propertygandhi

Lawless Bank’s Odyssey of Deceit and Fraud

In my previous Article (NST RED 4^th October 2012), I wrote about “Lawlessness in Foreclosure by some Banks”. 

In that Article, I highlighted the plight of 3 Bank Borrowers who were victims of these “Lawless Banks”. I would have thought that Malaysian Banks’ “Lawless Conduct” is confined to their non- compliance with Foreclosure Procedures.

Malaysian Banks’ “Lawless Conduct” is not confined to non-compliance with Foreclosure Procedures. There is evidence Malaysian Banks manipulate, use and misuse to their advantage the Provisions in Part X of the Companies Act 1965 for the Winding-Up of Insolvent Companies.

Objectives of Part X of the Companies Act 1965

The Objective of Parliament when it included Part X in the Companies Act 1965 was to provide the legal basis, provisions and mechanisms for an orderly winding-up of an Insolvent Company so that no particular “privileged” individual creditor or “privileged” group of creditors can have an advantage over other “less privileged” creditors.

When a Company is Insolvent, what it owes to creditors would be much more than what it has in assets including property and cash to pay creditors. If not restrained and prohibited by Law, the Owners and Directors of the Company would be tempted and/or pressured to favour certain creditors and pay these creditors with whatever assets and money the Company still has to the detriment of other creditors because there would no assets and money left to pay these less connected and less privileged creditors.

The Provisions in Part X of the Companies Act 1965 are intended to prevent the Owners and Directors of Insolvent Companies from favouring certain “special” creditors at the expense of other creditors of the Company.

When the Provisions in Part X of the Companies Act 1965 are implemented and enforced vigorously and fairly, all the creditors of Insolvent Companies in Malaysia would then be treated equally and fairly and can expect to receive their equal share of the Insolvent Companies’ assets and monies, proportionate to the debt owed to them individually relative to the total debt owed by the Insolvent Companies’ to all their creditors.

A Utopian Dream

It is a “Utopian Dream” to expect that the Provisions in Part X of the Companies Act 1965 are implemented and enforced vigorously and fairly at all times. It is also an “Utopian Dream” that creditors of Insolvent Companies in Malaysia can expect to be treated equally and fairly and to receive their proportionately equal share of the Insolvent Companies’ assets and monies.

The Real World

The reality in Malaysia is the rich, the powerful and the well connected will be treated differently when it comes to implementation and enforcement of the Provisions in Part X of the Companies Act 1965.

Not Level Playfield

Until now, with few exceptions, when Malaysian Banks commenced with Winding-Up proceedings against Insolvent Companies, “the field is not level”. It is a slopping and slippery field for other creditors of the Insolvent Companies.

Even when the Banks have a weak case and even when they do not comply with the Provisions in Part X of the Companies Act 1965, by the sheer weight and power of their money and their battery of high powered litigation lawyers, Malaysian Banks will invariably prevail and win against the Insolvent Companies’ other hapless creditors.

Lawless conduct of some Malaysian Banks

Even though the Provisions in Part X of the Companies Act 1965 are intended to prevent the Owners and Directors of Insolvent Companies from favouring certain “special” creditors at the expense of their other creditors and even though these Provisions also govern the actions and conduct of Malaysian Banks in the distribution of the Assets of the Wound-Up Company, some Malaysian Banks are acting and conducting themselves as though the Provisions in Part X of the Companies Act 1965 do not exist.

To substantiate and support my above assertions, I will undertake an In-Depth Case Study of the real experiences of the Non-Bank creditors of an Insolvent Company that was Wound-Up by a “Lawless” Malaysian Bank.

Protection of Privacy

To protect the privacy of the Malaysian Bank and the Wound-Up Insolvent Company cited in this Case Study, we have changed and disguised their respective names and identities and renamed the location of the properties involved. Except for these privacy issues, all the events and incidences stated in this Article are true and they did in fact happen.

