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Director/Family Guarantors Situation for Business Term Loan with Property as Security

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asked on Jun 1, 2017 at 07:08
by   alex99
Since myself and my sibling were young once reaching the minimum age, we were placed by father to be director and shareholder of the company, together with our mother. My father was a bankrupt (due to excessive spending) many many years ago meaning cant be director/shareholder that time, so this is how we were all his directors and shareholder since more than 15 years ago and naturally continue to do so, although me and my sibling has worked on different path, not involve in the father's business at all since day one. Our father was discharge from bankruptcy few years ago, then technically and physically control all the business dealings and reaps all the profits and spend all the business loans etc as well, including multiple month long luxury world tour traveling by himself without family.

Recently 2 years ago, business and cash flow is scarce again. He has got a small piece of leasehold land that can be sold, but he think that there can still be projects coming in (but there isnt any), so instead of selling it straight up to fund his own spending, he went to license money lender, to place the land as security for about half of the property amount (RM500k instead of RM1mil), and agree to a very high and unfavorable interests and terms. Beside the land as security for the short period term loan, the money lender also require All Directors/shareholders, which in effect means entire family as guarantor, mother signed immediately... we are reluctantly and try to convince father not to proceed, our father insists to proceed and say due to "father and son" relationship, we should all sign for the guarantor, he say there are big business coming in, but and is a short term transition period, we all know that his "business coming in" is not true, but we all did signed. Few months later, all the money were spent dry by father, so mother is helping with almost all her life savings, until few months ago couldn't help any further.

Now, the license money lender lose their patience, serve the company and all guarantors/family member summons on last Monday 22nd May to file for attendance in court, for case management in mid June, and at the same time give the company 7 days to rectify the arrears, otherwise will auction the leasehold land. Both action were filed simultaneously. There are several few legal proceeding agains the company already, some lose already as well, but those are without guarantor.

Hope someone can help to answer some of my concern:

1. For Business Term Loan, with Leasehold land as Security (meaning selling process slow), and guarantors. Is there such thing in law that there will be priority of Exhaustion? Example, Exhaust The Security, then if not enough to cover the debt, The Company, then only Guarantor. Or the Creditor can go straight to the guarantor?

2. Since the business can't affort to pay for the installment of the business loan and also to hire a lawyer, can guarantors and business all self represent in court? or Guarantors as individual can self represent without lawyer, but business need lawyer which we cant afford?

3. We are thinking the best way is the sell the leasehold land urgently, meaning below market rate, But, the father insists otherwise and want to sit and wait to sell at current market rate, say will only negotiate when got buyer, not placing at market rate like it is not urgent... even with the summons to company and Guarantors, and also Notice to Auction came in already. So, everyone of us is now in danger. We are thinking if we fight for the case, buy some time for 1-2 years, the amount might be baloon from 600k to 800k with interests and legal fees(both side), so even auction at that time also might not be enough to cover the principal during that time. If we let go everything now, we are afraid they will go for Guarantor first, then only the Security (land).

4. Should we file for the Notis Kehadiran? we should all file including the company right? I have read in this forum, if we don't all defendant will get Judgement in Default of Appearance.

5. Is there a way to protest that the creditor do both summon action simultaneously, I thought they should auction the property first, then if needed only business, then only guarantor, seems like I am wrong as they do all simultaneously and in their summon they are claiming company debt is equally the guarantor debt.

What is the best way to resolve this mess... me and my sibling is at total loss, and mother has been very depressed.

Do not wish to ruins the father and son relationship, although he is really stubborn, but at old age of 70+. But at the same time both me and my sibling have a new young family now, so we can't afford to go bankrupt.

Any info, guidance, idea will be deeply appreciated.
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answered on Jun 1, 2017 at 13:56
by   robot
Should we file for the Notis Kehadiran?
Yes.

1. Who is being sued?
The company, father, son or sibling?
Post the Writ and Statement of Claims here for checking.

2. How much is the loan interest?

3. Did you sign a Deed of Assignment for the land?
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answered on Jun 1, 2017 at 23:18
by   alex99
edited Jun 1, 2017 at 23:21
by   alex99
Should we file for the Notis Kehadiran?
Yes.
Thank you for confirming. Even if company couldn't afford to hire lawyer? can we tell court during case management that we will self represent the company as well, or have to tell court we will find lawyer... but even if court grant some time to find lawyer, we might not be able to afford to hire a lawyer as well, as initial discussion with some lawyer, the charges are not affordable for us...

