Court admonishes Exim Bank over property sale linked to loan agreement

The Seremban High Court has reprimanded Export-Import Bank of Malaysia Berhad (Exim Bank) over its sale of certain high-value secured properties belonging to a borrower.

According to a report by Free Malaysia Today, the court last week issued the admonishment in relation to a counterclaim by Sun Holding Co Ltd and two individuals against Exim Bank for wrongful conduct and usurping the company’s right to the property.

The secured properties included the Don Chan Palace Hotel, a 5-star international hotel valued at US$140 million and constructed on a plot of land measuring almost 176,000 sq metres along the Mekong River, Laos.

As an alter ego of Seremban-based Rancang Timur Sdn Bhd, concessionaire Sun Holding had mortgaged the hotel and RM109 million worth of third-party-owned assets, as well as its development rights, to Exim Bank in return for financing facilities for the project.

The counterclaim by Sun Holding and the two individuals - Cheok Tiam Cheng and Cheok Soon Guan - is set against the backdrop of Exim Bank’s main civil action against them.

The ruling last week was delivered by Federal Court judge Zabariah Mohd Yusof, who sat in the capacity of a Seremban High Court judge.

Selling the secured property

“The conduct of selling the secured property for US$36 million without knowing the actual market value of the same clearly points to nothing less than a reckless act on the part of (Exim Bank) with complete disregard of the defendants.

“This court certainly does not condone such conduct,” Zabariah said.

“The facts show that the plaintiff (Exim Bank) did not do any valuation on the secured property and there was no attempt by the plaintiff to determine the prevailing market value at the time of the sale which prejudiced the rights and interests of the defendants,” she noted.

“It appears that the plaintiff was only interested to obtain a sum which was just enough to cover the debt owed,” Zabariah observed.

She said it was “perplexing” that Exim Bank had chosen to sell for US$36 million, when a mere seven months earlier the International Commercial Bank Lao Ltd (ICBL) had valued the property at US$71 million.

Zabariah dismissed Exim Bank’s contention that the sale price had been determined on a “willing buyer, willing seller” basis.

Proper property evaluation

She pointed out that the ICBL valuation should at the very least have prompted Exim Bank into carrying out proper property valuation.

“There was practically no attempt by the plaintiff to find out the true market value of the secured property,” she observed, concluding that the bank improperly exercised its power of sale and for a collateral purpose.

Zabariah said the court found that Exim Bank had sold the hotel to Masceana, a special purpose vehicle in which it owned a 51% stake, in order to secure a substantial profit for itself.

“Effectively, the plaintiff (bank) did sell the secured property to itself,” she noted, adding that this act amounted to a conflict of interest.

Zabariah said that the transactions led to Exim Bank having a “collateral advantage”, namely recovering the entirety of the US$36 million debt while also acquiring 51% beneficial ownership of the hotel and its land.

True value

She contrasted this with Sun Holding being deprived of the development’s true value.

Zabariah allowed the counterclaim and ordered an assessment of damages, which included aggravated and punitive or exemplary damages if proven, together with interest and costs.

She also directed Exim Bank to release and discharge all third-party legal charges held by it.

Exim Bank was represented by counsel Karlos Israfil Bendlin. A legal team comprised of Alvin Tang and Teo Ju-Li appeared for Sun Holding.