2014_bankruptcy law preliminary issues and bn amended

OOI SHEOW YEAN S E S S I O N S C O U RT J U D G E ,

A L O R S E TA R

17 MAY 2014

Bankruptcy Law

Today’s Lecture

Prepared by Ooi Sheow Yean

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A) Preliminary IssuesB) Bankruptcy Notice (BN)C) Creditor’s Petition (CP)D) Receiving Order & Adjudicating Order (RO & AO)

A) Preliminary Issues


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1) Definition2) Objectives of Bankruptcy3) Sources of Law4) Who may be adjudicated a bankrupt5) Categories of creditors6) Act of Bankruptcy

DefinitionBankruptcy is a legal process where debtor’s

assets and properties are vested on the Director General of Insolvency (DGI, formerly known as the Official Assignee), to distributes the assets among his creditors according to their rights.

When a person becomes a bankrupt, he is subject to certain disabilities and disqualification.

He obtains protection from further legal proceedings by his creditors, subject to certain exceptions.

A person can be adjudged bankrupt only when he has committed an act of bankruptcy.

Introduction 4

Objectives


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To secure a just and equitable distribution of the debtor’s property and/or contributions which may be ordered to be made to the DGI among his creditors.

To relieve the debtor from his debts and enable him to make a fresh start

Bankruptcy and Insolvency


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Bankruptcy – a creature of legislation, the Bankruptcy Act.

Insolvent – inability to pay debt A bankrupt = insolvent Insolvent ≠ bankrupt A person becomes bankruptOnly after Court make “Receiving Order and Adjudication Order”

Sources of Law


71) Legislations a) Bankruptcy Act 1967 (Act 360) (BA)

b) Bankruptcy Rules 1969 (BR)c) Rules of the High Court 1980

2)Practice directions and practice notesa) Practice Note No. 1 of 1968 - application for substituted service

3) Decisions of courtsa) Malaysian cases (Principe of Stare Decisis)b) Singapore cases before 1965c) English cases before 1986- Malaysia Bankrupcy Act is modelled on the English Bankruptcy

Act 1914 (which has been repealed and substituted by the Insolvency Act 1986)

Bankruptcy Jurisdiction


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S.88 Bankruptcy Act- High Court to be the court having jurisdiction

in bankruptcy

Means: High Court of Malaya and High Court of Sabah & Sarawak

Practice Direction No. 3 of 1993- Bankruptcy cases to be heard before the

Registrar of the High court (Senior Assistant Registrar and Deputy Registrar)

Who may be adjudicated a bankrupct (Debtor)


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S. 3(3) BA – The word “debtor” includes any person who at the

time when he committed or suffered an act of bankruptcy

(a) was personally present in Malaysia; or(b) ordinarily resided or had a place of residence in

Malaysia; or(c) was carrying on business in Malaysia either

personally or by means of an agent; or(d) was a member of a firm or partnership which

was carrying on business in Malaysia

Section 5 (1)(d) Bankruptcy Act


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Conditions on which creditor may petition S. 5 (1) BA (a) the debt owing by the debtor to the petitioning creditor/

creditors…amounts to 30,000 ringgit (note) (b) the debt is a liquidated sum (c) the act of bankruptcy has occurred within six months

before the presentation of the petition; and (d) 'the debtor is domiciled in Malaysia or in any state or

within one year before the date of the presentation of the petition has ordinarily resided or had a dwelling house or place of business in Malaysia or has carried on business in Malaysia personally or by means of an agent or is or has been within the same period a member of a firm or partnership which has carried on business in Malaysia by means of a partner or partners or agent or manager.

Note: Prior to amendment, the amount is RM10,000

Rule 101 Bankruptcy Rules


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R 101 BR provides that:(1) The petition shall be filed in the court in which it

is to be presented(2) Where the debtor has for the greater part of one

year immediately preceding the presentation of the petition carried on business in one state and resided in another state the petition may be filed in the Court of the State in which he has carried on business.

1) Foreigner


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Can, as long as satisfy S. 5(1)BA, particularly S. 5(1)(d) and Rule 101 of the BR.

