The Malaysian Corporate Law Reform Committee (CLRC) consists of 25 persons from various backgrounds such as advocate & solicitors, representatives from the Companies Commission of Malaysia (CCM), Securities Commission (SC), Bursa Malaysia Securities Berhad, Prime Minister’s Department, Attorney General Office, Insolvency Department, company secretaries, chartered accountants and academics. CLRC was also supported by several working groups’ members and a secretariat. CLRC has conducted a research into the current provisions under the Companies Act 1965 since December 2003 which took about four years to complete. The result is the Final Report of the CLRC. Under this report, the CLRC has recommended the establishment of Corporate Voluntary Arrangement (‘CVA’) to take over the affairs of the insolvent companies and rescue them. The CVA is armed with a moratorium power against any action taken which may be commenced by the creditors and others to enable him to effectively carry out his duty in order to prepare a restructuring plan acceptable by the creditors…  The plan also must be approved by the Court. …


If a company is unable to pay its debts, it may be subject to various insolvency proceedings on the application of the stakeholders especially the creditors.  The purpose of insolvency approach is for the insolvency administrator to take over the affairs of the company in order to settle the debts of the creditors.

There are many types of insolvency approach in Malaysia.  The most popular ones are: liquidation, receivership and Scheme of Arrangement (SOA).  The newly introduced methods by Corporate Law Reform Committee (CLRC) are the Corporate Voluntary Arrangement (CVA) and the Judicial Management.

It is an undisputed fact that abandoned housing projects are a negative phenomena plaguing the housing industry in Malaysia. The issue of abandoned housing projects began with the adoption of a housing democracy by the Malaysian government in the 1960s. Prior to the 1960s, public housing was provided by the government itself. However, due to insufficiency of government funds and the upsurges in demand for housing ownership and needs, the government opened the door for private housing developers to participate in providing public housing to the citizens. This policy was supported by aggressive government assistance, incentives and legal means to ensure its success. Despite such efforts, the occurrences of abandoned housing projects have marred the role of private housing developers in respect of national development and safeguarding the interests of its citizen purchasers.  As a result, many purchasers have become victims of abandoned housing projects.

There are various reasons causing abandoned housing projects and the consequential problems they have caused are grave. One of the reasons is that there are insufficient legal provisions and protection to avoid and prevent abandonment and to protect the interests of purchasers. In the event that rehabilitation can be carried out, the ensuing problems caused–pecuniary and non-pecuniary losses, are still left hanging and unsettled for most of the purchasers and stakeholders, without any sufficient remedies and measures to address them.

Some quarters say that the current housing policy and industry in Malaysia is still healthy, notwithstanding the plight of purchasers of abandoned housing projects, poor workmanship of the houses and other housing problems.  ‘The problem of abandoned housing projects only represents 1-3% of the total housing projects’. ‘The remaining 97%-99% of housing projects succeeds’.  ‘Thus, the current system of housing delivery and policies should be continued regardless of the plaguing occurrences of abandoned housing projects’ and their negative consequences befalling the purchasers’ (Dato’ Abu Bakar Bin Hassan & Dato’ Zainudin bin Tala, personal communication,August 13, 2010).

Unfortunately, these are some of the statements made by persons in authority in Malaysia’s housing industry. Nonetheless, despite these statements, there are still inadequate measures taken by the government to alleviate the problems of abandoned housing projects, not even the current newly established Division of Rehabilitation of Abandoned Projects under the Department of National Housing, Ministry of Housing and Local Government (‘MHLG’), can.  The measures taken are still ‘too little too late’ in the face of the catastrophe caused by abandoned housing projects’. The fallen preys are the aggrieved purchasers themselves.  The law governing the housing industry in Malaysia – the Housing Development (Control and Licensing) Act 1966 and its regulations (Act 118) is evidently unable to fully address the problems of abandoned housing projects.  The court also seems indecisive in protecting the interests of the aggrieved purchasers in abandoned housing projects.  This is partly due to ‘too many conflicting considerations and equities’ that the court needs to deal with in cases involving abandoned housing projects.  Thus in certain circumstances, the rights and interests of the purchasers may not be fully appreciated and taken into consideration by the court.  The problem becomes more severe where housing developer company is subject to the insolvency administration.  In the insolvency administration, the insolvent ailing company becomes bankrupt and all the assets and moneys will be used to settle off the debts of the creditors and there may not be any sufficient monetary balance which can be used to rehabilitate the abandoned housing projects and to compensate the aggrieved purchasers (Nuarrual Hilal Md. Dahlan. (2009))

