Saturday 20 Jul 2024
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This article first appeared in The Edge Malaysia Weekly on July 10, 2023 - July 16, 2023

THE wait for the completion of the Empire Remix 2 project in USJ1 Subang Jaya, Selangor, which has been renamed Edumetro, is finally over. Purchasers were informed in late May by HCK Capital Group Bhd — which had stepped in to rescue the project when it ran into trouble in 2019 — that the keys to their units were ready for collection.

But across the road from Edumetro, the fate of the abandoned Empire Remix 1 mixed-use development remains uncertain as a plan to rescue the project has hit a snag. Based on a Kuala Lumpur High Court decision delivered last week, the appointment of HCK’s wholly-owned subsidiary Subang Sentral Development Sdn Bhd as the white knight to resuscitate the project is not valid.

True Renaissance Development Sdn Bhd, the developer of Empire Remix 1, had on Sept 29, 2022, appointed HCK — a company controlled by businessman Tan Sri Clement Hii — as the white knight of the project. This move was endorsed by buyers holding 90.7% of the debt, who voted in favour of the court-sanctioned corporate voluntary arrangement (CVA) at a creditors’ meeting.

However, 467 purchasers subsequently filed three separate applications to challenge the sanction of the creditors who had approved the CVA. They argued that the CVA provision — as provided for in the Companies Act 2016 — is intended for ailing companies and not for abandoned developments, and also that the CVA had unfair terms.

Last week, the High Court in a landmark decision on the use of CVA, ruled in favour of the group of purchasers of Empire Remix 1 and set aside the CVA by True Renaissance.

On its part, True Renaissance argued that the CVA can be used to revive abandoned projects and that the CVA was bona fide. It also said courts do not have any powers to set aside the CVA as the CVA presented to the court had been sanctioned and it merely had to report the outcome to the court. However, the interveners argued otherwise, saying the court’s jurisdiction cannot be ousted.

Ranjan N Chandran, a consultant with Hakem Arabi & Associates who represented 103 purchasers, argued that “the court is not a mere rubber stamp and can scrutinise the CVA scheme”. Otherwise, the court will have no role to play, he said.

Law firm KL Wong, led by Datuk K L Wong, that represented 364 purchasers also maintained that “the main purpose of a CVA is to help ailing companies to reach a compromise of its debts with its unsecured creditors and allow the ailing companies to continue as a going concern; however, a CVA cannot be used for the purpose of reviving an abandoned project”.

It also highlighted that the effect of the CVA will completely wipe off the debts of the unsecured creditors.

In arriving at his decision, Justice Ahmad Murad Abdul Aziz considered that the powers of the court cannot be ousted, citing the Federal Court’s decision in the Semen­yih Jaya case as a precedent for this. In the Semenyih Jaya case, involving land acquisition, the Federal Court made an affirmative statement that the powers of the court cannot be ousted.

The court also considered that there was no approval from the landowner Dergahayu Sdn Bhd for True Renaissance to continue with the Empire Remix 1 and 2 projects, which is a joint venture (JV) between True Renaissance and Dergahayu.

Will the project be completed?

The project has already been delayed by about six years and even with a white knight in the picture, it could take another three to five years to complete. This latest decision could cause further delay to the completion of the project, or worse, it could become a white elephant.

“[The] matter is really up to the previous developers and landowners. We have offered to go in as a white knight — but only if all legal issues are resolved,” a management member of HCK tells The Edge.

It was reported that should HCK go in, it may have to pump in as much as RM900 million for the construction and infrastructure to complete the Empire Remix 1 project. On whether True Renaissance plans to appeal, Lee Hoe Leong, partner at HL Lee & Co, who represented True Renaissance, says: “We have yet to receive any instructions to appeal.”

According to Ranjan, the purchasers he represented are fed up with waiting for the completion of the project and are keen to recover their losses.

“The next course of action for the purchasers is to proceed with the civil action in court to recover their losses on the inordinate delay in the completion of the Empire Remix 1. They may seek the rescission of the sales and purchase agreements and claim for the refund of their deposits, bank interest, charges imposed, loss of value and capital appreciation of their property,” he says.

