Liquidators’ Conflict in Abandoned Housing Projects

Abandoned housing projects still occur in Malaysia. From 2009 to 2016, it was reported that there were 225 abandoned housing projects affecting more than 40,000 house buyers. In the worst case scenario, the housing developer may go bust and will get wound up. A liquidator is then appointed over the company.

abandoned-housing

In such a scenario, the liquidator may play a crucial role in reviving the abandoned housing project. The liquidator may be able to obtain funding from a white knight investor, or with help from the relevant ministry, the Ministry of Urban Wellbeing, Housing and Local Government.

However, the liquidator may face a conflict between two competing roles. Firstly, a liquidator undertakes duties and obligations under the Companies Act 1965 (and also under the new Companies Act 2016 when it comes into force). The liquidator’s role is to sell off the assets of the wound up company and distribute the monies to the creditors. Secondly, in an abandoned housing development, the liquidator may attempt to revive the project and to effectively carry on the duties of a housing developer, raise funds, and to collect money.

A recent Court of Appeal decision may cast some doubt on permitting a liquidator to revive an abandoned housing project.

Court of Appeal decision in Yeo Ann Kiat

The Court of Appeal in Yeo Ann Kiat & 238 Ors v Hong Leong Bank & Anor [2016] 6 MLJ 499; [2016] 9 CLJ 207 ordered the removal of a liquidator appointed in a court winding up.

The background involved purchasers of the Genting Valley Countryside Living Resort developed by Jade Realty. This project was abandoned in 2004 and Jade Realty was wound up by a court order in 2007. Liquidators were appointed over Jade Realty and they attempted to revive the abandoned project, and there were approaches by four white knights to assist in the revival. These attempts failed and the purchasers applied to remove the liquidators. They argued that the liquidators had not done anything for the eight years and pointed to the delay in the winding up process.

The Court of Appeal held that the liquidators had deviated from their primary duty under the Companies Act 1965 i.e. to wind up the business of Jade Realty. Instead, the liquidators had gone into the business of attempting the revive the abandoned project. It was held that the liquidators should not engage in activities which run counter to the objective of winding up the affairs of the company. Consequently, after a lapse of eight years, the liquidators still had not been able to complete the winding up.

Comments

The Court of Appeal emphasised that the primary duty of the liquidator is to wind up the affairs of the company. This would be under the provisions of the Companies Act 1965 and to protect the interests of the creditors. But in the context of an abandoned housing project, the liquidator could also be playing a parallel role of stepping into the shoes of the wound up developer and to revive the project. This would be to protect the interests of the purchasers of an abandoned housing project.

It is clear under the relevant housing development laws that the liquidator can play an important role as the liquidator of the wound up developer. Hence, the Housing Development (Control and Licensing) Act 1966 was amended to specifically provide that the term ‘housing developer’ would include the court-appointed provisional liquidator or liquidator when the housing developer is in liquidation. This change to the definition has caused some legal uncertainties and issues (see the issues highlighted at the MIA Insolvency Conference 2014). Nonetheless, the underlying rationale and practice is that it is common for liquidators to be appointed over wound up developers and to then attempt a revival of the abandoned project.

It may be too broad a principle to mandate that a liquidator should only perform a role to wind up the business of the company. We may require legislation to further clarify the duties and powers of the liquidator under both the Companies Act 1965 and the Housing Development (Control and Licensing) Act 1966.

 

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