This article first appeared in The Edge Malaysia Weekly on May 29, 2023 - June 4, 2023

OVER the past 10 years or so, ACE Holdings Bhd has consistently paid out 12% to 15% in annual returns to its bevy of well-heeled investors, according to executive director Datuk Calvin Choong Chee Meng.

However, as a result of the Covid-19 pandemic, ACE Holdings took a beating as the government imposed a repayment moratorium for borrowers who took loans from banks as well as moneylenders. In a nutshell, ACE Holdings via its wholly-owned ACE Credit (M) Sdn Bhd has a moneylending licence and undertakes its business via cash injections from investors in return for redeemable preference shares (RPS).

Investors who were sold on the idea of investing in ACE Credit, with targeted returns in the region of 12% to 15%, have sought legal redress against the group with at least 30 ongoing legal suits, as ACE Credit has not been able to collect on its moneylending business.

Court documents seen by The Edge indicate that ACE Holdings is obligated to pay subscribers of its RPS RM818.62 million in respect of the redemptions.

In a response to questions from The Edge, Choong in written answers provided just before the sit-down interview, says, “As a result of the pandemic, ACE Holdings’ operations and businesses were severely impacted, as were profits and cash flows. Lately, some have accused ACE Holdings of cheating and also cast a negative light on ACE Holdings [which is] unreasonable and irresponsible. In the past when they were paid profitable returns, no one complained. In fact, some were paid over and above their initial subscription.

“It is also important to bear in mind that the subscription agreements have expressly stated that any investment and the payment of profits are not guaranteed or promised and subject to various factors such as market conditions, based on estimates and not actual projections and further, that the said subscription can result in complete loss.

“Also, it was expressly stated that the portfolios involve a high degree of risk and losses associated thereto. Additionally, it was an express term that any intended subscribers should obtain their own professional advisers, including legal, tax and financial consultants, before making any decision to subscribe. In fact, the returns were never guaranteed or promised, as this was expressly stated,” he says.

The Edge obtained an information memorandum dated Nov 14, 2019, where ACE Holdings was looking to raise RM2 billion by issuing 8,000 lots of RPS at RM250,000 per lot of 250,000 RPS. It is not clear how much ACE Holdings raised, though.

There seem to be a few exclusion of liability clauses in the information memorandum. Under the “Terms of Subscription” section it states, “Except for the express warranties and indemnities stated herein and to the extent permitted by applicable law, in no event shall the company be liable for any indirect, incidental, special, consequential or punitive damages arising out of or in connection with the terms of these terms of subscription.”

Then, under the heading “Warranties and Representation by the Subscriber”, it states that the subscriber should know that, “The investment in the RPS involves a substantial degree of risk as the return of the investor is very much dependent on the performance of the company and that the subscriber understands and takes full cognisance of the risks related to the purchase of the subscription RPS, including, but not limited to, those set forth in the information memorandum.”

Also, under “Warranties and Representations by the Subscriber” it states, “Any projections or predictions that may have been made available to investors are based on estimates, assumptions and forecasts which may prove to be incorrect, and no assurance is given that actual results will correspond with the results contemplated by the various projections.”

But will these exclusion clauses be enforceable?

On May 17, the High Court (Commercial division) allowed an investor in ACE Credit to obtain summary judgement amounting to RM2 million against the company directors, Choong and Chang Ai Nee, for breach of investment agreement and to pay the initial investment amount of RM2 million, pay the 15% return on the investment based on the daily rate from July 7, 2022, until the full resolution of the matter, and RM10,000 in legal fee costs. 

It should be noted that as part of the investment agreement, it was agreed that Choong and Chang would be the personal guarantors for ACE Credit.

This was the first successful claim against ACE Credit.

There are several other cases including a RM40 million suit by Koperasi Permodalan Felda (KPF), Koperasi Kakitangan LPPKN (M) Bhd and a number of known corporate players.

