Category Archives: Insolvency Law

Comparative legal analysis between the rehabilitations of the failed residential projects of the liquidated housing developer companies in Malaysia and the Republic of Singapore

Md Dahlan, Nuarrual Hilal (2012) Comparative legal analysis between the rehabilitations of the failed residential projects of the liquidated housing developer companies in Malaysia and the Republic of Singapore. Journal for Global Business Advancement, 5 (2). pp. 126-149. ISSN 1746-966X

Gambar 2

Abstract

This paper discusses the liquidation law and practice in the rehabilitation of failed residential projects in Malaysia of the liquidated housing developer companies in comparison with the position in the Republic of Singapore.This paper is the fruit of a legal case studies research funded by the Ministry of High Education Malaysia (MOHE) through the FRGS Grant. The objective of this paper is to highlight the problems in the current liquidation laws applicable in Malaysia and Singapore in the face of the failed residential projects’ problems and the grievances of the purchasers. This paper suggests that there are lacunae in the current law of liquidation and insolvency in Malaysia and Singapore in dealing with the rehabilitation of failed residential projects for protecting the rights of the aggrieved purchasers. This paper also proposes solutions for the lacunae and the problems.

Keywords: liquidation law issues; failed residential projects; rehabilitation; liquidation of housing developer companies; Malaysia; Republic of Singapore.

Comparative legal analysis on the viability of judicial management on insolvent residential developer companies in Malaysia, The Republic of Singapore and The United Kingdom

Md Dahlan, Nuarrual Hilal (2015) Comparative legal analysis on the the viability of judical management on insolvent residential developer companies in Malaysia, The Republic of Singapore and The United Kingdom. Malayan Law Journal, 2 (20). pp. 1-15. ISSN 0025-1283

Abstract

Recently, the corporate law reform committee (‘CLRC’) operating under the companies commission of Malaysia (‘CCM’) has recommended that judicial management (‘JM’) be introduced in Malaysia as one of the ways to deal with corporate insolvency matters. The application for appointment of judicial manager may be made by the company itself, the directors or the creditors. The judicial manager is armed with a moratorium power against any action taken which may be commenced by the creditors and others to ensure that he can effectively carry out his duty. The moratorium power will enable him to prepare and implement the approved restructuring plan for the benefits of the insolvent company and its creditors.This paper aims to elaborate the CLRC’s recommendations on JM and study its strengths and weaknesses particularly in dealing with the problems of failed residential projects of insolvent residential developer companies. This paper is also a result of research conducted through a comparative legal research methodology. Two jurisdictions, viz the Republic of Singapore and the United Kingdom have been selected for comparative analysis over their respective laws and practices on JM. Further, this comparative study is to investigate, identify and find the respective jurisdictions’ strengths and weaknesses on JM, which Malaysia can learn from particularly in the face of the failed residential projects’ problems. This paper finds that the recommendation by the CLRC for the appointment of judicial manager is commendable. Nonetheless, it is submitted that, in the insolvency management of insolvent residential developer companies with failed residential projects, the judicial manager who is armed with certain statutory and legal powers still cannot fully provide comprehensive solution in dealing with the rehabilitation of failed residential projects and cater to the rights of the aggrieved purchasers. Equally, this paper suggests certain proposals to improve the corporate rehabilitation mechanism carried out by the judicial manager in insolvency Administration involving insolvent residential developer companies whose residential projects failed.In the course of carrying the JM, this paper also suggests certain ideas on how to protect the rights and interests of the aggrieved purchasers in failed residential projects.

Keywords: Failed Residential Projects; Judicial Management (‘JM’); Rights of Aggrieved Purchasers; Rehabilitation; Malaysia.

Email on issue of rehabilitation of abandoned housing project by liquidator

The email reads as follows:

Assalamualaikum

I have read many articles from you blog with regards to abandoned housing development. I am writing to seek your advice regarding my situation and also on behalf of the to other purchasers.

If you don’t mind, let me explain the brief story. We bought a semi D house in mukim … in 2008. There are only 10 houses in the development called taman … and the developer was …. Subsequently the developer was liquidated and …. has been appointed as the liquidator. At this juncture the houses were completed up to 75% except for electrical , water pump house and roadwork.

