How Can The Private Equity Market Go So Wrong – Mismanagement Or Outright Scam?
The article discusses the negative developments surrounding the private equity and venture capital market in Malaysia, and potential red flags that the investor need to be aware of.
Article contribution by Akmal SK (Corporate Lawyer | Serial Entrepreneurs)
Throughout my years of practising laws, I have always been fascinated in private equity and venture capital market in all its glories. Through private placement investment, there are so many SMEs in Malaysia that has reaped the benefit and were assisted to soar and scale up their businesses to another level.
Lately however, there are so many negative developments shrouded the private equity and venture capital market in Malaysia. Investors are not getting what they are promised, companies fail to pay the promised dividend, money games and even cases where companies doing Ponzi scheme, where the dividend payable to their investors were taken from the investment of new investors, and not from the revenue that the company should generate in their business.
Thousands of people and investors, where most of them are just retail investors, have been “scammed” through this kind of practices from irresponsible companies.
But does these companies outrightly want to scam the public and their investors in the first place, or (to give some benefit of the doubt here) are they actually a victim of their own mismanagement?
It has been reported by the EdgeProp ardently that a company knows as ACE Holdings (“ACE”) is now facing a suit seeking for almost RM10 million from 27 of their investors, for the grounds of failure by ACE to pay the promised dividends of 12% per annum, and also failed to pay such investors for redemption of their investments. ACE has replied to the investors saying that since its operations were severely affected by the Covid-19 pandemic, payments for the redemption by the investors would be delayed.
Both parties have been back and forth in their responses for this matter, but in the end, the investors have decided to take the necessary legal action against ACE. ACE on the other hand, also defended themselves and at the same time, has filed for judicial management petition.
Judicial management is a corporate rescue mechanism when a company is unable to pay its debts, whereby a judicial manager will be appointed to take over the company’s affairs during the period where the company is put under the judicial management. As a result of this, a stay proceeding may be ordered by the Court on other actions such as winding-up proceedings or enforcement, detention or distress levied against the company and/or its properties.