ACE Holdings Bhd, whose recent attempt to take over Apex Equity Holdings Bhd faced legal pushback from the Securities Commission Malaysia (SC), is being sued by several of its investors for allegedly failing to deliver the investment returns they were promised.

At least four investors have filed separate legal actions demanding the return of a cumulative RM22.34 million in principal and interest from ACE Group, according to court documents sighted by The Edge.

ACE Holdings faces two legal suits. One investor filed a statement of claim demanding the return of principal and interest while another issued a letter of demand for the same. The legal actions were taken in September and November last year.

The investor who issued the letter of demand subsequently filed a winding-up petition against ACE Holdings last month. The petition is due for case management on March 16.

Two investors have filed claims against its subsidiary, ACE Credit (M) Sdn Bhd, demanding repayment of principal and returns. The claims were filed in November last year and last month.

ACE Group is believed to have filed its defence in the suits. According to court documents, at least two of the suits are being challenged by the group.

The investment schemes under ACE Holdings are in the form of subscription for its Islamic redeemable preference shares (i-RPS) as well as ordinary redeemable preference shares (RPS), with target returns of 12% per annum.

As at October 2022, ACE Holdings had 817.17 million preference shares outstanding that were issued at RM1 apiece across three tranches, comprising preference A (295.7 million), preference B (195.5 million) and preference C (325.97 million), company records showed.

As for ACE Credit, the “investments” central to the legal suits came with a targeted annual return of 15%.

According to court documents, the four investors taking legal action are Zaini Ibrahim, Lukman Hakimi Abdullah, Kueen Lai Properties Sdn Bhd (KLP) and Datin Seri Aidarahmi Ismail.

Zaini is suing ACE Holdings over RM2 million in unpaid principal as well as RM634,520 in annual returns, while Lukman has filed a winding-up petition against the company due to an unpaid principal of RM1 million, returns amounting to RM118,356 and late payment fees of RM45,592. Zaini and Lukman held two million and one million RPS respectively in the company.

Meanwhile, KLP is suing ACE Credit for an unpaid principal of RM2 million, RM300,000 in returns and RM145,906 in late payment interest. Likewise, Aidarahmi filed a winding-up petition against ACE Credit over the latter’s failure to pay RM12.5 million in remaining principal and RM3.6 million in returns.

On Jan 3, Aidarahmi filed a notice to have ACE Credit wound up. However, the following day, she informed the court that she was withdrawing her petition with the liberty to refile. The suit is due for case management on Feb 22.

When contacted, ACE Group’s shareholder and executive director Datuk Calvin Choong Chee Meng said, “I am not in a position to comment, and also any comments on ongoing matters are subjudice.”

The Edge reached out to ACE Group’s legal representatives to clarify the number of legal actions faced by the group, but had not received a response at the time of writing.

ACE Holdings is wholly-owned by ACE Alliance Holdings Sdn Bhd. The latter is 82.86% owned by ACE Group founder and managing director Annie Chang Ai Nee, while the other 17.14% is held by Choong.

ACE Credit is one of ACE Holdings’ nine subsidiaries, two of which are dormant according to the group’s latest annual report.

Penang Governor Tan Sri Ahmad Fuzi Abdul Razak was a 9.09% shareholder in ACE Credit but disposed of his entire stake to ACE Holdings in November 2022. He was previously chairman of ACE Group and had served as secretary-general of the Ministry of Foreign Affairs.

ACE Credit says it’s not an investment but a loan

An investment agreement and a term sheet — which had been inked by investors and the two entities — sighted by The Edge underlined that ACE Group’s investment schemes “involves a substantial degree of risk as the return of the investor is very much dependent on the performance of the company’s investment”.

The agreement also specifies that investors are fully aware that any projections that may have been made are based on estimates, assumptions and forecasts that may prove to be incorrect. And no assurance is given that actual returns will correspond with the results contemplated by the various projections.

Court documents show that KLP inked an investment agreement of RM2 million with ACE Credit in March 2021. The agreement has a 12-month tenure with an “investment target return” of 15%, or RM300,000, for KLP.

In the event of default by ACE Credit, it shall refund the full investment sum to the investor, said the agreement.

KLP, part of the Kueen Lai Group, is 86.67% owned by Datuk Seri Eng Soo Min, while the remaining 13.33% is held by the group’s chief operating officer Datin Teh Mee Ting.

Investors turned lenders?

KLP’s suit against ACE Credit, filed in October 2022, names ACE Group’s Chang and Choong as defendants. The duo have provided personal guarantees for ACE Credit’s obligations, the agreement with KLP states.