Among the reasons leading to the abandonment of housing projects, in Malaysia, are:

1)      Financial problems faced by the developers. The cause of this problem is owing to the problems with the developers’ financial and construction management (severe liquidity problems and high gearing) to meet the construction costs and to repay creditors;

2)      Loose approval of the applications for housing developer licences by MHLG.  MHLG fails to obtain the requisite advice and opinions from economists, legal experts, property experts and other experts in approving the applications;

3)      Challenges and problems of dealing with and clearing the project site of squatters;

4)      Ongoing conflicts, feuds and squabbles ensuing between and among the developers, land proprietors, purchasers, contractors, consultants and financiers causing further difficulty to coordinate and streamline the development and construction activities; and,

5)      Insufficient coordination between the land administration authority, planning authority, building authority, housing authority and other technical agencies in respect of the approval for the alienation of land, land uses, subdivision of lands, planning permission, building/infrastructure plans, housing developers’ licences and issuance of the Certificate of Fitness for Occupation (CF) and Certificate of Completion and Compliance (CCC), as the case may be.

The grievances and problems faced by the purchasers, if a housing development project is abandoned, are:

1)      They are unable to get vacant possession of the units on time as promised by the vendor developers;

2)      The construction of the houses is terminated or partly completed resulting in the houses being unsuitable for occupation for a long duration of time, unless the units can expeditiously be revived;

3)      In the course of the abandonment of the project, purchasers still have to bear all and keep up the monthly installments of the housing loans repayable to their respective end-financiers, failing which, the purchased lots being the security for the housing loan would be sold off and with the possibility of the borrower purchasers be made bankrupts by their lender bank (“290 face bankruptcy over abandoned housing projects,” 2011)’;

4)      Further, as the purported purchased unit has been abandoned and cannot be occupied, purchasers have to rent other premises, thus adding up their monthly expenses;

5)      Inability of the purchasers to revoke the sale and purchase agreements and claim for the return of all the purchase moneys paid to the developers as the developer may have absconded or may have no monetary provisions at all to meet the claims;

6)      Many problems and difficulties happen in the attempts to rehabilitate abandoned housing units.  The problems occurred because the projects may have too long been overdue without any prospect of revival and to rehabilitate them, needing additional costs and expenditure on part of the purchasers;

7)      Possible difficulties in reaching consensus and towards getting cooperation from purchasers, defaulting abandoned developers, end-financiers, bridging loan financiers, contractors, consultants, technical agencies, local authority, land administration authority, state authority and planning authority to rehabilitate the projects.  This may be due to technical and legal problems faced in the attempt to rehabilitate the projects;

8)      Insufficient funds to generate the rehabilitation as the outstanding loan funds of the purchasers are not enough, purchasers refuse to part with their own money, no financial assistance from any agencies and the fact that the rehabilitating parties would incur losses if they were to proceed with the purported rehabilitatio;

9)      Purchasers themselves need to top-up using their own money, as the available funds are insufficient for meeting the rehabilitation costs and they themselves personally have to rehabilitate the projects left abandoned.  Thus, they have to face all kinds of music in consequence of the abandonment and initiating efforts for rehabilitation;

10)   Purchasers would not get any compensation and damages from the defaulting abandoned developers as they (the defaulting abandoned developers) may have no monetary provisions to meet the claims;