- In Re Koh Thong Kuang [1994]3 CLJ 650 Siti Norma Yaakob J held that: “Although debtor had moved to London from Kuala Lumpur, he returned to Malaysia rather often for business and still holding a Malaysian passport. Thus he was a debtor within the definition of this provision.”

- The court even extend this jurisdiction to one who was not present in Malaysia at the time of the act of bankruptcy(AOB) as AOB may be committed through an agent, unless the AOB is a personal act and has not been authorized by him.

- Re EM Abdulla and Company (1938) MLJ 130

Debtor not domiciled in Malaysia


13 S. 5(1)(d) BA The burden of proof is on the debtor Re Peh Kong Wan [1992] 2 MLJ 292

- Before the commencement of the bankruptcy proceedings, the debtor had moved to and obtained permanent resident status in Singapore. He had abandoned all connections in Malaysia but continued to hold his Malaysian passport. The court accepted that his visit to Malaysia were for the sole purpose of renewing the passport.

Re James Kuok Khoon Huai [2001] 3 MLJ 321- Debtor claimed change of domicile since he had been residing in Kampuchea for more than 7 years and his has an identity card issued by Kampuchea Government. The court observed that the identity card stated that his nationality to be Malaysian and less than 1 year before the IC was issued, the debtor affirmed an affidavit in Singapore claiming that his domiciled was in Malaysia. The court ruled that there was insufficient evidence to prove that he had abandoned his domicile in Malaysia.


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RE LEONG NYUK WENG, EX P PUBLIC BANK BHD [2003] 4 CLJ 260, ABDUL AZIZ RAHIM JC

Held: As can be seen there are several limbs to s. 5(1)(d) and each of the limbs in my view is to be read disjunctively. In other words, a creditor need only to satisfy one of the limbs of s. 5(1)(d) to come within its purview.

In my view although the pages of the debtor's passports showed that he had travelled frequently to Brunei and that he holds a Brunei identity card it is not conclusive that he has taken residence in Brunei. In any case it does not prove that the debtor has changed his domicile.

'Domicile' and 'residence' are two different concepts. The principle is that a person may have more than one residence but he has only one domicile that is his domicile of origin - his place of birth. However a person can also change his domicile of origin to his domicile of choice. But it requires strong evidence to show that he has abandoned his domicile of origin and adopted his domicile of choice.

…. Another factor which I think shows that the debtor has no intention to change

his residence is that he had made a purchase of a house in Miri located at survey Lot 4793 of parent Lot 1728 Lambir Land District Luak, Miri Sarawak.

Therefore, the appellant is a 'debtor' within the meaning of S. 3(3) of the Act.

2) Minors or infants


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S. 10 Contracts Act – valid contract if : free consent + competent + lawful consideration

S. 11 Contracts Act - competency to contract – who is of the age of majority

Re Davenport [1963] 1 WLR 817H: Bankruptcy proceedings may be taken against an infant in respect of

debts that are legally enforceable against him.

Legally enforceable contract for a minor:debt arising from a contract for necessaries, a tortious liability, or tax

liabilities.

- Government of Malaysia v. Gurcharan Singh [1971] 1 MLJ 211

Provided:

A guardian ad litem be appointed.

3) Persons of unsound mind/ mental patients/ lunatics


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S. 12 Contracts Act – provided when he entered the contract, he is of sound mind

- May be adjudicated bankrupt when there is a committee appointed pursuant to the Mental Health Act 2001 ( gazetted in Jun 2010)

S. 133 (c) BA – a mentally disordered person or lunatic may act by his committee or curator bonis

R. 227 BR – where any debtor or creditor is a lunatic not so found by inquisition, the court may appoint a suitable person to represent him

Q : capable of committing an act of bankruptcy? When there is lack of intention?

4) Deceased


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A deceased person cannot be made a bankrupt, unless he had committed an act of bankruptcy.

S. 96 BA - If he dies after presentation of the petition, proceedings may continue as if he was still alive, the court may then dispense with the service of the petition against him. Or

R 112 BR – the court may order service to be effected on his personal representative or such other person as it thinks fit.

Refer S. 122 BA for the administration in bankruptcy of estate of person dying insolvent.