In-Depth Case Study

In this In-Depth Case Study, the main players are called:

Wound-Up Insolvent Company:            Most Unfortunate Development Sdn Bhd

Project Name:                                      Miserable Valley Project

Malaysian Bank:                                   Most Ingenious Bank Berhad

Liquidator:                                            Most Cooperative Liquidator

 

The Lands

Most Unfortunate Development Sdn Bhd owned 4 plots of land with total 750 acres land area somewhere in West Malaysia. The 4 plots of land are issued with 4 separate individual title documents. 2 of the 4 plots of land were partly developed with residential properties with the remaining 2 plots undeveloped.

                Land Charges

The 4 title documents of the 4 plots of land were all charged to Most Ingenious Bank Berhad for Bridging Loan Facilities to develop the Miserable Valley Project with 800 residential properties.

Remaining Undeveloped Land

The remaining undeveloped land including the whole of the 2 plots with separate titles and part of 1 plot that was partly developed was 520 acres.

Winding-Up of Most Unfortunate Development Sdn Bhd

In 2007 Most Ingenious Bank Berhad, the Bridging Financier, obtained a Winding-Up Order from the High Court to wind-up Most Unfortunate Development Sdn Bhd.

Liquidator Appointed

Most Cooperative Liquidator was appointed Liquidator of Most Unfortunate Development Sdn Bhd.

Outstanding Bridging Loan in 2007

In 2007 when Most Ingenious Bank Berhad applied to wind-up Most Unfortunate Development Sdn Bhd, the outstanding Bridging Loan still owed by Most Unfortunate Development Sdn Bhd to Most Ingenious Bank Berhad was RM65 Million.

Estimated Value of Undeveloped Land

In 2007 when Most Ingenious Bank Berhad applied to wind-up Most Unfortunate Development Sdn Bhd, the estimated Market Value of the 520 acres undeveloped land owned by Most Unfortunate Development Sdn Bhd and charged to Most Ingenious Bank Berhad was between RM5.00 per sq ft and RM10.00 per sq ft that would amount to between RM112 Million to RM224 Million for the 520 acres undeveloped land..

No need to wind-up Most Unfortunate Development Sdn Bhd

If Most Ingenious Bank Berhad’s objective was to collect from Most Unfortunate Development Sdn Bhd the RM65 Million Bridging Loan stilled owed to them, there was no need for Most Ingenious Bank Berhad to wind-up Most Unfortunate Development Sdn Bhd.

Most Ingenious Bank Berhad could quite easily had applied to foreclose the 520 acres undeveloped land owned by Most Unfortunate Development Sdn Bhd and charged to Most Ingenious Bank Berhad and sell all or some of the 520 acres land and from the proceeds of sale to repay to themselves the RM65 Million Bridging Loan.

In 2007 when Most Unfortunate Development Sdn Bhd was wound-up the estimated Market Value of the 520 acres undeveloped land charged to Most Ingenious Bank Berhad was between RM112 Million to RM224 Million.

Even at the lower end of RM112 Million, the Sale proceed would be more than enough to repay the RM65 Million Bridging Loan owed to Most Ingenious Bank Berhad with another RM60 Million balance and available for Most Unfortunate Development Sdn Bhd to complete the Miserable Valley Project.

Motive of Most Ingenious Bank Berhad

What was the “Real Motive” of Most Ingenious Bank Berhad to wind-up Most Unfortunate Development Sdn Bhd ostensibly to recover the RM65 Million Bridging Loan when they could quite easily had foreclosed all or some of the 520 acres undeveloped land charged to Most Ingenious Bank Berhad and subsequently sold the foreclosed land via Public Auction Sale for between RM112 Million to RM224 Million?

With Sale proceeds of between RM112 Million to RM224 Million from the Public Auction Sale of the 520 acres undeveloped land, Most Ingenious Bank Berhad would comfortably be able to recover the RM65 Million Bridging Loan owed to them.

The “Real Motive” of Most Ingenious Bank Berhad is found in the following paragraphs.