11)   There may be no party agreeable to rehabilitate the abandoned housing projects, causing the project to be stalled for an indefinite period of time or for a long period of time or at the worst, the abandoned project may not altogether be rehabilitated;

12)   Other pecuniary and non-pecuniary losses subtle or otherwise, suffered by purchasers due to the abandonment and in the course of rehabilitation of the projects pending full completion, such as divorces, family breakdowns, dismissals from employment, nervous shocks, mental breakdowns and losses of future earnings; and,

13)   Due to the abandonment and the ensuing complications occurring thereafter, the ordinary machinery and enforcement of the housing, planning, building and development laws becomes dysfunctional at the expense of the purchasers. This also includes the inability of the purchasers to take legal actions against the defaulting developer because the actions might not be beneficial nor feasible (Nuarrual Hilal Md. Dahlan, 2006).

1)      Whether the rights and interests of the purchasers, in the abandoned housing projects of the insolvent housing developer companies which are subject to CVA administration are fully protected? And,

2)      If not protected, how could the proposed CVA law be improved and improvised for the benefits and protections of the purchasers’ interests


The CLRC recommends the introduction of CVA mechanism as an alternative to the rehabilitation schemes of the insolvent companies.  The CVA is made on the agreement of the creditors, the company or the directors of the company.  The appointment of CVA is made outside court on the agreement of the related parties.  The qualified insolvency practitioner will be appointed to carry out the CVA. In undertaking this duty, the qualified insolvency practitioner is also armed with moratorium powers as stipulated in the agreement of the parties.  There is no provision in the Companies Act 1965 (‘CA’) on CVA.  CLRC has proposed that CVA be applicable as well in Malaysia as a means to solve corporate insolvency problems.  The name as proposed by the CLRC is not “Company Voluntary Arrangement” but “Corporate Voluntary Arrangement” (CVA).  The functions and rules of the proposed CVA in Malaysia is substantially similar to the functions and rules as enjoyed by CVA in the UK.  However, certain UK’s CVA functions and powers are not included in the proposed Malaysian CVA and in this respect the CLRC proposed certain variations of the CVA according to the Malaysian needs.  One of them is that the moratorium period provided should apply to both small and large companies seeking to propose a CVA in its rehabilitation process (recommendation 4.41 of the CLRC final report).  This position is unlike the UK approach which limits the moratorium to small companies only (Companies Commission of Malaysia (Companies Commission of Malaysia, 2011).

Some of the recommendations of the proposed CVA suggested by the CLRC are as follows:

1)      A moratorium period for a CVA scheme should be automatically in force upon the filing of relevant documents in court without the need for a court order (recommendation 4.42);

2)      A moratorium period for a CVA scheme may be extended for up to 60 days if both the creditors and the insolvency practitioner agree to it (recommendation 4.43);

3)      The court’s involvement in a CVA should be limited to hearing challenges to such scheme on the grounds of material irregularity, or unfair prejudice to the interest of a creditor or a member or that such scheme is anticipated to be ineffective in practice (recommendation 4.44);

4)      The proposal for a CVA scheme be approved by a majority vote of not less than 75% of the total value of the creditors who may vote in person or by proxy and that the proposal as so approved would be binding on the creditors of the company and that any modifications to the proposal should not be allowed. If there were any modifications, the creditors should vote on any modified proposal in the next meeting. The result of the meeting should also be reported to the court (recommendation 4.45);

5)      That CVA scheme itself or the procedure involved in its approval should be subject to challenge in court. An application for such challenge should be made within 28 days beginning with the first day the report is made to the court. If a creditor alleges that he has not been given notice, he should be entitled to challenge the decision of the meeting within 28 days on which he became aware that the meeting had taken place (recommendation 4.46); and,

6)      The management of a financially distressed company under a CVA scheme should remain with the directors (recommendation 4.47).