1. Who is being sued?
The company, father, son or sibling?
Post the Writ and Statement of Claims here for checking.
The Company as Defendant 1, All Guarantor were being sued together in the writ as well, Defendant 2: Father, Defendant 3: Mother, Defendant 4: Me, Defendant 5 My Sibling. They are pushing their rights that they have the same equal right to claim from company, and also any/all Guarantor for the debt.

2. How much is the loan interest?
12% per year, they are claiming about 550k + their legal fees until full settlement in the writ.

3. Did you sign a Deed of Assignment for the land?
I just checked, we didnt notice any Deed of Assignment being signed, but we did signed First Party First Legal Charge, and another document Deed of Debenture. Are they the same as Deed of Assignment? or is it any better or worst? They are also proceeding to auction the land simultaneously

Thank you very much Robot, for your view and input into the issue above, really appreciated it...
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answered on Jun 2, 2017 at 00:47
by   notalawyer
we might not be able to afford to hire a lawyer as well, as initial discussion with some lawyer, the charges are not affordable for us...

How much did the lawyers quote to defend the company?
How much did the lawyers quote to defend the individuals?

Defendant 1: Company  => Use cheap lawyer.
Defendant 2: Father  =>  Use bankruptcy as a defence to knock out the lawsuit.
Defendant 3: Mother =>  Self Represent
Defendant 4: Me  => Self Represent
Defendant 5: My Sibling=> Self Represent
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answered on Jun 2, 2017 at 18:40
by   alex99
Thanks notalawyer for your time looking into this and advice, really appreciated it sir.

How much did the lawyers quote to defend the company?
How much did the lawyers quote to defend the individuals?
Was quoted 20k total to defend the company, didn't ask the quote for individual as we are thinking it will add more costs which the costs for defending the company alone is not affordable, hence we are thinking should be self representing.

Defendant 1: Company  => Use cheap lawyer.
Defendant 2: Father  =>  Use bankruptcy as a defence to knock out the lawsuit.
Defendant 3: Mother =>  Self Represent
Defendant 4: Me  => Self Represent
Defendant 5: My Sibling=> Self Represent
Thank you, for your advice, for Defendant 2: father, he was already discharge from Bankruptcy almost 10 years ago, hence I believe cant use bankruptcy as a defense anymore is that correct, or can still bring up this point even when it has been discharged?
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answered on Jun 2, 2017 at 18:49
by   alex99
Thinking aloud, we are thinking if either we fight now, we will still lose in 1 year time, then the creditor will also proceed with their action which we hope is just to auction the land (at that time we will have to incur more interest, and also legal fees from both sides), if we give up now, maybe they just proceed to auction the land now (so we save on interest, legal fees from both sides). Is this risky or is it a good idea:

Defendant 1: Company  => File memo Kehadiran, then during the case management day, tell the court that we are finding afforable lawyer to buy some time, which cant find yet. Then eventually give up.
Defendant 2: Father  =>  Self Represent
Defendant 3: Mother =>  Self Represent
Defendant 4: Me  => Self Represent
Defendant 5: My Sibling=> Self Represent

Is it possible, and can you please advice what will happaned, or any of the following scenario will happaned:

1) will the money lender proceed to auction the land to get claim back the debt and return the company the extra money from the auction?

Or

2) it will depends, like they can still claim from the guarantor first, then later also auction the land, getting money back from both ends, which means Unjust enrichment.

On a separate issue, if the market value of the land is RM1.0Mil, anyone can advice what will generally happaned during auction?

I heard from a friend that it will go first round 10% (900k), 2nd round (800k), then 3rd round (700k) etc, usually only the 3rd round people will start to attend or consider to buy auction property... my brother heard from his friend that it will be auction at about the same amount owed to the creditor, in this case about 550k, they will just want to recover their money, and not interested to return any additional money, hence auction at the price that was owed to them 550k, for a property worth RM1mil.
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answered on Jun 2, 2017 at 20:11
by   vkpc
Does the land have a title?
What is on the land now, any trees or buildings?

If the money lender wants to auction the land and can recover the full amount owing from the sale, why sue?  Call them up and ask them this question.