It has been more than a year but the liquidator has not made any progress. Latest news we heard that the liquidator is now  applying to the court for a scheme to revive development but with the condition that we need to top up almost RM 30 000 on top of the original purchased price. Some purchasers are not able to do so due to financial constraints.

In such a scenario, do we have any rights to demand that the liquidator complete the houses without any additional payments required from purchasers? Should they refuse , what other options do we have ?

I apologize that this email may disturb you but we would be very grateful to hear your opinion

wassalam

Dear Dr

Thank you so much for the prompt reply. I have another few questions if you don’t mind. If the S and P is terminated , I am not sure whether the liquidator will return our money because the title has been transferred .

If the liquidator terminate and give us the half completed house (as is where is basis) , I am not sure how to continue the development on individual basis since it is a Semi D.  I would appreciate your knowledge sharing on such case.

Wassalam

My answer:

Waalaikum salam

I sympathize with your fate.

My advice is this:

If you have an option, you should terminate the sale and purchase agreement and request the liquidator to repay all your moneys paid to the wound up developer. You can apply to the court to terminate sale and purchase agreement and ask the liquidator to repay all you moneys paid to the previous developer. Buy a new completed house. Full stop.

I think the liquidator has no source of money to rehabilitate the project. So that he asked you to top up. He also needs to get profit from the project as fees. If you think that you have adequate patience, please bear with the liquidator to complete the rehabilitation. If not, ie if your feel that this is not worthwhile, terminate the sale and purchase agreement and ask the liquidator to repay back all your moneys.

 This email is my personal opinion and made on without prejudice basis.

All the best.

Assoc. Prof. Dr. Nuarrual Hilal Md Dahlan, UUM, Kedah

If you want the completed house, you have to add up RM 30 k. You have to cooperate with the liquidator in order to complete. Nonetheless, you will be required by the liquidator to sign a waiver letter which states that the liquidator will not be responsible to any liability and faults of the wound up developer company. The waiver letter also may contain a statement that you waive all damages/compensations arising from the losses you suffered due to the abandonment. New S&P agreement may need to be entered into between you and the liquidator. The terms may be different from the original S&P and that your rights may be marginalized in order to protect the interests of the liquidator.

Question: Whether this new S&P has been approved by the Ministry of Housing?

If you are not agreeable to have your abandoned unit be revived due to complications and other troubles, you can/may terminate the S&P and claim for all the moneys paid to the developer, including damages until full settlement. In this case, you also need to file proof of debts and submit it to the liquidator. You will be considered as an unsecured creditor of the wound up housing developer company and may entitle to a refund of all your moneys and other damages.

The question whether the land has been transferred into your name does not matter as the contract imposes the developer to complete the house with vacant possession and with the CCC obtained. Even though the title has been transferred into your name, the developer is still in breach of the contract in that he has not yet completed the house, deliver vacant possession and provide the CCC.

I think in certain circumstance, it is appropriate for you to terminate the S&P and claim for refund and ask for damages. All these must be supported with court judgment.

This advice is made on a without prejudice basis.

 

A New Email on the Grievances of an Abandoned Housing Project Purchaser

Dear En. Hilal,

I read your articles on abandoned housing project. Being very convincing with your expertise in this field, here I would like to get your brilliant  and tips.

Background

My name is…. In 1998, I purchased a unit of apartment in…. This project was ran by …. (the developer) I get into a contract with … (the bank) to finance my purchase of the apartment unit. …had released the 1st 10% of my loan to …(the developer).

In Dec.2002 this project was declared abandoned by KPKT (Ministry of Housing and Local Government). Few years later … (the developer) was declared bankrupt. Few years after the declaration that this project was abandoned, I had requested …(the bank) to close my loan account as I would like to settle all the 1st 10% which was disbursed to…(the developer), envisaging that I want to avoid paying the interest for that 10% for good. The bank told me that was not possible.

In 2006, I went oversea to further study and till now still in oversea. I did not have any contact with the bank anymore. The interest from my housing loans kept on accumulating plus all legal fees, late payment fees and other related fees.