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5) Members of Parliament- Cannot claim parliamentary privilege- Can be adjudged bankrupt

6) Ambassadors & Diplomats officers- Can, unless there is a waiver or there exists an immunity under

the Diplomatic Privileges (Vienna Convention) Act 1966- R v Madan [1961] 2 QB 1

- According to Diplomatic Privileges (Vienna Convention) Act 1966 , they are not subject to local jurisdiction, hence can claim privilege from bankruptcy Law so far as the debt incurred in such capacity

- However, they are not protected from actions relating to any professional or commercial activity in the receiving state outside his official functions (Article 31)


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7) Married womanS. 120 BA – a married woman shall be subject to the Act as if

she was an unmarried womanRe Mahmooda bte Ismail [1961] 1 MLJ 195Cannot be adjudicated bankrupt where they have no separate

property and are dependent on their husband income8) Corporations / Companies- S. 121 BA – corporations are excluded from Receiving Order.- May wound up under Companies Act.9) Firm / PartnershipS. 103 BA, Rule 219 and 221 BR- Adjudication Order shall be made against the partner

individually


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10) Social Guarantor S. 2 BA – means a person provides guarantee not for the purpose of

making profit i.e. guarantee for loan, scholarship etc, hire-purchase of vehicle for personal use and housing loan transaction for personal dwelling

S. 5(3) BA Bankruptcy action can only be commenced against social guarantor after

Petitioning Creditor proves that he has exhausted all avenues to recover debts owed to him by the debtor.

Azham Othman; exp Affin Bank Bhd [2012] 2 CLJ 96, High Court

11) Bankrupts- S. 49 BA – An undischarged bankrupt may be the subject of a fresh

bankruptcy proceeding in respect of debts incurred by him subsequent to the making of the receiving order in the first bankruptcy proceeding.

- Tan Wee Hun v. Inchcape Equatron (M) Sdn. Bhd. [1998]5 CLJ 769

Categories of Creditors


211) Unsecured/ Ordinary creditors

- An unsecured creditor is a person who is not entitled to any priority towards settlement of debt owing to him and may include a judgment creditor.

2) Secured CreditorsS. 2 BA – “secured creditor” means a person holding a mortgage, charge or lien on the

property of the debtor as a security for debt- S. 8(2) BA – Bankruptcy does not affect the rights of a secured creditor to realize or

otherwise deal with his security in the same manner as he would have been entitled to… - S. 8(2A) BA - Notwithstanding subsection (2), no secured creditor shall be entitled to

any interest in respect of his debt after the making of a receiving order if he does not realise his security within 6 months from the date of the receiving order

Where the creditor’s petition is presented by a secured creditor, he is required by S. 5(2) BA to either:

(i) State that he is willing to give up his security for the benefit of the creditors in the event the debtor is adjudged bankrupt; or

(ii) Give an estimate of the value of his security. In the later case, he may be admitted on the balance of the debt due as a petitioning creditor

in the same manner as if he were an unsecured creditor.

Secured Creditor


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Perwira Habib Bank Malaysia v. Samuel Pakianathan [1993]2 MLJ 423 (supreme court)

Held: To be a secured creditor, 2 criteria must be satisfied:

a) The creditor must be holding the property of the JD as security

b) The property must be held as security for the debt owing by the debtor to the creditor

- Chargee holding a third party charge if the property does not belong to the debtor is not a secured creditor, similarly if the action is against the guarantor and the security is provided by a third party.

Secured Creditor


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See M. Hashimi b. Ibrahim v Asia Commercial Finance Bhd [2001] 4 MLJ 67 (High court)

Held: [1] The option to purchase in a hire-purchase agreement is itself a

property. [2] By adopting the arrangement of a hire purchase agreement and

endorsing the ownership claim on the registration card of the truck, the respondent was therefore a secured creditor under the Act. (p 31 c)

[2b] Being a secured creditor, the respondent should have stated the truck under the hire purchase agreement as a security in the petition, as provided for in s. 5(2) of the Act. Incidentally, the respondent failed to state that in its petition.

Section 5(2) is mandatory in its provision; therefore it must be complied with strictly. Thus, the failure to comply with this requirement was fatal to the respondent's petition.

