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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 4, 2017 at 23:22
by   notalawyer
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?
The Court date is already stated in the Writ of Summons.

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?
Your friend's opinion is more related to criminal cases, not civil cases.
Each defendant should file own defence.
Try write a letter signed by all company directors to allow one of the guarantors to represent the company in the court case. ( surat perwakilan ).
This may fail if the plaintiffs object to it.
However, if the plaintiffs do not object, the Judge may allow it.
For guarantors that are not good in English or Malay, they can also write another surat perwakilan to allow one of the defendant to represent them.

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?
No priorities as the guarantors are not Social Guarantors.
Maybe you could try to get an independent valuation report on the land, and then file a Notice Of Application to strike out the Writ Summons and Statement Of Claims based on the grounds of No Cause for Action.  Your argument can be that since the lender already took the land which is valued to be more than the outstanding, there is no reason (cause) to sue.
You can do this application before the defence is filed to fish for strategies before you file the real defence.
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answered on Jun 30, 2017 at 04:40
by   alex99
Dear notalawyer,

Thank you very much for your advice, really appreciated it.

Sorry for the late response, was feeling quite tired with work, and mentally tired with the summon and lots of dispute arising from this matter. We have managed to find a buyer when selling below market rate, hopefully it is concluded asap, the father would like to keep the sale secret from plaintiff, meaning keep the net sale price of the land RM900k+ without paying back the Creditor, we argue so much, as it means that he is hoping to spend the RM900k+money from the sale again, and effectively asking plaintiff to go ask the RM550k+ from Guarantor, as the case/summon is ongoing. We are like, Really?!?!

Eventually, after he checked with 3 SNP lawyer separately, he was told that since the land was charged to the Creditor, we have to get no objection letter from the Creditor/chargor, then can only get the consent from the Land Office to conclude the Sale after 90 days. So, he has no choice but to keep the creditor informed, we are hoping that everything will be overboard, and it will be paid to the creditor, before the remaining amount is released to the company, as we are 100% sure he will just spend all the money in months, and leave us in trouble as guarantor.

Some Updates: 3 guarantors have filed for appearance at Duta court and also Penang court before the due date, with the exception of another Guarantor - the father, he insists on not filing as the Summon was not received by him (not in office when delivering). At the case management, the Assistant Registrar asked why is he not filling attendance, the father reply as it was not served to him, he didn't received it, the Assistant Registrar looks unhappy+confused as she noticed that the father is also a director and since he can find lawyer for the company, means that he is aware... luckily the plaintiff lawyer is quite junior and laid back type having no objection, so the Assistant Registrar give 24 hours to file attendance, and same date for all to file Defense, no additional delay at all. Will Strongly advice everyone to file for "Notis Kehadiran" before due date to prevent a Free Walkover, unless there is no intention to fight/delay.
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answered on Jun 30, 2017 at 04:41
by   alex99
To Anyone who would like to file for Notice/Memorandum of Attendance (Notis Kehadiran):
1. Write your name, address at the "Notis Kehadiran", sign for it, or bring it to the court counter and fill in on the spot.
2. At Duta Court, once enter the Ground Floor, proceed to the Middle+Right Glass door (behind the info counter), Go t Counter 1 and tell them would like to file for "Notis Kehadiran". Was told No need to get number as individual when I go, only law firms submission need number.
3. The Person in charge will check through the 1 page of "Notis Kehadiran", and give you another form to fill in. Fill it in and handover to the Person in Charge again, he will enter the attendance, then advice you to go to the opposide side glass door (middle left behind the info counter), get a number for "Jana Bill".
4. Once the number is called, proceed to the respective counter, and pay RM8. That's all, he/she will say all is completed once done.
5. Courier a copy of the "Notis Kehadiran" with simple cover letter about the same, to the Plaintiff lawyer.

p.s. For Outstation Defendant, as pointed out by Kiki as above, it can also be filed in State Court as well, just make sure to have the Notis Kehadiran, and case number correct, they will post it in their system, to be seen+recorded from the respective court as well.
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