In Chang and Choong’s statement of defence and counterclaim against KLP, they sought a declaration that the agreement was invalid from the beginning, cancelled and not enforced under the law. ACE Credit filed a similar statement of defence and counterclaim against KLP, in which it argued along the same lines.

They contended that the “investment agreement” entered into between ACE Credit and KLP was a “money lending agreement” whereby KLP would provide a cash loan and ACE Credit would pay interest of 15% per year.

Chang and Choong stated that KLP willingly provided the RM2 million loan to ACE Credit and entered into the lending agreement, and that the terms of the deal were clearly stated and KLP was informed of the risk in providing the loan to ACE Credit.

The duo also stated that the “imposed interest” of RM300,000 (15% return per annum on RM2 million investment or alleged loan) is “unlawful” because KLP does not have a money lending licence as per the Moneylenders Act 1951.

In response, KLP said the RM300,000 it is seeking is not an interest payment but a return on investment that had been agreed upon with ACE Credit in the investment agreement. It added that the late payment interest was not made at the request of KLP, but was based on an offer from ACE Credit.

In relation to the offer to KLP, Choong informed the property developer in a letter dated March 21, 2022, that ACE Group’s ability to pay its investors was impacted by the Covid-19 pandemic and therefore had to delay the payments, but with the add-on of late payment fees.

In the letter, Choong cited the Malaysian government’s imposition of a moratorium on loan repayments, which he said hampered the group’s ability to seek and collect repayments from its customer base, as well as resulted in the poor performance of its investments.

He added that the group generates returns for investors mainly from its credit business. ACE Group said it nevertheless was keen to pay KLP by June 22, 2022. On the day, it sent KLP another letter, requesting another postponement to August.

Meek response to ACE’s 2018 exit offer

When contacted by The Edge following the court troubles of ACE Group, the SC said it was unable to disclose any information pertaining to any specific case as a matter of policy and towards ensuring the integrity of the commission’s discharge of its statutory duty.

“In conducting our surveillance, investigation and enforcement, if a breach of securities laws is determined after due process, appropriate actions will be taken,” it added.

According to the SC’s website, the regulator had reprimanded ACE Group over its investment scheme in December 2018. It said ACE Holdings had breached Section 354(1)(a) of the Capital Markets and Services Act 2007 (CMSA) for the issuance of private placement information memoranda (PPMs) dated Sept 8, 2015, and Jan 5, 2018, which contained “false or misleading information”.

This “false or misleading information” related to the issued and paid-up capital of ACE Credit, the targeted amount of funds to be raised, utilisation of the proceeds and ACE Holdings’ past record of funds raised, the SC added.

Following the breach, the SC directed ACE Holdings to issue a corrective disclosure of the PPMs and appoint an external auditor to conduct a monitoring function over the utilisation of the proceeds and a special audit on the financial position of the capital raised.

The SC also directed ACE Holdings to seek its written approval for any future fundraising activities, as well as to cease and refrain from conducting any marketing or fundraising activities pursuant to the PPMs in 2015 and 2018.

The SC’s administrative actions led to ACE Holdings issuing an unconditional redemption offer to all investors who had subscribed for its private placements based on the 2015 and 2018 information memoranda. The redemption offer was initiated on Dec 11, 2018.

“According to the information provided on the [ACE Group] website, a total amount of RM814 million was raised from PPM 2015 and 2018,” the SC said on its website on April 4, 2019.

According to ACE Holdings’ 2019 annual report, investors holding RM7.32 million of the RPS accepted the redemption offer. It represented not even 1% of the outstanding RPS in 2018.

In the financial year ended June 30, 2021 (FY2021), ACE Holdings booked a net profit of RM1.01 million on revenue of RM130.85 million. It had RM1.15 billion in assets against RM1.1 billion in liabilities. Retained earnings amounted to RM10.52 million.

During the same period, ACE Credit reported a net profit of RM4.24 million on revenue of RM250.83 million.

ACE Group hogged the limelight in Corporate Malaysia when it became a substantial shareholder of Apex Equity. ACE Credit emerged as a substantial shareholder in Apex Equity in 2017, with 25% equity interest.

In December last year, ACE Group exited its position as Apex Equity’s second-largest shareholder. It offloaded a 13.34% stake, or 27.04 million shares, on Dec 9, leaving it with 1.64% equity interest, or 3.32 million shares.