KPF had obtained a Mareva injunction against ACE Holdings to freeze RM40 million worth of its assets, after what KPF claims as three promises for a return of 18% to 20% were not fulfilled. A group of 27 investors, including Tat Hin Precision Engineering Sdn Bhd, filed suit seeking almost RM10 million against ACE Holdings in early May this year.

Choong says, “To date, ACE Holdings is still here and operating. ACE Holdings has never run away from its obligations and is still actively pursuing its business to generate income and engaging with its subscribers. 

ACE Holdings still intends to honour its obligations pursuant to the terms and conditions of the agreements. To this end, there are many of our subscribers who have been understanding and supportive and continue to stand by us. This is mainly due to our previous track record,” he says.

However, ACE Holdings is not unaccustomed to getting into feuds.

In December 2018, a proposal to merge stockbroking outfits JF Apex Securities Bhd (a unit of Apex Equity Holdings Bhd) and Mercury Securities Sdn Bhd came about, and the plan was for Mercury Securities to control about 31% of the publicly traded Apex Equity.

ACE Investment Bank Ltd, a wholly-owned subsidiary of ACE Holdings, had acquired Chan Guan Seng’s 25% stake in Apex Equity in September 2017. Chan, founder and executive chairman of Apex Equity, passed away in early 2018, leaving a void in the leadership of the stockbroking firm.

The Securities Commission Malaysia (SC) required that ACE Holdings sell down its stake in Apex Equity to below 15% within a month of the proposed merger being concluded, as the regulator deemed ACE Holdings “not a fit and proper” entity, and ACE Holdings was to dispose of its entire stake within six months of the merger.

Between June and July 2019, ACE Investment Bank transferred its stake in Apex Equity to ACE Credit, which sold down its shareholding to 14.98%.

With the merger between Apex Equity’s stockbroking arm JF Apex Securities and Mercury Securities called off in April 2021, ACE Holdings sought to remain a shareholder of Apex Equity. However, the SC was firm in wanting ACE Holdings to sell its block in Apex Equity.

By December 2022, ACE Holdings had cleared its shareholding in Apex Equity. On Dec 23, Choong, managing director of Apex Equity, stepped down due to some “personal commitment”.

Many question what ACE Holdings did to rub the SC the wrong way. It is also understood that ACE Holdings had poached a number of high-level personnel from the SC.

In mid-March this year, ACE Holdings applied to be placed under judicial management under section 405 of the Companies Act 2016, which will give the company some breathing space.

According to court documents sighted by The Edge, ACE Alliance Holdings Sdn Bhd, the holding company of ACE Holdings, is in talks with potential investor Ocean Group of Companies, which is looking to inject RM2.5 billion into ACE Holdings.

“Of the total investment, a proposed targeted amount of RM1.7 billion will be allocated for the redemption from the subscribers [of RPS] in ACE Credit. The proposed remaining RM800 million will be allocated for working capital of ACE group,” the court documents read.

It is not known who is behind the Ocean Group of Companies. What does it see in ACE Holdings?

Based on filings with the Companies Commission of Malaysia, for its financial year ended June 2021, ACE Holdings chalked up an after-tax profit of RM1 million on the back of RM130.85 million in revenue. In FY2020, the company suffered an after-tax loss of RM11.67 million from RM205.05 million in revenue.

As at end-June 2021, ACE Holdings had total assets of RM1.15 billion while its total liabilities were pegged at RM1.1 billion. It also had retained earnings of RM10.52 million.

“ACE Holdings had embarked on a turnaround plan and, to date, the said plan has been going very well. Not much can be said at this stage due to confidentiality clauses between the parties and additionally, some parties having only limited knowledge of the plan are beginning to oppose it for reasons unknown, which makes no sense at all when this plan will benefit all concerned and return the company [ACE Holdings] to healthy profits.

“Additionally, this plan would bring about a substantial amount of fresh capital injection, which would enable ACE Holdings and its related companies to honour all its financial obligations. This would put to rest all the unfounded and baseless accusations previously made against ACE Holdings,” says Choong.

While Choong says he is confident of ACE Holdings being rejuvenated, others familiar with the moneylending business are not so certain.

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