Sale of Assets of Most Unfortunate Development Sdn Bhd

In 2008, Most Cooperative Liquidator of Most Unfortunate Development Sdn Bhd via three (3) Sale & Purchase Agreements agreed to sell to Most Lucky Company Sdn Bhd the properties/assets of the wound-up Company as follows:-

SPA1 dated 2008 (after the Winding-Up date in 2007) involving 350 acres land at the Sale Price of RM17 Million

SPA2 dated 2008 (after the Winding-Up date in 2007) involving 150 acres land at the Sale Price of RM7 Million

SPA3 dated 2008 (after the Winding-Up date 2007) involving 24.24 acres land at the Sale Price of RM1 Million

Total areas of land agreed to be sold by Most Cooperative Liquidator to Most Lucky Company Sdn Bhd via the 3 SPAs is 515.082 acres at the Total Sale Price of RM25 Million

Compliance with Section 223 of Companies Act 1965

After Most Unfortunate Development Sdn Bhd was wound-up in 2007, the disposition (sale) of the Company’s Assets has to comply with the requirements in Section 223 of the Companies Act 1965.

 Section 223 on avoidance of disposition of property reads:

“Any disposition of the property of the company including things in action and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up by the Court shall unless the Court otherwise orders be void.” (emphasis added)

Section 223 of the of the Companies Act 1965 stipulates that the assets of a wound-up company like Most Unfortunate Development Sdn Bhd can only be sold with a Court Order from the High Court.

Non-Compliance with Section 223 of Companies Act 1965

There is no evidence to suggest that Most Cooperative Liquidator obtained an Order from the High Court that authorized the Sale of the 520 acres undeveloped land owned by Most Unfortunate Development Sdn Bhd to Most Lucky Company Sdn Bhd.

It appears that Most Cooperative Liquidator did not comply with the requirements stipulated in Section 223 of the Companies Act 1965.

The consequence of Most Cooperative Liquidator’s failure to comply with the requirements stipulated in Section 223 of the Companies Act 1965 is that the Sale of the 520 acres undeveloped land owned by Most Unfortunate Development Sdn Bhd to Most Lucky Company Sdn Bhd is VOID (no legal effect).

Non-Compliance with Section 233 of Companies Act 1965

Most Cooperative Liquidator failed to perform and shirked his duty as the Appointed Liquidator as stipulated in Section 223 of the Companies Act 1965 when he did not take into custody the 520 acres undeveloped land owned by Most Unfortunate Development Sdn Bhd and instead without Court Authorization, he sold the 520 acres land to Most Lucky Company Sdn Bhd at the Sale Price of RM25 Million that represented a massive discount from the 520 acres land’s estimated Market Value as follows:-

Estimated Market Value           RM112 Million 100%

Sale Price                                 RM25 Million                 22% (78% discount)

Estimated Market Value           RM224 Million 100%

Sale Price                                 RM25 Million                 11% (89% discount)

Violation of Penal Code

Most Cooperative Liquidator by agreeing to sell and subsequently sold the 520 acres undeveloped land owned by Most Unfortunate Development Sdn Bhd to Most Lucky Company Sdn Bhd at the Sale Price of RM25 Million that represented variously from 11% to 22% of the 520 acres land’s estimated Market Value of RM112 Million to RM224 Million has violated and committed an offence against the Penal Code for Fraudulent Deeds and Disposition of Property, Criminal Misappropriation of Property and Criminal Breach of Trust.

Non-Compliance with Section 293 of Companies Act 1965 on Undue Preference

The RM25 Million proceeds from the Sale of the 520 acres land was believed to have been paid exclusively by Most Cooperative Liquidator to Most Ingenious Bank Berhad towards settlement of the RM65 Million Bridging Loan..

Most Cooperative Liquidator’s action to pay exclusively to Most Ingenious Bank Berhad the RM25 Million from the sale of the 520 acres land to the total exclusion of the rights of other creditors of the Company is an act of non-compliance with Section 293 of the Companies Act 1965 that forbids “Undue Preference” by the Liquidator towards any creditor of the wound-up company.

