(In Statutory Management)
Report to Equiticorp Holdings Ltd debenture stockholders
Dated 22 June 2018
Just after our last letter, we learned that Mr Cheah had died in November 2016 at the age of 83. This has little impact on the debt recovery process, as his bankrupt estate remains under the control of the Singapore Official Assignee (he was a Singapore resident when we bankrupted him) and the property owning company and its holding company are both in liquidation in Malaysia.
The liquidator of the property owning company, City Centre Sdn Bhd ("CCSB"), had a conditional sale agreement on the property at the time of our last letter. That agreement subsequently became unconditional and it was settled in September 2017. The sale price of the property was 516.3 million Malaysian ringgits (approx. NZ$190 million).
The liquidator of CCSB called for creditors proofs of debt to be lodged, and then repaid in full all the admitted creditors in December 2017. There are a small number of creditors whose claims are in dispute. The liquidator has set aside sufficient funds to cover these claims, if they are proved.
The liquidator was required to disclose the property sale to the Malaysian Inland Revenue Board and the Board issued an assessment for Real Property Gains Tax (a Malaysian capital gains tax), which the liquidator has paid.
The remaining funds held by the liquidator should be paid to the shareholder of CCSB. At this point a dispute exists. A Singaporean bank had lent money to CCSB's parent company, United Securities Sdn Bhd ("USSB"), and as security it had taken a debenture over all the assets of USSB, including its shareholding in CCSB. The shares were registered into the name of the bank's nominee company. The liquidator of USSB is challenging the validity of the loan and security, and claims USSB is still the beneficial owner of all the shares in CCSB.
Due to this dispute, the liquidator of CCSB applied to the High Court in January 2018 for directions as to where the funds should be paid. The judge gave a verbal decision that the funds should be paid to the registered shareholder - the bank - but it was only entitled to keep the amount due to clear the loan and the balance must be paid on to the USSB liquidator.
The USSB liquidator appealed the decision on the grounds that if the loan and security is found to be invalid, the registration of the shares will accordingly be invalid. The USSB liquidator contends that the funds from CCSB should be paid to USSB, or alternatively held in trust by the CCSB liquidator until the dispute with the bank is resolved. We are supporting the USSB liquidator's appeal.
As well as the appeal, the USSB liquidator filed a Stay Application to prevent the liquidator of CCSB from paying out the funds prior to the hearing of the appeal. The Stay Application was heard in the High Court in April 2018 and was rejected. Later the same day, the bank demanded that the CCSB liquidator distribute the funds to it immediately.
Two days later, the USSB liquidator sought a Court of Appeal review of the Stay Application decision. However, in the meantime, the liquidator of CCSB paid an interim distribution to the bank, representing a sizeable portion of the funds.
We were surprised by the undue haste with which this distribution was paid, and that the CCSB liquidator did not first consult with the liquidation Committee of Inspection, of which we are a member. The court order appointing the CCSB liquidator requires him to work in conjunction with the Committee of Inspection. We have put the liquidator on notice that his actions may be in breach of the terms of his appointment.
At the Court of Appeal review of the Stay Application decision, the USSB liquidator also sought an order for the bank to repay the funds it had received, plus interest, to the liquidator of CCSB. We supported this request.
In early June 2018, the Court of Appeal ruled that the Stay Application should succeed, but it would not order the bank to repay the funds it had received; that issue would have to be heard in the full appeal hearing. The liquidator of CCSB was ordered to make no further distributions to the bank until the appeal has been decided.
The appeal is set down for hearing in early August 2018.
Obviously, there are significant issues to be resolved before we know what funds might become available to the liquidator of USSB. Mr Cheah's bankrupt estate owns 82% of the shares in USSB and we are a major creditor of the bankrupt estate according to the Statement of Affairs filed by Mr Cheah upon his bankruptcy. We are unaware if the Singapore Official Assignee has adjudicated all the potential claims in the bankrupt estate.
Given all these circumstances, we do not wish to speculate on what possible recovery might ultimately be made by Equiticorp, or the timing thereof.
In previous letters, we have reported on the criminal charges being brought against Mr Cheah's brother for abetting a criminal breach of trust in relation to the alleged misappropriation of 10 million Malaysian ringgits (approx. NZ$3.6 million). Hearing days in October 2017 were adjourned until March 2018. The March dates were then vacated and hearing days allocated in May, June and July 2018. To date, there have been 3 days of hearings and evidence is still being given on behalf of the police prosecution. Mr Cheah's brother is out on bail and has been representing himself in court. We are surprised how long this process has been taking.
2. Next report
We will write again in 12 months time, around 30 June 2019, or sooner should there be positive developments.
After the appeal hearing in mid August 2018, we will post an update on our website: www.equiticorp.co.nz
B G Stowell
Statutory Manager
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