LEGAL ISSUES IN THE REHABILITATION OF ABANDONED HOUSING PROJECTS OF THE LIQUIDATED HOUSING-DEVELOPER-COMPANIES IN PENINSULAR MALAYSIA

PART TWO

Issues

Whether the liquidator can use the proceeds from the liquidation process to fund the rehabilitation of abandoned housing projects? It is opined, yes, the liquidator can do so, provided there is enough balance proceeds after deducting against the priority of debts and that of the unsecured creditors’. This also may mean that, if there is not enough balance funds, the liquidator may not be able to run the rehabilitation.

Alternatively, the liquidator may utilize the moneys held under the Housing Development Account (HDA) which is protected by section 7a (6)(a)(b) of Act 118 as this money shall not be subject to the priority of payment under the winding up and receivership, pursuant to section 191(1) and section 292 of the CA. Thus, under this circumstance, it is possible for the liquidator to revive the project so abandoned, provided, the moneys (the money in the HDA and the liquidation balance proceeds) are sufficient to meet all the rehabilitation expenditure.

Issues

If a chargee (secured creditor) of the judgment debtor wishes to enforce the charge and to obtain the Court’s order for sale pursuant to the provisions under the National Land Code 1965, he is not to be barred from initiating the application for sale unless, on application, by any interested parties to the Court, the Court disallows him to proceed.

Secured creditors holding valid securities over the property of a company is usually allowed leave to commence action against the company to realize the security unless some special grounds are shown, such as the secured creditor is offered immediately all that he is entitled to without need for an action or proceedings…. This is because the subject matter of the security is not available to claims by the general body of unsecured creditors. Here, the liquidator cannot ask the secured creditor to surrender his security unless the secured creditor votes in respect of the whole of his debt and not the balance due from the company after having assessed the value of the security. If the amount realized from sale of the security is insufficient to cover the whole of the secured debt, the secured creditor joins the general body of unsecured creditors in proving the balance

In an abandoned housing project… the housing developer company… secured a loan from a lender. The housing developer charged the project site land as a security to the loan of the lender bank. Later, the housing developer defaulted on the loan. As the consequence, the lender bank attempted to apply an order for sale at the Land Office (as the title to the security land was a land office title). The developer also was wound up by the court on the application of the judgment creditor (Inland Revenue Board). An attempt initiated by the said lender bank to sell the said security land by way of public auction in the land office was abortive due to no bidders. Later this lender bank vested all their liabilities and interests in the said security land to one Company A through a Court’s vesting order. This was made in consideration of Company A purchasing the non-performance loan (NPL) relating to the debts of the developer. As the new chargee, Company A also attempted to sell the land security by way of statutory order for sale. Likewise the attempts were also failed. Later a third party by name of Company B interested to purchase the said security land. However, the price offered was below market value of the land

It is opined that, if Company A were to proceed to sell the said security land to Company B, applying this below-market-value-price without obtaining leave from the court and the liquidator, this would be detrimental to the interest of the developer chargor, the judgment creditor/petitioning creditor (Inland Revenue Board) and the aggrieved purchasers (in term of the possibility of getting reimbursement of the deposit, damages and compensation or possibility of getting additional fund to generate rehabilitation of their abandoned housing project, left by the developer chargor). Thus, if the liquidator has no power to intervene or having failed to intervene in this circumstance i.e. in the attempted sale by Company A to Company B of the said security land at the price lower than the market price, as this right is an absolute and exclusive right of the chargee (Company A), this would be unfair and inequitable as against the developer chargor, the judgment creditor (Inland Revenue Board) and the aggrieved purchasers. It is opined, the liquidator should have the power to intervene and should have intervened in the arrangement to make sure that the chargee (Company A) to apply the market value of the security land. This is to protect the entitlement interests of the developer chargor, the judgment creditor/petitioning creditor (Inland Revenue Board) and the aggrieved waiting purchasers to the balance of the proceeds from the sale of the said security land after deducting against the required redemption sum of Company A (the chargee).

Issues

Whether the aggrieved purchasers in abandoned housing projects can apply to the Court for the Court to appoint provisional liquidator to carry out the intended rehabilitation? It is opined that it depends whether these aggrieved purchasers can be considered a creditor or otherwise. It is opined, the aggrieved purchasers should first obtain a Court’s judgment debts against the company for damages, compensation or other equitable relief and file proof of debts before they can be considered as the creditors to the company (judgment creditors). Nonetheless, can they (the aggrieved purchasers) too apply to the court for the same if they (the aggrieved purchasers) have yet obtained or failed to obtain the Court’s judgment debts or proof of debts? In the opinion of the author, still they can. They may be entitled to get appropriate remedies from the Court on the ground of equity. They may invoke Order 92 rule 4 of the Rules of the High Court 1980 and section 23(1) of the Courts of Judicature Act 1964 to request the Court to appoint provisional liquidator to implement rehabilitation on the ground of equity and public interest.

One response to “LEGAL ISSUES IN THE REHABILITATION OF ABANDONED HOUSING PROJECTS OF THE LIQUIDATED HOUSING-DEVELOPER-COMPANIES IN PENINSULAR MALAYSIA

  1. I am happy to comment on the topic (s) in question on a broader and more general basis than that which may be required here on specific allegations. Could someone direct me to Malaysia’s laws on the specific subject of insolvency and liquidations in particular.

    Gopal

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