He adds that based on the 2010 Federal Court decision on Berjaya Times Square Sdn Bhd versus M-Concept Sdn Bhd, the Empire Remix 1 purchasers may claim for continuing Liquidated Ascertained Damages (LAD) as an alternative claim against the developer.

Wong says his clients are keen to see the completion of the project. “Generally, all owners would like to revive the Empire Remix project. We are not against the revival of the project. But what we want is fair and equitable terms for both parties.

“The terms [provided by the white knight] are not fair because it is open-ended. There is no firm commitment by the white knight as to when it will start and finish the revival of the project. The buyers do not want an indefinite and prolonged completion period. The white knight must also show that it has the financial ability [to undertake the revival].”

He adds that while HCK is a known entity, its subsidiary, Subang Sentral, which is undertaking the revival of the project, is not.

The parties and people behind the development

Empire Remix 1 and 2 were originally launched by True Renaissance, a unit of Mammoth Empire Holding Sdn Bhd (MEH), the developer behind Empire Subang. The projects were on a JV with landowner Dergahayu.

The development order (DO) for Empire Remix 1, which sits on a 10.67-acre parcel, was obtained in 2014, while that for Empire Remix 2, spanning 3.77 acres, was obtained in 2016. When the two projects were launched in 2012, they had a combined gross development value of RM2.3 billion.

However, True Renaissance was unable to complete the projects due to financial difficulties. Less than 30% of Empire Remix 1 and 2 had been completed before the project came to a halt. On Jan 15, 2019, Dergahayu released and discharged True Renaissance from its obligation to complete the development.

On the same day, Dergahayu entered into a JV with Greendev Sdn Bhd to jointly continue and complete the development of Empire Remix 1. But on Nov 30, 2021, the parties mutually agreed to terminate this agreement. Dergahayu and Greendev have common shareholders.

The original shareholders of True Renaissance were Datuk Sean Ng Yee Teck (80%) and Datuk Danny Cheah Joi Yong (20%). Companies Commission of Malaysia data show that True Renaissance is now wholly owned by Regal Bridge Sdn Bhd, which in turn is owned by Triplezen Sdn Bhd (70%) and Gagasan Upaya Sdn Bhd (30%). Triplezen is owned by one Muhammad Hafizullah Mohd Affendy, while the stake in Gagasan Upaya is equally owned by Bawani Lee Palanimuthu and Thavamani Munusamy @ Muniandy.

The shareholders of Dergahayu, meanwhile, are Ng Kim Joo and Lim Chooi — each holding a 22.22% stake in the company, while Ng Seng Kee, Ng Seng Hoe, Ng Seng Cheong and Ng Seng Ying hold 13.89% each. Projek Muara Sdn Bhd, a wholly-owned subsidiary of Dergahayu, is the registered landowner while Dergahayu is the beneficial owner of the land.

Seow Ying, Seng Kee, Seng Hoe, Seng Cheong, Kim Joo and Lim Chooi hold 11.67% each in Greendev, while Aman Shah Abdul Gaffor and Datuk Lee Hwa Beng hold 26% and 4% respectively.

According to HCK’s filings with Bursa Malaysia, Subang Sentral, Dergahayu and Projek Muara entered into a JV to complete the development of Empire Remix 1 at its own cost, while True Renaissance appointed Subang Sentral as the white knight.

It was reported that 2,500 buyers had collectively paid RM500 million through end financing, excluding the down payments and bank interest for their property. These buyers are said to have purchased their SoHo units for between RM450 and RM550 per sq ft, while similar units are valued at RM850 to RM950 psf in the current market.

Following the announcement that True Renaissance had appointed a white knight after obtaining a CVA, a group of buyers applied for leave to intervene and oppose the CVA and were successful.

Ranjan, on behalf of his clients, has filed a civil suit naming True Renaissance, Dergahayu, Greendev and the architect of the development as defendants while Wong has initiated a civil suit on behalf of his clients against, among others, True Renaissance, Dergahayu and Greendev to seek compensation. 

 

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