This month Jan 2014, by chance I had contacted the organizing committee of purchasers of…(the developer) project and he told me that the project was taken over by another developer but my unit fall under cancelled project, whereby the developer had received the approval from the court to cancelled the project of my unit and will reimburse all the money the purchasers had spent to buy the unit in that parcel, they will reimburse ONLY the amount that the bank had released to…(the developer) and the 10% down payment, other related cost like lawyers fees for the bank and the developer and related fees will not be included.

I have contacted the related persons from the new developer, and they had informed me that they had released the cheques under my names to…(the bank) and the cheque was cleared in Nov 2013. The bank did not contacted me, I understand because I was not contactable. Then I contacted the person in-charge from the Loan monitoring unit in…(the bank) and they admitted that they had received and cleared the cheque.

I have requested the Bank to reconsider and recalculate the settlement of my debt to…(the bank), and I have also requested them to minus the 5 years waiver exemption of paying the interest for that abandoned project as announced by the Government, and I requested the bank to minus all legal fees too during the 5 years waiver / exemption of paying the interest.

My Questions

  1. Am I correct to request all those 3 issues to be reconsidered for the settlement of my loan with…(the bank) for this abandoned project? If not, could you please advise or suggest me what actually the correct thing to do or to request?
  2. Do I have to provide the Bank with the necessary docs related to this issue? If yes, what are the documents would be?
  3. I have also requested the bank to remit all the balances from that settlement amount to my personal account.

 Below is the draft of my email to the person in-charge in …(the bank). I really appreciate if you could have a look on my drafted email below and please feel free to amend or add any wording if you think necessary/appropriate. I really appreciate if you could give me the feedback ASAP so that I could contacted those persons accordingly ASAP too.

Assalamualaikum …,

As per our discussion on the phone this morning, could you please proceed with the necessary for my below requests pertaining to the settlement of my HL with …(the bank) for the abandoned project under…(the developer).

The Request

  1. I would like to request the waiver of interest exemption as announced by the government for any abandoned project. this waiver should be commenced from the date the project was declared abandoned by KPKT (Kementerian Perumahan dan Kerajaan Tempatan/ Pihak berkuasa yang berkenaan with maximum terms of 5 years.
  2. I would like to request the waiver of all legal fees imposed on this account during that waiver period too with the reasons explained in my previous email.
  3. I would like to request that all the balances from this settlement to be refunded to my …(my bank) account no…………………………………………..

Thanks and kind regards

 My answer…

Assalamualaikum…

I feel sorry for the disaster that strikes you.

This is an opinion regarding your case. Nonetheless, my advice/opinion below is subject to without prejudice basis.

Your housing developer went bankrupt and wound up, leaving the housing project abandoned. In Malaysia, the normal and general possibility that the abandoned housing project can be revived is remote. At the end of the day, you may not get the duly completed house and that you may have to settle the loan that had been advanced to the defaulting abandoned housing developer. Even if you sue the wound up housing developer, this may not help you either. As the remaining funds may not be adequate to compensate you for all the losses you suffer. In this situation, legally, you may apply to the court to lift the corporate veil, requesting the court to order the directors to pay compensation and be liable to you.

On the other hands, you could report to the police for the fraud that the company/director committed. Further, a report should be lodged to KPKT, so that KPKT can take action in accordance with the provisions under the Housing Development (Control and Licensing) Act 1966 (Act 118) against the defaulting directors of the abandoned housing developer company.

In short and by and large in Malaysia, there is no law that governs abandoned housing project, its rehabilitation and that can protect the aggrieved purchasers’ interests today (including obtaining damages and compensation).

As regards your problem (in 2002) on…(the bank) for releasing some percentage of the loan, it is a law that you as the customer has a right to order …(the bank) not to release the loan to the defaulting developer (see Hoo See Sen & Anor v. Public Bank Berhad & Anor [1988] 2 MLJ 170, (Supreme Court)). The act of the bank in releasing the first 10% to the developer, despite your request to them not to do so, was wrong in law and knowing that the project was declared abandoned by KPKT. On this, I think you should provide proof of their negligence and breach of duty as the bank. You should also report this to Bank Negara Malaysia to take action and can sue them for their breach of duty of care/negligence. You may also claim damages/compensation for the losses you suffered.