Secured Creditor


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- Compare with:Re Mohamed Supardi Md Noor; ex p Public Finance Bhd [2004]

4 CLJ 646 (High court) Held (dismissing the appeal): [1] The car fell within the definition of " property " under s. 2 BA.

However, to resolve whether it belonged to the JD, the nature of the hire-purchase agreement should be resorted to.

Based on the meanings given to the terms " hire-purchase agreement ", " owner ", " hirer " and " hire-purchase price " in S. 2 Hire Purchase Act 1967 ('HPA'), the car was not the property of the JD until the hire purchase price was fully settled.

Even though the registration card of the car named the JD as the registered owner, this fact did not make him the legal owner. As the car was not the property of the JD but the property of the JC, there could be no mortgage, charge or lien by the JC over it.

Hence, the JC was not a secured creditor for the purposes of s. 5(2) BA. The JC could not surely take its own property as security.

What if the value of the security more than the debt owing?


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Re Fong Yuan Kwong [1996] 4 MLJ 42 (High Court)Facts: At the time the filling of the petition, the security had already been

auctioned for RM255,000. The amount of the debt stated in the petition was RM213,861.45, which was the amount claimed in the bankruptcy notice (BN). The SAR dismissed the petition on the ground that the estimated value of the security was more than the amount claimed in the petition. JC appealed.

Held: In deciding whether the value of the security was more than the amount claimed, the SAR should have taken into consideration:

(1) The actual proceeds from the auction received by the petitioning creditor; and

(2) Further interest (amounting to RM43,548.04) which had accrued from the day after the date of the issue of the BN to the date of the auction.

By taking into account these 2 figures, the value of the security would have been less than the amount owing, hence the petition should not have been dismissed in this ground.

3 ) Preferential Creditors


26S. 43 BA stipulated about the Priority of debtsa) all local rates and land tax claim priority over other creditors for one year’s claim; b) Income tax and other assessed taxes assessed on the bankrupt up to 31 December

next before the date of the RO and not exceeding one whole year’s assessment;c) all wages or salary of any clerk, servant, labourer or workman not exceeding one

thousand ringgit (or lump sum if contracted at the end of the year hiring)…during the period of 5 months next before the date of the RO or the date of the termination of his service if it occurs within 12 months precedes the date of the RO

d) EPF contributions payable during the 12 months before the date of the ROe) All amounts due in respect of workmen’s compensation accrued before the date of

the RO

The foregoing debt shall rank equally between themselves and shall paid in full unless the property of the bankrupt is insufficient to meet them, in which case they shall abate in equal proportions between themselves.

- For example: A owes 5 years income tax. Thus the Income Tax Department is a preferential

creditor for one year’s claim and an ordinary claimant for 4 years.

Certain debt can’t file bankruptcy


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Limitatio

n

• Claim exceeded limitation period.• Note if judgment more than 6 years, just need to get

leave of the court and still can proceed with bankruptcy proceedings.

Unliquidated Damages

• Example: Running down cases , in relation to personal injury.

Pending

Proceedings

• Action filed but not yet decided.• Can’t file because no finality or certainty.

Certain debt can’t file bankruptcy


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Alimony

• Cannot obtain bankruptcy for non payment• Because that is a continuing payment.

On or after the

Act of bankruptcy

• Debt incurred on or after the commission of an Act of bankruptcy cannot put in the same bankruptcy petition.

• The amount in Creditor’s Petition must be the same as in the Bankruptcy Notice

Act Of Bankruptcy (AOB)


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The commission of an AOB is the precondition to the presentation of a bankruptcy petition.