The disposal came after the SC filed a suit seeking a declaration that Apex Equity’s wholly-owned subsidiary Apex Securities Sdn Bhd had contravened securities laws. It added that ACE Group was knowingly involved in the contravention, “as ACE has become a controller of Apex Securities, when ACE is not a fit and proper person” to do so.

Choong and Chang subsequently resigned as group managing director and strategic adviser respectively from Apex Equity after ACE Credit disposed of its stake.

Until now, it is not known who the major shareholders of Apex Equity are.

ACE Holdings issued redeemable preference shares amounting to RM1.35 bil over six years

Over the last six years, ACE Holdings Bhd has been undertaking placements and redemptions of redeemable preference shares (RPS) to investors who were attracted by their targeted returns of 12% per annum.

From the financial year ended April 30, 2016 (FY2016), to the financial year ended June 30, 2021 (FY2021), ACE Holdings issued a cumulative 1.35 billion RPS at RM1 apiece to its many investors.

Based on figures in its annual report for the years 2017, 2019 and 2021, ACE Holdings redeemed 332.51 million of the instruments, which make up about one third of its total RPS issued, during the period.

The company changed its financial year end from April 30 to June 30 in 2019.

At the end of June 30, 2021, outstanding RPS stood at 1.01 billion, based on ACE Holdings’ 2021 annual report. Each RPS is paid a “fixed non-cumulative preferential interest at the rate of 12% per annum”.

A check on the company’s latest update with the Companies Commission of Malaysia (SSM) showed that ACE Holdings’ outstanding RPS had dropped to 817.17 million as at Oct 4, 2022, suggesting that a net redemption took place in the 15-month period since June 2021.

The largest redemption of RPS took place in FY2020 when RM247.29 million worth of principal was paid out to investors while the largest issuance was in FY2018, with 537.63 million RPS placed out.

It is worth noting that in FY2018, one of ACE Holdings’ private placement information memoranda (PPM) was flagged by the Securities Commission Malaysia (SC) for containing “false or misleading information”.

The PPM in question, dated Jan 5, 2018, together with another dated Sept 8, 2015, had been red-flagged by the SC for flouting the Capital Market and Services Act 2007 (CMSA). It was in relation to “false or misleading” information related to ACE Holdings’ past record of the amount of funds raised in the 2015 PPM, as well as the utilisation of the funds raised.

The company subsequently issued a corrective disclosure of the PPMs and offered investors who subscribed to the RPS under both PPMs an unconditional redemption offer.

However, only 7.32 million RPS were redeemed under the offer, a meagre amount relative to the RM814 million worth of RPS raised under the two PPMs.

Among the other directives the regulator also levied on ACE Holdings was that the company had to cease fundraising activities under the two PPMs as well as seek the SC’s prior written approval for future cash calls.

When queried on whether such approvals were given to ACE Holdings for its issuance of RPS between FY2019 and FY2021, the SC told The Edge it was unable to comment as a matter of policy to ensure the integrity of the commission’s discharge of its statutory duty.

A look at ACE Holdings’ 2019 annual report shows that it had invested in quoted shares listed on Bursa Malaysia.

In 2018, ACE Holdings had a 26.01% stake in AE Multi Holdings Bhd, a 12.42% stake in Connect County Holdings Bhd and a 10.62% interest in TechnoDex Bhd. In FY2019, ACE Holdings had trimmed its stake in AE Multi to 23.64% and no longer held any stakes in Connect County and Technodex.

Apart from AE Multi, ACE Holdings held a 23.73% stake in Apex Equity Bhd, based on the 2019 annual report.

In 2018, the value of its investments in quoted securities was RM119.06 million and in 2019, it was RM112.63 million. According to the 2019 annual report, it had written off RM107.65 million in investments in quoted shares.

The company’s receivables in FY2018 and FY2019, at the group level, stood at RM44.42 million and RM104.25 million respectively, while in FY2016 and FY2017, receivables stood at RM5.41 million and RM18.33 million respectively.

Notably, in FY2021, ACE Holdings had an amount due from subsidiaries of RM958.61 million, with RM911 million parked under non-current assets and RM47.61 million under current. In FY2020, it booked RM991.47 million in amount due from subsidiaries under current assets.

It noted that the amount due from subsidiaries represented trade transactions, which were unsecured, bears annual interest of 13% to 15% (2020: 13% to 18%), and was repayable on demand.

With respect to FY2018 and FY2019, the amount from subsidiaries stood at RM871.19 million and RM1.07 billion respectively. Meanwhile, for FY2016 and FY2017, ACE Holdings’ “amount owing by a subsidiary” totalled RM55.77 million and RM330.56 million respectively.