You are also entitled to get an endorsement and certification from KPKT on your right to have the calculation of the interests of your loan be stopped from the date the housing project has been declared abandoned by KPKT. As regards your right to get back all legal fees and related fees, I think, you have to personally sue the wound up housing developer and by lodging Proof of Debt (POD) to the liquidator and you will become an unsecured creditor who may entitle to the balance moneys that the wound up company left.

In 2013, you said …(the bank) released some loan to the new developer. I cannot imagine, how could the bank release the money to the new developer, if your house has been cancelled for further development? In this case, I think …(the bank) was negligent and breached their duty. You can ask them to cancel the payment made and make a statement that you shall not be liable (to repay/settle the loan) to the wrongful release of that loan to the new developer.

Finally, you are entitled to the requests (waivers) you made to…(the bank). If they still hesitant to entertain your request, you may report to Bank Negara Malaysia for further action. Provide all proof as well.

Before I end this email, I have a question:

Is there any court order regarding the rehabilitation of the project and on the handing over of the project from…(the developer) to the new rehabilitating developer? The court order should provide certain terms as regards the rights of the purchaser to proceed or not to proceed with the rehabilitation, terms that protect the purchasers’ interests etc and the duties of …(the bank).

Good luck

Associate Professor Dr. Nuarrual Hilal Md. Dahlan ACIS, Institute for Governance and Innovation Studies, Universiti Utara Malaysia, Sintok, Kedah Darul Aman.

E-mail from aggrieved purchasers of an abandoned housing project at Selangor

I received an email from an aggrieved purchaser of an abandoned housing project.  The email reads as follows:

Catchwords:

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.

 Best wishes,

 ….

City&Country: Rimbun reviving abandoned projects

From: http://0-my.news.yahoo.com.precise.petronas.com.my/city-country-rimbun-reviving-abandoned-013003883.html (accessed 29 May, 2012)

Lim thought he had everything planned out. After years of saving for a down payment, he summoned up enough courage to sign the sale and purchase (S&P) agreement for a river fronting bungalow in Banting, Selangor. He pictured lush green spaces for his grandchildren to frolic in and a river in which he could fish — an ideal retirement home close to nature and away from the hustle and bustle of the city.

Now past his retirement age, Lim is nowhere close to living in his dream home 10 years on. Work on the bungalow stopped only a few months after it started. Along the way, some buyers, including Lim, decided to stop financing their home loan, which has led to legal action being taken against them by the financier.

Many neglected projects go unnoticed until the completion date is very close. By then, several years would have passed and the building would be in a sorry state.

There is, however, hope that such projects may be revived. White knights can come in the form of other property developers or the appointed liquidators themselves.

One such liquidator is Rimbun Corporate Advisory Sdn Bhd, which has been actively reviving and rehabilitating abandoned housing and commercial projects in recent years. Over the past 30 months, the company has worked closely with the Rehabilitation of Abandoned Project Division (established in 2009) under the aegis of the Ministry of Housing and Local Government.

“In the past, the first thing a receiver and manager liquidator did was to liquidate a company in distress, sell off its assets and pay off creditors. Eventually, the government realised that doing this was too time-consuming and burnt a hole in everyone’s pocket,” says Rimbun managing principal Kumar Nathan.

He adds that this also resulted in innocent purchasers losing sight of their “dream home” since the project is sold to a third party who has no obligation to honour contracts signed with the previous developer. To add insult to injury, purchasers have to continue honouring their loan obligations.

To prevent this from happening, Rimbun and a handful of liquidators in the country with relevant experience and expertise were brought in to rehabilitate certain housing projects. To date, Rimbun has revived and handed over properties, or identified white knights to take over projects and refund payments, in over 10 projects involving 1,500 purchasers.

“We are currently working closely with the ministry to revive another 15 projects involving 3,800 purchasers and expect to progressively rehabilitate and hand over these projects over the next 18 months,” Kumar tells City & Country.