A debtor may commit an AOB in a number of situations : Section 3(1)(a) to (j) BA – 10 categories

- The most common form of AOB is based on the failure to comply with the Bankruptcy Notice (S. 3(1)(i) BA 1967)

S. 3(1)(i) BA – Acts of bankruptcy


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A debtor commits an Act of bankruptcy in each of the following cases:(i) if a creditor has obtained a final judgment or final order against him for any

amount and execution thereon not having been stayed has served on him…, a bankruptcy notice requiring him to pay the judgment debt in accordance with the terms of the judgment or order with interest quantified up to the date of issue of the bankruptcy notice.. and he does not within seven days after service of the notice in case the service is effected in Malaysia, and in case the service is effected elsewhere then within the time limited , either comply with the requirements of the notice or satisfy the court that he has a counterclaim, set off or cross demand which equals or exceeds the amount of the judgment debt or sum ordered to be paid and which he could not set up in the action in which the judgment was obtained or in the proceedings in which the order was obtained:

Provided that for the purposes of this paragraph and of section 5 any person who is

for the time being entitled to enforce a final judgment or final order shall be

deemed to be a creditor who has obtained a final judgment or final order;

Important Elements


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AOB

Final Judgme

nt

Execution not been

stayed

Interest quantified up to the

date of the issued

In accordanc

e to the terms of

the judgment

Counter-claim

Cross deman

dSet-off

7 days

Act Of Bankruptcy


321) No act of bankrutcy – S. 6(2) & (3) - premature filling of CP – before disposal of application to set aside BN Datuk Lim Kheng Kim v. Malayan Banking Bhd [1993]2 MLJ 298 (Supreme Court)

- A petition filed before the disposal of the application is invalid as the debtor has committed no act of bankruptcy.

2) BN not according to judgment- There is no act of bankruptcy committed for non compliance with a BN that does not

comply with the judgment (BN is void ab initio) – for instance, judgment has been modified by a subsequent agreement or order in respect of settlement of the judgment debt.

- See Datuk Mohd Sari v. Winterthur Insurance (M) Sdn. Bhd. [1992] 2 MLJ 344 *

3) AOB not commited within 6 months before the presentation of the petition S. 5(1)(d) – This is a compulsory requirement of law. Failure to file CP within 6 months

after the AOB is committed rendered the petition be struck off. TAN AH TONG V. DATO' SERI DR KULJIT SINGH [2002]6 CLJ 484 Fact: In this case, JC filed and served the initial BN, then filed amended BN to include JD’s

IC’s number. Thereafter filed CP . Held: The act of bankruptcy committed when the first BN is served on the JD. Therefore

petition was present out of time and should be struck off.

Whether leave of court required to issue a BN if more than 6 years have lapsed since the date of judgment


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BN cannot be issued if at the time of its issue, the JC is not in a position to execute the judgment.

- Low Mun v Chung Khiaw Bank Ltd [1988] 1 MLJ 176 - Wee Chow Yong t/a Vienna Music Centre v Public Finance

Bhd [1989] 3 MLJ 508

Order 46 rule 2(1)(a) Rules of Courts 2012 (w.e.f. 1 August 2012, applicable to High Court and Subordinate courts) provided that in order to enforce a judgment by writ of execution, if the judgment had been granted for more than 6 years, leave of court is required.

Note S. 6(3) Limitation Act – “An action upon any judgment shall not be brought after the expiration of 12 years from the date on which the judgment became enforceable and no arrears of interest in respect of any judgment debt shall be recovered after the expiration of 6 years form the date on which the interest became due.”


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Some court decided that the JC could not commence bankruptcy proceedings on the judgment by interpreted S. 3(1)(i) as to mean that where a judgment is 6 years or older and leave to enforce that judgment has not been obtained under O. 46 r. 2 RC, the person issuing a BN based on such a judgment is not a creditor who has obtained a final judgment within the meaning of S. 3(1)(i) as he was not in a position to issue execution.

Re V Gopal ex-parte Bank Buruh [1987] 1 CLJ 602Re Wee Chow Yong (supra) Chin Sin Lan v Delta Finance (CA) [2004] 3 CLJ 113

Some courts has decided that the issue of a BN was not an execution within the meaning of the said court rules, therefore no need leave –


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Re Mohamad Fadzimi Yaacub [1998] 1 CLJ 783Re Chan Boon Heng; Exp Associated Tractors Sdn. Bhd. [2009] 2 CLJ

552

Perwira Affin Bank v Lim Ah Hee (FC) [2004] 2 CLJ 787

Held: (1) A bankruptcy proceeding is not "a writ of execution" within the meaning of O. 46 r. 2 RHC

(2) A bankruptcy proceeding, by definition of the word "action" in S. 2 LA, is an action and it is caught by the provisions of S. 6(3) LA.

