Rein-in liquidators who are acting as housing developers

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To date, no unscrupulous liquidator has been punished by the Malaysian Housing Ministry because they are no proper mechanisms in place. Unfortunately, the Housing Development Act or HDA has no regulations to govern liquidators conduct and fees imposed on homebuyers.

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© tang90246 | 123rf

One of the amendments to the Housing Development (Control & Licensing) Act 1966 (HDA) which took effect on 1st June 2015 was for Section 3 – where the interpretation extends the definition of ‘housing developer’ to include a person or body appointed by a court of competent jurisdiction to be the provisional liquidator or liquidator for the housing developer.

The amendment to include a liquidator as a “housing developer” was intended to fill the void when a property developer winds up the business/goes bankrupt before completion of its duties and contractual obligations under Act 118. Duties here will include completing construction of the buildings or facilities, deliver vacant possession or applying for individual or strata titles; thus leaving the homebuyers in a lurch.

As a result of said amendment, a liquidator will be subjected to the duties and responsibilities imposed by Act 118 and may be liable for breach of duties of a ‘de facto housing developer’. In theory, a liquidator should not be allowed to charge or impose any additional administrative fees when carrying out his duties (since he is assuming the affairs and responsibility of the defunct developer) contracted in the Sales and Purchase Agreement.

For example, functions that are part and parcel of a developer’s duty such as updating the record of ownership and perfecting the transfer to a purchaser when a separate individual or strata title is issued, issuing a written confirmation of particulars (for sub-sale) under Act 118.

Why is there no regulation over Liquidators’ conduct & fees imposed?

The reality is that liquidators who are appointed to manage the affairs of a defunct developer are charging an ‘administration fee’ of between 2% – 3% of the original property purchase price or the sale price of a subsale property for performing these functions of a developer. In some cases, there are also additional charges tagged as ‘vetting fees’ for the liquidator’s solicitors to vet the forms and documents.

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© robuart | 123rf

The irony of the situation is that although payment is made to the liquidator for these so-called vetting, verification and retrieval of documents, it is the purchaser who has to furnish all the documentary proofs of ownership, loan contracts, repayment receipts, statements and the whole list of documents to prove their ownership before the liquidator ‘graciously’ co-operates. This process of loading the proof of documents on the owner can be unreasonable as some would lose their documents, cannot locate the originals and for the elderly purchasers, they may not have the mobility to undertake this exercise although they may have resided in the premises for umpteen years.

On top of that, aggrieved homeowners are made to affirm a statutory declaration (before a Commissioner for Oaths) swearing the truth and nothing but the truth to vouch for their ownership. The liquidators will make the owners pay for their lawyer’s professional fees too. Only people who have gone through the process would know the amount of monies and the paper trail involved in a situation of dealing with liquidators who proudly espouse themselves as ‘Officers of the Court’ albeit being appointed under a winding-up petition.

There are currently no guidelines to regulate the arbitrary imposition of these ‘charges’ and ‘fees’ by the liquidators, to the detriment of the aggrieved purchaser/homeowner. The affected purchaser has no choice in such an appointment and is left to a game of chance that the appointed liquidator will act in his/her best interests and not further aggravate the latter’s suffering. The purchaser is at the mercy of the appointed liquidator where each liquidator is like a ‘little Napoléon’ of a particular housing development.

Another irony is that Section 22D of the Housing Development Act clearly states that a fee of not exceeding RM50 may be imposed for a written confirmation of a record of ownership in the housing development and consent for the assignment.

Why then are liquidators granted special treatment by having their charges/fees grossly inflated from RM50 to 2% – 3% of the property purchase price? Well, the liquidators will argue that the RM50 entailed is limited to the ‘written confirmation’ and does not include other job requirements.

DID YOU KNOW: Liquidators are supposed to be ‘officers of the court’ and appointed to carry out their duties judiciously but there are no set criteria or qualifications for a liquidator to meet before they can be appointed to manage a wound up development company or to give any obligation to comply with HDA or Act 118.

Was there a lacuna in the law that has been unearthed? Was there an oversight made by the drafters of the law resulting in laws that cannot be enforced hence the perpetuation of the current status quo?

CHECK OUT: Latest list of blacklisted developers in Malaysia

Importance of detailing the scope, role & remuneration of Liquidators

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© Rapeepong Puttakumwong | Getty Images

HBA has time and again reminded the Housing Ministry of the need to rein in the conduct of the so-called court-appointed officers namely Liquidators who are acting as ‘de facto developers’. This is only made legally possible as the definition of a housing developer and a licensed housing developer under Act 118 includes liquidators. Therefore the liquidator is already a ‘de facto developer’ under the HDA since the amendment of the definition in 1988, 2002 and 2015.

For the local Housing Ministry to keep mouthing “there are no mechanisms in place” does not hold water and is mere indolence and incompetence on their part. Jabatan Perumahan Negara (JPN) and the Malaysian Department of Insolvency (JIM) have received numerous complaints against errant Liquidators, Receivers & Managers (R&M) such as exorbitant fees allegedly labelled as vetting fees (from 2% of property market value) for dealings as well as other voluminous conditions.

JPN has assured us that a new set of regulations will be formulated to cover the scope, role and remuneration scale. The aim of the new regulations is to regulate the conduct of Liquidators, Judicial Managers and R&M with emphasis on curbing dysfunctional acts, penalties for non-compliance, investigation, enquiries and criminal prosecution.

This regulation should be expeditiously formulated and enforced as Malaysian homeowners have been affected and will continue to be affected by the irresponsible and arbitrary acts of the Liquidators.

In the context of an abandoned housing project, the liquidator could play a parallel role of stepping into the shoes of a wound-up developer as a ‘de facto developer’ and revive the project within the legal provisions stated in Act 118 and its regulations. This would serve well to protect the interests of the purchasers of an abandoned housing project.

It is clear under the Housing Development Act that the liquidator can play an important role in the event the housing developer is in liquidation. Nonetheless, the common practice is for liquidators to be appointed for wound-up/bankrupt developers and to then attempt a revival of the abandoned project. The proposed legislation should further clarify the duties and powers of the liquidator under Act 118.

Conclusion

HBA fully understand and appreciate the vital role played by the local Housing Ministry within the fabric of the nation’s social and economic development. The housing industry is an important one and is closely connected to the nation’s heartbeat. A roof over one’s head is one of human’s most basic need next to food, water and air. That is why HBA strongly feels that more should be done now to improve and overcome the prevalent weaknesses afflicting the housing ministry and industry.

If you enjoyed this article, read this next: Freehold vs Leasehold title in Malaysia: What property buyers should know


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