The figures and the law

From 1990 to 2005, the ministry’s records show that 261 licensed projects involving 88,410 houses in Peninsular Malaysia were abandoned, affecting 58,685 buyers. Selangor had the highest number of abandoned projects — 63 involving 32,987 houses affecting 22,480 buyers.

As at July 15, 2011, there were 34 abandoned projects involving 16,873 units and affecting 11,024 buyers. The majority was in Selangor with 19 abandoned projects with 9,482 units and 6,310 buyers.

The fall in number was due to the government’s efforts to revive some of these projects. In Budget 2012, an allocation of RM63 million to revive 1,270 abandoned houses was proposed.

However, Kumar points out that the figures released are only for residential licensed projects under the purview of the ministry. “We estimate the real figures to be higher because we have observed quite a number of unlicensed projects in the country.”

Kumar adds that nationwide, 195 unlicensed projects have been identified to date, although with no definitive mechanism in place to capture data on this, the figure could be much higher. A task force has since been set up at the Housing and Local Government Ministry to establish the actual figure.

To obtain licensing, developers need to go through two parties — the local authorities and the ministry. Developers have to first contact the local authorities for approval on matters such as the development order and building plans.

Following the approval, they need to get their licence and advertising permits from the ministry. In many cases of unlicensed projects, the developers had sought the approval of the local authorities but neglected to obtain compliance from the ministry or make a deposit in the Housing Development Account.

Prior to starting work on a project, the law states that the developer has to make a requisite deposit of RM200,000 in the Housing Development Account, which is refundable upon project completion. Following pressure from numerous parties, the government announced in 4Q2011 that the amount would be increased to 3% of construction cost.

During the construction of the project, the sum serves as an insurance for the Housing and Local Government Ministry, which acts as a source of funding if the developer abandons the project. The proposed 3% deposit can, to a large degree, assist in the revival efforts by the government compared with the previous insignificant sum of RM200,000. Upon project completion, the 3% is fully refunded by the Controller of Housing to the developer.

Although Section 5 of the Housing Development (Control and Licencing) Act 1966 (Act 118) prohibits housing development to be undertaken except with a licence and Section 18 of the same Act imposes fines of between RM250,000 and RM500,000 and/or imprisonment not exceeding five years, unlicensed development has continued to flourish over the years. How have unlicensed developers managed to get off scot-free after all the problems they caused?

“This could primarily be attributed to a lack of understanding and coordination between the various stakeholders. There had also been ineffective enforcement by the ministry in the past, although this has since been beefed up. It would be interesting to see how the courts decide on loans furnished by banks for unlicensed projects as it is essentially funding an activity not permitted by law and hence ‘illegal’,” Kumar says.

He adds that apart from the ministry and banks, there has also been negligence on the part of local authorities, lawyers, architects and consultants that dealt with the developers without checking their licence.

Previously, no penalties were imposed on banks for their oversight. It was only last year that the court imposed a rule that required banks to get the consent of purchasers before releasing the remaining undisbursed amount from the loan to developers if the project is not completed within the time frame stipulated in the S&P agreement.

The deposit of 3% of the gross development cost of a project, from a previous insignificant sum of RM200,000, is an improvement. But if consumers have to pay from 5% to 10% of the total price to secure a home, is a 3% deposit for developers enough?

“Well, it is a progressive move on the government’s part. We hope to see more mechanisms put in place and most importantly, continuous implementation and tighter enforcement,” Kumar says.

Reviving a site

Once a project has been identified for rehabilitation, the initial course of action is to carry out due diligence. In this study, the legal, technical and commercial aspects related to the rehabilitation of a said project will be evaluated and a report furnished to the ministry on the proposed course of action.

There are essentially three ways in which rehabilitation can be funded.

The project could be “self-funded”, namely the cost to rehabilitate could be financed by balance drawdown from the end financier. Here, the purchasers need not “top up” anything extra for the rehabilitation.

The second mode involves some element of “top-up” by the purchasers, which could range from 10% to 30% of the S&P price. This normally relates to higher-end properties in good locations where their value has appreciated, and the top-up is only required to be paid at the time of vacant possession.

