The third situation is where it is proved to the satisfaction of the court that the company is unable to pay its debt. Under this situation, the court may on the application of the petitioner wind up the company if the court satisfies that the company is unable to pay its debt irrespective of the sum owing. In determining whether a company is unable to pay its debts the court shall take into account the contingent and prospective liabilities of the company (section 218(2)(2)(c) CA).
PROVISIONS IN THE COMPANIES ACT 1965 WHEN THE COMPANIES ARE WOUND UP
When a company is subject to a winding up order, the affairs and businesses of the company shall be vested in the hands of the liquidator. On a winding up order being made, if an approved liquidator other than the Official Receiver (OR) is not appointed to be the liquidator of the company, the OR shall become the provisional liquidator until he or another person becomes liquidator (section 227(1)). If there is no liquidator appointed, the OR shall summon separate meetings of the creditors and contributories of the wound up company for the purpose of determining whether or not an application is to be made to the court for appointing a liquidator in the place of the OR (section 228(2)). If a liquidator is not appointed, on date when the winding up order is made by the court, the OR shall be the liquidator of the company (section 228(5)).
In respect of provisional liquidator, he may be appointed by the court either he is being the OR or an approved liquidator. Provisional liquidator may be appointed at any time after the presentation of a winding up petition and before the making of a winding up order. The provisional liquidator may exercise all the functions and powers of the liquidator subject to the limitations of the Companies (winding-up) Rules 1972 or as the court may specify in order appointing him as the provisional liquidator (section 231 CA).
The liquidator shall carry out the affairs and businesses of the company for the purpose of settling all debts owing to the petitioner and the creditors. The duties of the liquidator are prescribed under section 236(1) and (2) of the CA. The duties, among others, are:
- a) to carry on the business of the company;
- b) to make any compromise or arrangement with creditors;
- c) to compromise any calls and liabilities to calls, debts and liabilities capable of resulting in debts and any claims present or future;
- d) to sell the immovable and movable property of the company by public auction, public tender or private contract;
- e) to do all acts in the name of the company all deeds receipts and other than documents;
- f) to appoint an agent to do any business which the liquidator is unable to do himself;
- g) to do all such other things as are necessary for winding up the affairs of the company and distributing its assets.
In should be noted that the creditors and the contributories are given right to apply to the court, pursuant to section 236(3), compelling the liquidator to carry out certain duty, insofar as the duty is expedient and in the interests of the creditors and contributories as well as to smoothen out the winding up process and its disposal (section 236(3)). In carrying out his duties, the liquidator is also subject to the resolutions of the creditors and the contributories (section 237(1)(2)). If the wishes of the liquidators are in conflict with the intentions of the committee of inspection (usually consists of creditors and contributories of the company, who is to assist the liquidator), and the creditors and the contributories, the liquidator may apply to the court for directions (section 237(3)).
The above duties are to be carried out by the liquidator until the liquidator has realized all the property of the company and settled all the debts of the creditors, adjusted the rights of the contributories or he resigns or he has been removed from his office (section 239(a)(b)). The release of liquidators can be effected by way of an application to the court for an order that he be released or and that the company be dissolved (section 239(c)(d)).