It is opined that the CVA as recommended by the CLRC is insufficient to cater for facing the problems of abandonment of housing development projects of the insolvent housing developer companies, especially for carrying out rehabilitation effectively in the protection of the aggrieved purchasers’ rights and other stakeholders.  The author are of this view on the following grounds:

a)      Firstly, insofar as the CVA scheme proposed by CLRC, the recommendations have not provided the measures and remedies in the protection of the aggrieved purchasers’ rights (public interest) throughout the abandonment period;

b)      Secondly, there is no mention about the duties of these parties to comply with the statutory and legal obligations imposed by the Housing Development (Control and Licensing) Act 1966 and its regulations (‘Act 118’), the Street, Drainage and Building Act 1974 (‘SDBA’), the Uniform Building By-Law 1984 (‘UBBL’), the Town and Country Planning Act 1976 (‘TCPA’), other building and planning laws thus protecting the rights and interests of the aggrieved purchasers in the course of carrying out rehabilitation.  This lacuna may lead to an abuse of power of these powerful parties at the expense of the purchasers’ rights.

c)      Thirdly, the qualified insolvency practitioner in the CVA, in the course of CVA administration, is not answerable to the MHLG/Housing Controller, planning authority, building authority and land authority.  On the other hand, he is obliged to accede to the demands and subject to the consent of the creditors of the company thus marginalizing the interests of the aggrieved purchasers and the MHLG/Housing Controller;   and,

d)      Fourthly, if in the opinion of these parties (the qualified insolvency practitioner and the creditors) the purported rehabilitation plan is not feasible to their benefits, the qualified insolvency practitioner may not carry out the rehabilitation.  The incapability of these parties to carry out rehabilitation and protect the interests of the aggrieved purchasers may be due to problems of insufficient funds to finance the rehabilitation coupled with the unsettled problems, complications and troubles that plaguing the abandoned projects which ultimately affect the projects’ potential to be effectively rehabilitated in the protection of the rights of the aggrieved purchasers.

It is proposed that a special rehabilitation of abandoned housing projects legal regime be provided in the Housing Development (Control and Licensing) Act 1966 (Act 118) to deal with the rehabilitation of abandoned housing projects and providing equitable remedies to the aggrieved purchasers in abandoned housing projects, including when the insolvency housing developer companies are subject to CVA administration.

Secondly, the functions, duties, liabilities and responsibilities of the recommended CVA must also be subject to the proposed special rehabilitation scheme provision in Act 118.  This is to provide sufficient protection and freedom to the rehabilitation manager appointed under the proposed special rehabilitation of abandoned housing projects scheme in Act 118 to duly carry out the statutory rehabilitation effectively against any interference or legal or non-legal actions by the qualified insolvency practitioner, creditors and the like.


It is the view of the author that the insolvency approach via CVA administration as recommended by the CLRC in Malaysia tends to be a creditors-centric approach.  The result is that if the insolvent housing developer companies which are subject to CVA abandon their housing projects, the aggrieved purchasers may not get any or full protection under the said insolvency approach detrimental to their rights and interests.  It is submitted that, a special rehabilitation legal regime and the requirement that the applicant developer to possess housing development insurance, be introduced in the Housing Development (Control and Licensing) 1966 (Act 118) and the corresponding housing legislations in Sabah and Sarawak (East Malaysia), to protect the rights and interests of the aggrieved purchasers in abandoned housing projects, particularly when the insolvent housing developer companies enter CVA administration.  The purpose of imposing this insurance is to protect the interests of the purchasers when the housing projects carried out by the insolvent housing developer companies are abandoned.  This protection may serve as a ‘backup’ monetary means to fund the rehabilitation of the abandoned housing projects.

The above proposed provisions will smoothen the rehabilitation administration.  These proposed legal provisions can protect the interests of the purchasers and other stakeholders in abandoned housing projects, whose housing developer companies are subject to CVA administration, for example by allowing rehabilitation to be duly carried out and the purchasers’ rights and interests are protected.

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