The third mode of funding — which is done on a selective basis and currently limited to licensed low and medium-low residential projects, namely units costing less than RM100,000 — relates to funding “project shortfall” by the Housing and Local Government Ministry. If the ministry is funding the project shortfall, purchasers need not pay anything extra, apart from their S&P amount.

One of the requirements for government funding is for the company to be wound up and a liquidator to be appointed to avoid any impression of a bailout. The government will then carry out a tender exercise among its present pool of 65 pre-qualified contractors to select a suitable one.

Apart from provision of funding on a selective basis, the ministry is actively engaged in the rehabilitation process by being the intermediary in resolving issues with the local authorities, utility providers, financiers, consultants and other technical agencies.

There are three parties involved in the rehabilitation process: the rehabilitating contractor, the liquidator (who takes on the role of the developer) and finally the government (whose role is to facilitate funding and monitoring while dealing with the local authorities, banks and technical agencies).

Kumar says that the government’s main focus is to rehabilitate licensed low and medium-cost residential projects. Homes below RM42,000 are labelled as low cost and those below RM100,000 are labelled as low-medium cost. “Of course they are classified as per original sale and purchase price,” Kumar explains.

Internally funded projects

He comments that the model has been working well in the peninsula. Not surprisingly, the Sarawakian authorities recently sought the ministry’s advice to rehabilitate some projects in their state.

So what will happen to mid to higher-end homes that have been abandoned? After all, the government will facilitate but will not provide funding for residential units above RM100,000. In certain cases, buyers have to top up additional amounts, especially when there has been a huge hike in building material prices.

All hope is not lost though, as Kumar cites Rimbun’s experience. “We have already rehabilitated two projects without any government funding or additional top-up from the buyers. It was all done through internal funding, gathered from the accumulation of all the buyers’ past payments, the money in the developer’s account and sale of the remaining units.”

In such cases, buyers will usually make some compromises such as waiving their late delivery claims. Designs and materials used may have to be changed as well to reduce cost.

Rimbun’s first internally funded project was a 240-unit condominium called Putra Intan in Dengkil, Selangor, which it successfully handed over in December 2010. Rimbun then proceeded to start work on reviving 726 units of 2-storey link houses at La Cottage, Puchong. “We are executing the development phase by phase. To date, we have handed over one of the four phases totalling 178 units. The rest of the 548 units will be released complete with CFO [certificate of fitness for occupation] in the second quarter of this year,” Kumar says.

He adds that in certain cases, the buyers need to top up about RM15,000 to RM20,000 before construction can start. “With that said, property values have gone up about RM100,000 in the last few years. Hence, these buyers pay up quite happily.”

For projects which are not viable, the liquidator will try to find a white knight to acquire them for new development purposes. Rimbun will then help to channel the acquisition money from the white knight to the original buyers.

So what are the major challenges faced by rehabilitators? Kumar believes their biggest enemy is funding, compliance time, and the damage caused by nature. In all cases, a project is taken on an “as is where is” basis with all the defects and shortcomings included. As a rule of thumb, authorities do not impose new conditions because that could derail the rehabilitation process.

“The ministry facilitates the revival process in overcoming what at times amounts to unreasonable requests by local authorities or utility providers. Although they [the government] have laid certain guidelines and ground rules as to how we can address abandoned projects, every case is different.

The level of derelication differs, the problems and issues faced by the stakeholders vary,” says Kumar, who adds that this business is always a learning process because no matter how much analysis has been done on the site, they would frequently encounter unprecedented issues and problems once they actually start groundwork.

He says that to ensure the project funded by the government doesn’t get abandoned a second time, the government has come up with a consumer protection mechanism. “According to the rules, the rehabilitating contractor will only be paid once the certificate of fitness is out.”

Advice for home purchasers

Kumar warns that constant vigilance should be practised, especially with the current global financial turbulence. “If the economic situation (in Europe and the US) doesn’t improve anytime soon, we will be bracing ourselves for more foreclosures and abandoned projects.”

However, he points out that consumers can’t always put all the blame on the same few stakeholders. “Malaysian home purchasers have to learn to be more vocal and proactive. We should always check with the ministry to ensure that the developer is legit before signing anything.