(3) Therefore, a bankruptcy proceeding is an "action upon a judgment" within the meaning of s. 6(3) LA. The limitation for bringing the action is 12 years but arrears of interest may only be claimed for six years.

Therefore, no leave required.

Advice from the lecturer : It is a prudent practice to apply for leave if the judgment is more than 6 years.

Calculation of the date of commission of an Act of bankruptcy


36- If Judgment Debtor (JD) resides in Malaysia, the period of

compliance after the service of BN is 7 days. If nothing is file by the JD, AOB is deemed to have been committed.

- Rule 66 BR- in calculating the AOB, the day of service is excluded. Service after 3pm on a weekday or after 12pm preceding the weekly holiday, the service is deemed to have been effected on the following weekday. The 7 days period is inclusive of the weekly holiday or any public holiday

- If JD is out of Malaysia, the court when granting leave to effect the service shall decide the period of compliance.

- Likewise in case of JD where about can not be located, period of compliance follows the court order, usually 14 days after the last act done by the petitioner to effect service.

Revision on Preliminary Issues


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AOB

Jurisdiction

Limitation

1. Debtor2.

Creditor

38Bankruptcy Notice

Overview


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Issue BN

Service

Issue CP within 6 months

Bankruptcy Notice


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1) Issuance & duration of BN2) Place of filling3) Service of BN4) Conditions of BN5) Formal Defects6) Irregularities7) Setting Aside BN

1. Issuance and duration of BN


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Issuance of BN - Request For Issue and Form of BN (No. 4 & 5) r.91BR- Request may be made by the JC or his solicitors. - attached a copy of final judgment

Valid for 3 months from the date of issue – r. 96 Extention – before the expiry of 3 months Court discretion – S. 93(4) BAMust explain for the delay and show good cause for

extension

2. Place of filling


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R.101 BR - Filed in the state where JD resides or where the debtor has for the greater part of one year immediately preceding the presentation carried on business in one state and resided in another state, the petition may be filed in the court of the state in which he has carried on business.

- Failing which it will not nullified the whole proceedings as long as the case is filed in the proper High Court i.e. High Court of Malaya or High Court of Sabah & Sarawak. The file can be tranferred to the state where the JD resides after AORO is obtained.

- ..\bankrutcy news\jurusdiction.docxFUNG BENG TIAT V. MARID CONSTRUCTION CO. [1997] 2 CLJ 1

Practice Direction No. 3 of 1993 All bankruptcy cases be filed in the court where the JD resides. If filed

otherwise, court should advice petitioner to apply for the case to transfer to where JD resides

3. Service


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1) On DGI – personal service or by post2) On Debtor – must be served personally (r. 97 & 109) - Dato Hj Yusuf Kamari v CIMB Bank Bhd [2009]

9 CLJ 209

If personal service is not possible, then by substitute service- Practice Note No. 1 of 1968

- Summons in chambers, supported by Affidavit and Affidavit of non-service.

- Usually court will order that the substituted service be effected by posting at the court notice board, advertisement in a national newspaper and / or posting at the JD’s last known address.

Practice Note No. 1 of 1968


441. 2 calls should be made2. The calls should be made at the defendant’s residence,

permanent or temporary or business address.3. The calls should be made on weekdays and at reasonable

hours.4. Each call should be on a separate day.5. The second call should be made by appointment by letter

sent to Def by ordinary prepaid letter post, giving not less that 2 clear days notice, enclosing a copy of the document to be served, and offering an opportunity of making a different appointment.

6. The affidavit in support should deal with all the foregoing requirements and should state that whether the letter of appointment has been returned, any answer received. A copy of the document to be served should accompany the affidavit.

Note: Draf order and draf notice for advertisement be present together with the SIC.

Re S Nirmala [1998] 2 MLJ 616


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Rohani @ Hamidah bte Nor v. Sincere Leasing Sdn. Bhd. (1993) 1 AMR 225

JC failed to effect substituted service (SS) of the BN even though the notice had been extended for one whole year. The SAR granted its application for a further period of one year to effect service. On the debtor’s application to set aside the BN, the court observed that the ground for extension of the second period was misconceived. There was no explanation for the failure to effect SS though JC had one whole year to do it. The court ruled that the extension should not have been allowed and set aside the BN.

