Developer’s Pledge of Homebuyers’ Money as Loan Security Illegal, rules court

The High Court says the Housing Development (Control and Licensing) Act 1966 is intended to protect money paid by house buyers towards the purchase of their homes.

SHAH ALAM: 

The High Court here has ruled that it is illegal for a housing developer to pledge money kept in its housing development account as security for a loan from a financial institution. Judicial commissioner Raja Rozela Raja Toran said Section 7A of the Housing Development (Control and Licensing) Act 1966 (HDA) establishes that funds in such accounts are held on trust and to be utilised primarily for the completion of a housing project.

The statutory purpose of the HDA is to protect the interest of homebuyers by safeguarding the money they have paid towards the purchase of their homes, she said when allowing a suit by the liquidators of Seri Mutiara Development Sdn Bhd (SMD) against Malaysian Trustees Bhd (MTB), a secured creditor.

The court, she said, had also given considerable weight to the opinion of the housing and local government ministry, which asserts that the account cannot be charged because it did not belong to the developer, and that the liquidators should have control over the money.

I am of the view that the ministry’s position aligns with the protective purpose of the HDA and is designed to uphold public policy, Raja Rozela said in broad grounds delivered today.

SMD, a housing developer, was engaged in the development of the Kuchai East project, a mixed residential and commercial development consisting of a 48-story service apartment building. As required under Section 7A of the HDA, the developer opened and maintained an account for the project. The account was held with RHB Bank Bhd.

In 2019, SMD’s board of directors obtained a RM50 million loan by pledging the money held in the account to MTB. Construction began in 2017 and was scheduled for completion in 2020. However, due to the movement control order imposed by the government during the Covid-19 pandemic, the construction came to a halt in May 2021.

Ng Seing Liong and Ng Choon Jin were appointed joint liquidators after SMD was wound up in April last year. The liquidators sought to revive the project and attempted to take over the account but MTB refused to relinquish control, resulting in the suit being filed last October.

Lawyers Kelly Khoo, Nurqamarina Aqilah Roslan and Nur Dalila Zulkarnain appeared for the liquidators while Andrew Teh and Tan Chong Pei acted for MTB and RHB.