“After purchasing a unit, buyers must always keep close tabs on the progress on their homes by occasionally visiting the construction site.”

He says the laid-back nature of Malaysians, coupled with the lack of understanding and awareness of their own rights, could be a disastrous combination.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 908, April 30-May 6, 2012

(emphasis added)

FEASIBILITY OF THE RECENT RECOMMENDATIONS FOR THE ESTABLISHMENT OF CORPORATE VOLUNTARY ARRANGEMENT (‘CVA’) BY CORPORATE LAW REFORM COMMITTEE (CLRC) IN SOLVING INSOLVENCY ISSUES: A CASE STUDY OF ABANDONED HOUSING PROJECTS IN MALAYSIA

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. …

INTRODUCTION

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

CORPORATE VOLUNTARY ARRANGEMENT (‘CVA’)

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).

FINDINGS

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.

RECOMMENDATIONS AND CONCLUSION

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.

Owners of Once-Abandoned TTDI Condominium “Abandoned” Again

From: http://komunitikini.com/kl-selangor/kuala-lumpur/owners-of-once-abandoned-ttdi-condominium-%E2%80%9Cabandoned%E2%80%9D-again (accessed 20 October, 2011)

Posted on July 20, 2011 by Leven Woon

Sudah jatuh, ditimpa tangga. Purchasers of the once-abandoned Kondominium Mas Kiara were recently shocked to discover that their units have been sold to third parties by the liquidator of the now-defunct property company.

About 23 purchasers, who bought their units in 1995, alleged that the new developer, Intan Permata Properties Sdn Bhd (IPPSB), has not only failed to give them the much-delayed units, but have instead sold them on to new buyers.

One purchaser, Syaniza Hisham…, claims the developer disputed, without cause, many of the original purchasers’ legal documents when they were asked to sign a new sales and purchase agreement (S&P) in 2007.

“Some 100 purchasers were not invited to sign new S&Ps eventually due to unreasonable excuses such as non-payments although they have shown the receipts,” she added.

“Some of them were asked to show their purchase documents to a lawyer. They went to meet the lawyer a few times but in vain. Eventually the developer claimed they were not interested [to meet with them],” she said at a press conference yesterday.

Syaniza claims those units have been resold to new buyers for between RM400,000 and RM500,000, much higher than the initial price of below RM200,000.

Another purchaser, Hamzah Ibrahim, said the Ministry of Housing and Local Government had, in a meeting, stated that IPPSB can only sell the remaining 53 units which had not previously been sold, and assured that the right of existing purchasers will be protected.

“Many of us feel cheated as we have paid up to 80 percent of the loan instalments,” lamented Hamzah.

Sixteen years dreaming of a new home

Launched in 1995, Kondominium Mas Kiara in Taman Tun Dr Ismail consists of two blocks and 240 units with a built up area of 1,300 square feet.

The purchasers were promised their dream homes in three years, but instead they waited until 2003 to find out the initial developer Petplus (M) Sdn Bhd had been liquidated.

In 2004, IPPSB took over as the new developer and thus began the new saga.

All purchasers who attended the press conference yesterday said they refuse any compensation and only want their units to be handed over to them in the soonest possible time.

They also want IPPSB to recognise them as the genuine purchasers. (emphasis added).

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.

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

PART ONE

Issues

A question can be raised viz whether the liquidator is under a responsibility to revive the abandoned housing projects of the wound up companies?… it is opined that the liquidator is liable to carry out rehabilitation.  Nonetheless this is subject to the sanction/authority of the creditors, contributories, committee of inspection and the Court, as the case may be (section 236(1)(3) and section 237(1) of the Companies Act 1965 (‘CA’)). If these parties (the creditors, contributories, committee of inspection and the Court) do not allow the liquidator to carry out the intended rehabilitation, the liquidator shall not carry on the same. Yet, in the opinion of the author, even these parties (creditors, contributories and committee of inspection) are not agreeable to such a request, the aggrieved purchasers may invoke Order 92 rule 4 of the High Court’s Rules 1980 (inherent power of the Court) and section 23(1) of the Courts of Judicature Act 1964 to request the Court to rely on its inherent power acceding the aggrieved purchasers’ request to have the abandoned housing projects be rehabilitated by the liquidator on the ground of public interest.

