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CIPAA Adjudication mistakes | Unincorporated Joint-Ventures (JV)

JVs can be incorporated or unincorporated. An incorporated JV is one where two companies come together and form a new JV company. For example, A Sdn Bhd collaborates with B Sdn Bhd to form AB-JV Sdn Bhd. AB-JV Sdn Bhd becomes a separate legal entity in law, and one would claim against AB-JV Sdn Bhd the same way as one claims against any other Sdn Bhd.

An unincorporated JV, however, is slightly trickier. This happens when A Sdn Bhd and B Sdn Bhd collaborates to undertake a project, but they do not form an AB-JV Sdn Bhd. They continue to function as A Sdn Bhd and B Sdn Bhd, and the specific arrangement of the JV is one that is arranged as between themselves. As against the world, they may well identify themselves as
AB-JV, but that would be for practical purposes only.

This AB-JV that is unincorporated is not a separate legal entity. If one were to claim against the AB-JV, who then is to pay at the end of the day? Is it A Sdn Bhd, or B Sdn Bhd? Technically, neither will be required to pay. The challenges therefore arise when one seeks to enforce a judgement against such a non-entity.

A common mistake when an unpaid party commences CIPAA proceedings against an unincorporated JV is in either:
a. Naming the unincorporated JV. This leads to enforcement challenges subsequently.
b. Naming one party in the unincorporated JV without naming the other.

Although in practice, usually one party plays a more prominent role in any unincorporated JV, it is nevertheless not singly liable for all the debts of the JV. Therefore, it is important that any claim against an unincorporated JV must be made against both JV partners, i.e. A Sdn Bhd and B Sdn Bhd. Failure to do so may cause one to be tied up in unnecessary technical objections that will only prolong the time for recovery of monies.

To avoid unnecessary complications, get it right the first time around.

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