Court of Law: RM1,000 cap for Private Liquidator’s vetting/ administrative fees is reasonable

Liquidators are ‘de facto’ developers

Pursuant 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 obligations towards the purchasers, a liquidator is to be treated as a substitute for the "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 in place, the duties and responsibilities imposed on a liquidator will be subject to Act 118, and they may be held accountable for breaching the duties of a "de facto housing developer." Currently, there are exploitative private liquidators who impose exorbitant administrative fees, amounting to 2% or 3% of the purchase price, on purchasers to carry out their duties as a 'de facto' housing developer, particularly in terms of distributing and signing off on the transfer of ownership papers, also known as titles (whether landed or stratified), to purchasers who have already paid the entire sales price. We shall refer to the performance of these functions—applying, distributing, and transferring the titles—as the 'last mile'.

A liquidator should be prohibited from charging or imposing any additional administrative fees and their lawyers' fees that may seem unreasonable, unfair, or oppressive, as the liquidators are expected to perform tasks that are already required by law and should not be entitled to extra compensation. They should not unjustly enrich themselves through benefits to which they are not entitled. The unilateral imposition of such fees lacks a legal basis.

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The liquidator's administrative fees should be fixed at RM1,000 per unit (parcel) without any payment to the liquidator's nominated solicitors.

In a recent High Court case in Penang, His Lordship Justice Dato Quay Chew Soon made a landmark decision on December 12, 2023, in the case of Chong Kok Wooi, representing 33 unit owners in Marinox Sky Villas Condominium v. Liquidators for Masmeyer Development Sdn Bhd.

The following are excerpts of pertinent quotes from the Judge's written grounds of decision, inter alia:

Section 510 of the Companies Act, 2016 (CA) which reads:

“510 Control of Court over liquidators

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.”

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From the above provisions, I consider that the actions and conduct of a liquidator are subject to the scrutiny of the court. A liquidator must act reasonably in the discharge of their duties. A liquidator cannot treat any discretion conferred upon them as giving them carte blanche to act according to their 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 that there was a significant imbalance of power and intervened to modify the 1% administrative fee *”of RM65,000 charged to a nominal fee of RM500” being fair and reasonable.

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Under Section 3 of the Act 118, ‘housing developer’ is defined to include a liquidator of the housing developer. It follows that 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 liquidators is statutorily bound to carry out the duties and obligations of the company.

Under the principle of bare trusteeship, the liquidator ought to complete the perfection of the titles transfer at no costs 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 own solicitors, if they so wish, without having to pay the liquidator’s nominated solicitors.

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The liquidator claims that the standard administrative fee for execution of 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 memoradum of transfer is quite standard, regardless of the value of the property

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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 the writer of this article in each of the case.

The Plaintiff adduced evidence that other parties who carried out the same tasks, such as the Insolvency Department and the Companies Commission of Malaysia, only impose a fee of RM500.  

Conclusion:

In the light of the above, I am of the view that a sum of RM1000 per unit is fair and reasonable.

Regulate liquidators under Act 118

The National House Buyers Association (HBA) has time and again reminded the housing minister and those under the ministry’s charge on the need to rein-in the conduct of those so-called court-appointed officers, namely 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 year 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, have received numerous complaints against errant liquidators, receivers and managers (R&M) and judicial managers.

JPN has assured HBA that a new set of 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. Already we had 2 meetings to discuss the ‘peranan, tanggung-jawab dan fi pelikuidasi swasta’; the last of which was in November, 2022. Since then, all were silent in the battle front (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 we have stated, Act 118 was amended in year 2015 to include a liquidator into the definition of a housing developer in the event 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 still kept in limbo.

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This article is intended to offer an insight of the case authorities and is not intended to be, nor should it be relied upon as a substitute for legal or any professional advice.