The refusal to allow rehabilitation may be because there are not enough funds to finance the rehabilitation costs and other grounds which may cause the intended rehabilitation is not feasible. Thus in this circumstance, the aggrieved purchasers have no redress to have their abandoned housing projects be revived or at least to get appropriate compensation and damages from the wound up housing developer companies.

Nonetheless, if the liquidator is of the opinion that it is viable for implementing rehabilitation of abandoned housing projects yet this is still rejected by the creditors or contributories or the committee of inspection, as the case may be, the liquidator may apply to the Court for directions to obtain the required authority and sanction to proceed with the intention to rehabilitate the abandoned housing projects pursuant to section 237(3) of the CA.

On the other hand, insofar as the situation in Peninsular Malaysia is concerned, if the liquidator of the company is the Official Receiver (OR), he may not carry out the rehabilitation. The reasons are as follows:

 1)         the official assignee has insufficient knowledge and expertise to warrant them to carry out the rehabilitation; and,

2)         the official assignee has insufficient staff and manpower to enable them to resume the construction or to rehabilitate the projects.

The most that the Official Receiver (‘OR’) or, sometimes, the private liquidator, may do is to find eligible third party buyer to buy up the project together with the liabilities of the wound up housing developer companies. The proceeds of the sale are to be used to pay off the debts of the creditors of the companies in accordance with section 292 of the CA (Priorities of Payment). …

However, if the private liquidator is appointed, in most cases, there is a possibility that they will rehabilitate the abandoned housing projects….Nonetheless, the private liquidator may not so proceed with the rehabilitation if there is insufficient fund to revive the projects or the project is too difficult for rehabilitation….

Logically, the liquidators are liable to carry out rehabilitation and be subject to the provisions of the Housing Development (Control and Licensing) Act 1966 (Act 118), insofar as this is reasonable and within their power and capability. Nevertheless, insofar as the author’s scrutiny none in the case law and in practice, the liquidator are subject to Act 118 and under any duty (legal and statutory) to rehabilitate the abandoned housing projects. The reasons are provided above, i.e no sufficient funds, no expertise and shortage of manpower. On the other hand, it is argued, to impose statutory and legal duty for carrying out rehabilitation and be subject to the provisions of Act 118 is unfair and inequitable to the liquidators. This is being so as the primary duty of the liquidator, insofar as the insolvency law in Malaysia is concerned, is to carry out the business and affairs of the wound up companies to settle the debts of the petitioning creditors and other secured and unsecured creditors. In other words, once a housing developer companies are wound up under the CA, the housing development business carried out are also defunct. The liability to carry on the development by the liquidators, in favour of the aggrieved purchasers, (even though they (the liquidators) can be considered the permitted assigns or successors in title to the wound up companies), cannot be imposed or presumed on part of the liquidators. One of the reasons is that there is nothing in the CA which provides a duty on the liquidators to protect the rights of the purchasers/customers of the wound-up-company, unless, it is expedient and necessary in the opinion of the creditors, the contributories, the committee of inspection and the Court in the course of managing the winding up process and insolvency administration.

Following the above contention, in abandoned housing projects in Peninsular Malaysia whose housing developer companies have been wound up, there is a strong possibility that the liquidator (OR or the private liquidator) may not rehabilitate the project in the protection of the purchasers’ interests. This also means that, unless the project is taken over by a white knight and new funds are injected into the rehabilitating parties to finance the intended rehabilitation, the projects will be stalled forever without any relief and the interests and rights of the purchases will be detrimental.

It should be noted, provided that there is enough funds to run rehabilitation and the liquidator is willing to undertake rehabilitation of abandoned housing projects, in carrying out the business and affair of the wound up company, and that the creditors, creditors, committee of inspection or the Court having consented, the liquidator (OR and private liquidator) may appoint special manager to help them in executing the duties and to smooth out the rehabilitation works. This is provided in section 246(1) and (2) of the CA. This special manager, it is opined, may consist of project manager or architect or engineer or building contractor to assist the liquidator to rehabilitate the abandoned housing projects…