The purchase of a residential home is a substantial investment. It is not uncommon for prospective purchasers to calculate the foreseeable costs and expenses before making a commitment to purchase a property from a housing developer. With that being said, no matter how prudent a purchaser, it is unlikely that any calculations would have accounted for additional costs which may arise should a developer go into liquidation.
For the purchaser, it is important for the legal ownership of the property to be transferred into their name and the nightmare situation unfolds where a developer under liquidation has yet to transfer the individual strata title to the purchaser and the liquidator seeks to impose fees payable by the purchaser as remuneration for the liquidator to effect the transfer of the legal ownership of the property to the purchaser.
Are liquidators entitled to charge?
In Walley Metal Works Sdn Bhd v Safety Development Corporation Sdn Bhd; Pegawai Penerima (Applicant) & Ler Cheng Chye (Liquidator) [2015] 1 CLJ 1019, the Kuala Lumpur High Court had the opportunity to consider the issue of whether a liquidator may impose a fee of 2% of the original purchase price of the property as fees for verification of the purchasers’ beneficial ownership and to execute the relevant instruments of transfer to effect the transfer of the strata titles to the purchasers ("the Fees").
The material facts are as follows:-
The Court had ordered a liquidator to take over the administration of a wound- up developer of a condominium project from the official receiver who was the provisional liquidator. Prior to the liquidator coming on board, the official receiver had obtained strata titles to the condominium and had handed over the same to the liquidator;
The liquidator had subsequently imposed the Fees on the purchasers of the condominium project, on the basis that the Fees are required to verify that the purchasers of the condominium units were the true beneficial owners; and
The purchasers, represented by the condominium owners’ society, objected to the imposition of the Fees and challenged the imposition of the Fees in Court.
In finding that the Fees were reasonable and not exorbitant, the Court held that the Fees amounting to 2% of the original purchase price of the property would be comparatively lower if calculated on a time cost basis based on what has been prescribed under law.
However, the Court’s decision weighed heavily on the fact that the developer here had no more funds and expressly stated that a different interpretation may have been adopted if there were remaining funds. In the Court’s own words: "The monies for the remuneration must come from what is realised from the assets and properties of the same. In the event there is sufficient fund from a wound up company, it would be expected to pay such remuneration but where such company has no available fund left such as the present respondent that remuneration would be impossible to be handed over to a liquidator. And when it comes to companies winding-up, it is common knowledge it both involved companies with or without funds." In this case, the Court accepted that there were no longer available monies in the wound-up developer and therefore opined that it would not be reasonable to expect the liquidator to continue administering the developer where there were no monies available for remuneration, especially where the obligation to effect the transfer of the strata titles in favour of the purchasers was still outstanding.
On this basis, the liquidator’s proposed method of charging a sum equivalent to 2% of the original purchase price of the property as the liquidator’s remuneration was found by the Court to be reasonable.
In contrast, in the more recent case of Re Bandar Kinrara Properties Sdn Bhd (In Liquidation) [2021] 6 CLJ 599 the Kuala Lumpur High Court held that the liquidation administration expenses, which include the liquidator’s remuneration calculated on a time-cost basis, could be paid out from the existing funds of the developer.
The material facts are as follows:
The liquidator assumed the obligations of a wound-up developer and inherited the developer’s duty in the application, issuance, and transfer of the strata titles to the individual homebuyers; and
In order to have peace of mind knowing that the liquidator will be remunerated and such remuneration corresponds with the time and effort expended, the liquidator asked for an estimated sum of RM1.2 million comprising of the liquidation administration expenses, including the liquidator’s remuneration, solicitors’ fees and disbursements ("the Estimated Fees") be ring-fenced from the monies held by the developer’s solicitors as stakeholder monies ("the Stakeholder Sum"), which was vested on the liquidator. The Court held that the Estimated Fees were to be allocated and paid out to the liquidator and that the remainder of the Stakeholder Sum after deducting the Estimated Fees were to be utilized in the following order: (i) the application for the strata titles; (ii) the rectification costs of the common properties; and (iii) the payments to the creditors of the developer.
Although the Court in this case did not deliberate the issue of whether the liquidator had the right to impose fees on the purchasers, the Court nevertheless decided that the liquidators’ remuneration for existing obligations can be sourced from the developer’s remaining funds without requiring additional payment from the purchasers.
Key Takeaways
The cases of Wally Metal Works and Re Bandar Kinrara demonstrate that the financial circumstances of a developer is a key consideration for a Court to arrive at a decision. The developer in Walley Metal Works had no readily available monies to pay the liquidator’s fees, whereas the developer in Re Bandar Kinrara had some remaining funds in the form of a stakeholder sum for the liquidator to draw its remuneration.
Notwithstanding thereto, the Courts have in both cases been consistent in that it is absolutely within the courts’ jurisdiction to consider whether liquidator’s fees are fair, reasonable and not exorbitant.
In short, we take the view that the right to impose fees by the liquidator on the purchasers for its remuneration should not be seen as a given and should be assessed on a case-by-case basis.
Where there is a dispute between the relevant parties, the Court will be the proper forum to determine whether such fees are chargeable and if yes, whether the fees sought by the liquidator from the purchasers are fair, reasonable and not exorbitant.
This article is authored by Edward Kuruvilla, Alden Yeoh Shuen Chun and Benjamin Chia Lin Fung, the founders and partners of Messrs. Kuruvilla, Yeoh & Benjamin.
Edward Kuruvilla leads the Dispute Resolution practice group, Alden Yeoh leads the Corporate & Commercial practice group whereas Benjamin Chia leads Projects & Real Estate practice group.
For more information, please visit www.kyblegal.com or please feel free to contact Edward Kuruvilla at edward@kyblegal.com, Alden Yeoh at alden@kyblegal.com and/or Benjamin Chia at benjamin@kyblegal.com.
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