(In Statutory Management)
Report to Equiticorp Holdings Ltd debenture stockholders
Dated 24 June 2015
The past 12 months since our last report have proved to be very frustrating. We are extremely unimpressed with the effectiveness of the Malaysian legal system and the performance and attitude of the Malaysian Government's Official Receiver.
The Official Receiver was appointed by the High Court in October 2011 to be liquidator of City Centre Sdn Bhd ("CCSB"), the owner of a large block of land in central Kuala Lumpur. We became one of five members of the liquidator's Committee of Inspection in December 2013. This is a representative group of creditors and shareholders of the company. Malaysian case law describes the Committee of Inspection as being the master and the liquidator the servant.
In February 2014, the Committee of Inspection voted for the CCSB property to be sold by a public tender to be conducted by 2 international real estate firms. In June 2014 the Official Receiver informed the Committee of Inspection that he would sell the property himself by advertising it for sale on the Malaysian Government Insolvency Department website. We argued that this was against the directions of the Committee of Inspection and that placing a notice on the Government website would not attract sufficient prospective purchasers to maximise the price of the property. The Official Receiver agreed to refer the issue to the Malaysian Director General of Insolvency.
In July 2014, the Committee of Inspection was notified that the real estate firms would not be appointed, and if any committee members were unhappy with that decision, they could take legal action against the Official Receiver. The property was listed for sale by tender on the Government website in August 2014. The listing included an indicative price, which was a valuation obtained by the Insolvency Department, that we believe was well below the true market value and should not have been stated. The tender closing date was one month later, in mid-September 2014.
We had no option but to initiate legal proceedings to halt the sale and to review the Official Receiver's actions. A stay order was granted by the High Court and a hearing date was set down for 30 September 2014. At the hearing, the Official Receiver requested an adjournment to file evidence in support of his position. The court gave him a week to file an affidavit and instructed all the parties to file written submissions by the end of October. A new hearing date of 5 November 2014 was set.
The hearing took place and the judge reserved his decision. In December 2014, the judge requested the Official Receiver to make further submissions on 2 specific points of law. A supplementary hearing on those 2 points was held on 15 January 2015.
On 26 January 2015 the judge delivered his decision in our favour. The Official Receiver was ordered to appoint the 2 international real estate firms chosen by the Committee of Inspection and to conduct the sale of the property on the terms and conditions that we had put forward.
In February 2015 the Official Receiver served notice of his intention to appeal the High Court decision and he applied for a stay of the order. We called for a meeting of the Committee of Inspection in March 2015, which the Official Receiver refused to attend. The committee voted for the Official Receiver to drop his appeal and to comply with the court order immediately.
Around the same time, Mr Cheah's brother filed an application to remove CCSB from liquidation, saying that he had procured an investor who had put up sufficient cash to pay off all the creditors of CCSB. He provided evidence of the funds being held in his solicitor's trust account. We filed an affidavit opposing the application, on the grounds that he had filed a similar application previously, in 2008, and the matter had dragged on through the courts for 18 months until it was discovered that the funds had been withdrawn and the application was dropped. We also objected because CCSB's parent company was in liquidation and its creditors and shareholders could be deprived from the proceeds of realisation of CCSB's property if the company was not under the control of a liquidator.
We were then engaged into discussions with a lawyer who sought to negotiate a financial settlement with us on behalf of the Cheah brothers and their investor. The settlement discussions also included the liquidator of CCSB's parent company and a Singaporean bank, which was a secured creditor of the parent company.
A hearing of the removal application scheduled for 1 April 2015 was adjourned by the court for a week while settlement discussions continued. After the extra week, a settlement still had not been reached and Mr Cheah's brother withdrew his application, reserving the right to refresh it in the future. Nothing further has happened to date. The settlement negotiations have drawn to a halt.
The Official Receiver failed to file the details of his appeal within the required period and, as a result, the application for a stay of the High Court order was rejected at a hearing on 5 June 2015. We immediately wrote to the Official Receiver and the Director General of Insolvency insisting that the 26 January court order be complied with forthwith, as 4 months had been wasted by the actions of the Official Receiver.
Our demand was ignored and we were considering the next step that our lawyers advised of applying to the Courts to remove the Official Receiver, when we learned that another creditor of CCSB had filed such an application. The creditor has until 26 June 2015 to serve notice on all the company's other creditors and then a timetable will be set for the application.
We will support the removal of the Official Receiver, however we would prefer to have a different replacement liquidator appointed to the one proposed in the application. We have asked one of the major international accounting firms if they will accept our nomination and they have agreed. The firm is completely independent of all the major parties involved in CCSB and they have agreed to comply with the 26 January court order as soon as possible and to co-operate with the existing Committee of Inspection.
Given the speed of the Malaysian legal system, it may be several months before a decision is known, and then there are the usual avenues of appeal. The prospect of a return for debenture stockholders remains and we are committed to pursuing this, but it continues to be an extremely slow and frustrating process.
2. Next report
Unless there are any significant developments that warrant an earlier report, we will write again in 12 months time, around 30 June 2016.
B G Stowell
Statutory Manager
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