In a situation where the developer is wound up before the fulfilment of its duties and contractual obligation towards the purchasers, a liquidator is to be treated as a substitute for a “housing developer”.
What is the liquidator?
According to Section 3 of the Housing Development (Control & Licensing) Act 1966 (amended 2015) (Act 118), the definition of “housing developer” extends to include “a person or body appointed by a court of competent jurisdiction to be the provisional liquidator or liquidator for the housing developer”.
In a situation where the developer is wound up before the fulfilment of its duties and contractual obligation towards the purchasers, a liquidator is to be treated as a substitute for a “housing developer” to fill in the void, such as completing the construction of the building or facilities, delivering vacant possession or applying and distributing individual or strata titles.
With such an amendment, the duties and responsibilities imposed on a liquidator will be subjected to Act 118. They may be held accountable for breach of duties of a “de facto housing developer”.
Discover properties for saleWhat are the current liquidator fees?
Currently, there are those exploitative private liquidators who impose exorbitant administrative fees of up to 2% or 3% of the purchase price on purchasers to carry out their duties of a ‘de facto’ housing developer vis-à-vis distribution and ‘sign off’ of transfer of the ownership papers aka titles (landed or stratified) to the purchasers who have already paid the entire sales price.
We shall refer to this performance of those functions of applying, distributing, and transferring the titles as the ‘last mile’.
A liquidator should be forbidden to charge or impose any additional administrative fees and their lawyer’s fees, which may appear unreasonable, unfair, and oppressive, as the liquidators are expected to perform something that is required under the law anyway and should not be entitled to more. A liquidator should not unjustly enrich themselves through benefits they aren’t allowed to. Unilateral imposition of such fees is devoid of legal basis.
The liquidator will charge RM1,000 per unit as administrative fees, and payment will not be made to their solicitors
In the recent High Court case in Penang, His Lordship Justice Dato Quay Chew Soon made a landmark decision on 12.12.2023 in the case of Chong Kok Wooi in a representative capacity representing 33-unit owners in Marinox Sky Villas Condominium v Liquidators for Masmeyer Development Sdn Bhd.
The following are excerpts of pertinent quotes of the Judge’s written grounds of decision, inter-alia:
Section 510 of the Companies Act, 2016 (CA) which reads:
“The Court shall take cognisance of the conduct of liquidators, and if a liquidator does not faithfully perform his duties and observe the prescribed requirements or requirements of the Court or if any complaint is made to the Court by any creditor or contributory or by the Official Receiver in regards to the conduct, the Court shall inquire into the matter and take such action as the Court thinks fit.”
From the above provisions, I consider that the actions and conduct of a liquidator is subject to the court’s scrutiny. A liquidator must act reasonably in the discharge of his duties. A liquidator cannot treat any discretion conferred upon him as giving him carte blanche to act according to his whims and fancy.
In the case of Perumahan NCK Sdn Bhd v Mega Sakti Sdn Bhd (2005) 1 LNS 162, the High Court said that the recurring theme is that fairness and reasonableness are the important criteria when scrutinising a liquidator’s remuneration. A liquidator must be able to justify his remuneration based on that benchmark.
The Courts have intervened in situations of inequality in bargaining power. Similarly to the present case, the Court of Appeal in KAB Corporation Sdn Bhd & Anor v Master Platform Sdn Bhd (2019) 1 LNS 975 found a significant power imbalance. It intervened to modify the 1% administrative fee *” of RM65,000 charged to a nominal fee of RM500,” being fair and reasonable.
Under Section 3 of Act 118, ‘housing developer’ is defined to include a liquidator of the housing developer. The liquidator is bound to complete the defunct developer’s duties and obligations under the sale & purchase agreements (SPA) and Act 118.
In this instance, to ensure that the strata titles are duly registered in the names of the purchasers, as set out in clause 11 of the SPA. The liquidator is statutorily bound to carry out the duties and obligations of the company.
Check out properties for saleUnder the principle of bare trusteeship, the liquidator ought to complete the perfection of the title transfer at no cost to the purchasers: Federal Court case of Tan Ong Ban v Teoh Kim Heng (2016) 3 CLJ 193 at 205.
The unit owners are entitled to appoint their solicitors, if they wish, without paying the liquidator’s nominated solicitors.
The liquidator claims that the standard administrative fee for executing the memorandum of transfer is approximately 1% to 2% of the purchase price.
- Firstly, this is a bare allegation that was unsubstantiated.
- Secondly, I think the administrative work to execute the memorandum of transfer is relatively standard, regardless of the value of the property.
In Kumpulan Sepakat Konsult v Cherish Springs Sdn Bhd (2022) 1 LNS 2804, the Kuala Lumpur High Court, His Lordship Justice Nadzarin bin Wok Nordin rejected the liquidator’s fee of RM4 million for obtaining a blanket consent as being unjustified. The High Court noted that the work done for each unit is the same.
*” By a Court Order dated 13.10.2022, the High Court ordered amongst others: That…. the liquidator of the Respondent cap his administration fees and vetting fees to a maximum sum of RM1000 for each transfer of the strata titles of PJ Centrestage to its unit/ parcel owner.”
*Researched and summarised by this article’s writer in each case.
Plaintiff adduced evidence that other parties who carried out the same tasks, such as the Insolvency Department and the Companies Commission of Malaysia, only imposed a fee of RM500.
Conclusion: Given the above, I believe a sum of RM1000 per unit is fair and reasonable.
NOTE: In the written grounds of the decision, the Judge took due judicial notice to our published article titled: Govt halts exorbitant fees by MDI-appointed agents
We must regulate liquidators under Act 118 (HDA Act)
The National House Buyers Association (HBA) has repeatedly reminded the housing minister and those under the ministry’s charge to reinstate the conduct of those so-called court-appointed liquidators.
This is legally possible as the definition of a housing developer and a licensed housing developer under the Housing Development (Control & Licensing), 1966 (Act 118) does include a liquidator.
Therefore, a liquidator steps into the shoes of the defunct developer and hence is a “de facto developer” under Act 118 since the amendment of the definition in 2015. With this, the housing ministry should not use the “tiada mekanisma” (lack of mechanism) as an excuse for not regulating liquidators.
The National Housing Department (JPN), under the auspices of the Ministry of Housing and Local Government, has received numerous complaints against errant liquidators, receivers, and managers (R&M) and judicial managers.
Check out properties for saleJPN has assured HBA that regulations will be formulated to cover the scope, role, and remuneration scale fees. The aim is to regulate the conduct of liquidators, judicial managers, and R&M with an emphasis on curbing dysfunctional acts, penalties for non-compliance, investigation, enquiries and criminal prosecution, among others.
We already had two meetings to discuss the ‘peranan, tanggung-jawab dan fi pelikuidasi swasta’’; the last was in November 2022. Since then, all have been silent on the battlefront (pun intended) despite reminders from HBA.
This regulation should be expeditiously formulated and enforced to prevent purchasers and owners from being affected by irresponsible and exploitative liquidators.
It is clear under Act 118 that the liquidator can play an important role. As stated, Act 118 was amended in 2015 to include a liquidator in the definition of a housing developer if the housing developer is in liquidation. The underlying rationale is for liquidators to attempt a revival of the abandoned project.
Nonetheless, we may require further legislation to clarify the duties and powers of the liquidator under Act 118. It has been quite a long time to wait to see reality: 9 years to be exact, and the victims are kept in limbo.
This article is written by Datuk Chang Kim Loong, Hon Sec-Gen of the National House Buyers Association (HBA), a non-governmental and not-for-profit Organisation manned by volunteers.