Violation of Banking and Financial Institution Act 1989

Most Ingenious Bank Berhad has a subsidiary company called Most Ingenious Nominees Sdn Bhd. There are Directors and Shareholders of Most Ingenious Nominees Sdn Bhd who are also Directors and Shareholders of Most Lucky Company Sdn Bhd, the Purchaser of the 520 acres undeveloped land owned by Most Unfortunate Development Sdn Bhd from Most Cooperative Liquidator.

Due to the presence of common Directors and Shareholders in Most Ingenious Nominees Sdn Bhd and in Most Lucky Company Sdn Bhd, Most Ingenious Bank Berhad has violated and committed an offence against the Banking and Financial Institution Act 1989.

Estimated Costs to Revive and Complete Miserable Valley Project

It is estimated the total costs to revive and complete the 800 residential properties (housing lots only) in the Miserable Valley Project is between RM90 Million to RM100 Million.

Who should pay for Costs of Revival and Completion

Now that Most Cooperative Liquidator had sold the 520 acres undeveloped land to Most Lucky Company Sdn Bhd at a Sale Price of RM25 Million that represented a massive 78% to 89% discount on the 520 acres land’s estimated Market Value, there is now no more asset or money left in Most Unfortunate Development Sdn Bhd to revive and complete the 800 residential properties (housing lots only) in the Miserable Valley Project.

Massive Failure of Government Regulatory and Enforcement Authorities

There are sufficient Laws in Malaysia to supervise and control the activities of Property Developers, Banks and Liquidators. Some of these Laws I cited above like the Companies Act 1965 and the Banking and Financial Institution Act 1989. We do not need more Laws.

We need more vigorous, fair and unbiased enforcement of existing Laws.

The manner in which Most Ingenious Bank Berhad, Most Cooperative Liquidator and Most Lucky Company Sdn Bhd managed to manipulate and circumvent the Law to the extent they can with impunity and without Court Sanction openly violate the Provisions of Section 223 of the Companies Act 1965 to dispose of the 520 acres undeveloped land of Most Unfortunate Development Sdn Bhd at a massive 78% to 89% discount represents a “Massive Failure of Government Regulatory and Enforcement Authorities” to enforce the Law and to protect the hapless purchasers of the Miserable Valley Project.

Justice for Purchasers of Miserable Valley Project

Now that there is no asset and no money left in Most Unfortunate Development Sdn Bhd to pay for the RM90 Million to RM100 Million costs required to revive and complete the 800 residential properties (housing lots only) in the Miserable Valley Project, where and to whom can the Purchasers of the Miserable Valley Project turn to for help to revive and complete the properties they purchased in the Miserable Valley Project more than 10 years ago?

Most of these Purchasers had fully paid for the properties they purchased. There are still some Purchasers who are still paying the Banks for the Loan taken to pay for the properties they purchased more that 10 years ago.

Where can these hapless victims of the misdeeds of Most Ingenious Bank Berhad, Most Cooperative Liquidator and Most Lucky Company Sdn Bhd go to for Justice? 

Tip of the Iceberg

The incidences cited in above Case Study and the experiences of the victims are just the tip of the iceberg.

To give justice to Malaysians who are victimised and even defrauded by lawless Employees and Officers of Malaysian Banks and dishonest Lawyers and Liquidators, Law Enforcement and Regulatory Authorities in Malaysia including Bank Negara Malaysia, the Malaysian Bar Council, the Attorney General and Malaysian Police need to look into and investigate unlawful activities within the Malaysian Banking System so that confidence and trust in the Malaysian Banking System can be restored after ALL the bad apples are removed.

Contact Dr. Ernest Cheong

You may want to contact Dr. Ernest Cheong at ecptlco@gmail.com or gandhiproperty@gmail.com if you need personal advice or assistance.