All defendants need to file Notis Kehadiran separately and urgently.  ( within 14 days )
Director can file Notis Kehadiran on behalf of company.
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answered on Jun 2, 2017 at 20:45
by   alex99
Hi vkpc,

Thank you for looking into this, and advice.

Does the land have a title?
What is on the land now, any trees or buildings?
Yes, there is title for the leasehold land. It was flatten many years back, after few years there are trees and grass, construction debris from next door construction, and no building at all. Among the development, it is consider a better plot of land for bungalow, as the neighbours have build up the direct neighbour with the houses, as other plots some were having mini jungle next door, but the land is leasehold, and perhaps the market is very soft, especially for leasehold land.

If the money lender wants to auction the land and can recover the full amount owing from the sale, why sue?  Call them up and ask them this question.
Yes, my father did ask them this question few weeks back, and they believe this is their fully entitled legal rights to protect their interests... that is why we are thinking, it is like an Unjust Enrichment.

All defendants need to file Notis Kehadiran separately and urgently.  ( within 14 days )
Director can file Notis Kehadiran on behalf of company.
Noted, and thank you for your advice. In the A.R Registered document, it stated the date is 18th May, most were posted to our old I/C address, there are 2 with current address being attempted delivery on 22nd, but no one at addresss, so it was actually pick up from pos office only on 29th May. We have read through the agreement, and there is a clause stating that as long as they A.R. post to the correct address given to them, it will be deemed as delivered after 5 days of postage, regardless of whether it has been actually delivered or not. 5 days, from my calculation is 23rd May, 14 days later should be this coming Monday 5th June. I will get all signature and file it by this Monday, should be in time? The case management is on 14th June. If one of the guarantor, my brother is in Penang, do you know if a signed and scan copy be acceptable when filing for Notis Kehadiran by hand, or will need the original signed copy?

Thanks everyone for all the reply, really appreciated it...
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answered on Jun 2, 2017 at 21:15
by   kiki
my brother is in Penang, do you know if a signed and scan copy be acceptable when filing for Notis Kehadiran by hand, 
He can file his Notis kehadran at the court registration counter in Penang.

Make sure Case Number is correct.
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answered on Jun 3, 2017 at 05:01
by   alex99
He can file his Notis kehadran at the court registration counter in Penang.

Make sure Case Number is correct.
Thank you very much for your advice Kiki! that will be a lot more convenient, I have informed my brother, he will file directly at Penang court registration counter this Monday.
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answered on Jun 4, 2017 at 09:23
by   alex99
edited Jun 4, 2017 at 09:25
by   alex99
Thank you to the Avengers and everyone for the response and help, we will all file for appearance on Monday (4 guarantors and 1x company)

I am still very concern about being guarantor for the 550k company loan that will affect me and my family... losing my sleep recently. I have some questions, hope the Avengers or any kind heart will be able to assist.

1. After Filing for Appearance on tomorrow, the next step from my understanding in this forum is case management, the Judge will fix a date for us to file for Defense, in the next 2-4 weeks time right?

2. What will happened if only all 4x individual guarantor (defendant 2-5) self represent and file a join defense, but give up on company since company has already got a lot of legal problem, example lost other legal case, and another case pending... I have asked a friend, he say that in this case any defense will not hold ground, as the defense has to come from company side (being defendant no.1), the only way to protect the guarantor, is it true? Will this eventually haunt back the 4x guarantor if we give up defending company?

3. If the Creditor, under Money Lender Acts, proceed with both a)the summon sueing 1x company, and 4x guarantors, b)auction the piece of land in high court for the land with title. Is there such thing as priority of claiming the debt? Example, they have to exhaust the land by auction first, then if insufficient, first defendant which is company, then only Guarantors?

4. How long does Auction with title in high court usually take in Malaysia? plaintiff lawyer sent letters saying that they will auction the land on 18th May, if we don't regularize the payment, now the auction reserve price is out already at 880,000, is there a meaning/estimation on how long will the actual date of auction be?

5. For Leasehold Bungalow land with Title in shah Alam, will there usually be buyer on first round of auction (10% below valuation), or we need to wait 2nd or 3rd round (20-30%) below valuation, will only be real buyer interested?

Sorry for the many questions, I tried to find answer for the above questions, but really didnt manage to find in the forum, would really appreciate if anyone can shed some light or point me to the right direction for reading... Thank you!
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