Bankruptcy Petition may be filed if


46

Conditions on which creditor may petition

S. 5 (1) BA(a) the debt owing by the debtor to the petitioning

creditor/ creditors…amounts to 30,000 ringgit (note)(b) the debt is a liquidated sum (c) the act of bankruptcy has occurred within six

months before the presentation of the petition; and(d) the debtor is domiciled in Malaysia or had a

house or had a business in Malaysia …within one year before the date of presentation of the petition

Note: Prior to amendment in 2003, the amount is RM10,000

S. 3(1)(i) BA – Acts of bankruptcy


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A debtor commits an Act of bankruptcy in each of the following cases:(i) if a creditor has obtained a final judgment or final order against him for any

amount and execution thereon not having been stayed has served on him…, a bankruptcy notice requiring him to pay the judgment debt in accordance with the terms of the judgment or order with interest quantified up to the date of issue of the bankruptcy notice.. and he does not within seven days after service of the notice in case the service is effected in Malaysia, and in case the service is effected elsewhere then within the time limited , either comply with the requirements of the notice or satisfy the court that he has a counterclaim, set off or cross demand which equals or exceeds the amount of the judgment debt or sum ordered to be paid and which he could not set up in the action in which the judgment was obtained or in the proceedings in which the order was obtained:

Provided that for the purposes of this paragraph and of section 5 any person who is

for the time being entitled to enforce a final judgment or final order shall be

deemed to be a creditor who has obtained a final judgment or final order;

48Prepared by Ooi Sheow Yean 48

Grounds of Setting Aside BN 1) Counterclaim, set off or cross

demand according (S. 3(1)(i)BA) Procedure: r.95(1) BR2) Defect in BN/ Service of BN (r91

–95 BR) 3) Irregularities – r.18 BR Procedure: - summons in chambers supported by affidavit.

4) Fraud – r.18 BRSee Re Chong Siew Jin [1991] 3 CLJ

2470

Setting aside BN1)Counter Claim, Set Off or Cross Demand


49

a) must equals or exceeds the debtb) must be quantifiedc) incapable of being set up during the original

claimd) in good faith

- Datuk Lim Kheng Kim v Malayan Banking Bhd [1993] 2 MLJ 298- Re Sharma Kumari Shukla [2000] 5 MLJ 430- Perwira Habib Bank Bhd v. Samuel Pakianathan [1993]3 CLJ

349- Re Rajaish Kumar Makhanlal Saigal; exp HSBC Bank Malaysia

Bhd [2008] 1 LNS 161

RE TEH SIEW FAH; EX P PERWIRA HABIB BANK MALAYSIA BHD [2010] 1 CLJ 375 [2009] 1 LNS 276

..\bankrutcy news\2nd case 2010.docx

2) Defect in BN/ Service of BN (r91 –95 BR)


50

R. 91 BR – What court to issue

(1) A BN shall be issued by the Court in which a bankruptcy petition against the debtor may subsequently be filled.

(2) A creditor is not entitled to apply for the issue of a BN by combining 2 or more final judgments or final orders

(3) A creditor is not entitled to apply for the issue of a bankruptcy notice against joint debtors in a final judgment or final order unless the debtors had carried on business jointly. If the debtors had not carried on business jointly application should be made for the issue of a separate bankruptcy notice against each debtor in the final judgment or final order.

(4) In the case of a final judgment or final order against a partnership and if the individual partners were not served with the writ of summons in the suit in which the final judgment or final order was obtained, the final judgment or final order cannot be used to found a bankruptcy notice against a partner without leave of the Court.



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R.92 – Issue of NoticeR.93 – Transmission of notice to DGIR. 94 – Particulars to be endorsed on noticeR.95 – Application to set aside



52

r. 95 BR

- Affidavit in Form 7- Must be filed within 7 days after

service- No AOB committed until the

application has been heard and determined.

- Datuk Lim Kheng Kim v. Malayan Banking Bhd [1993] 3 CLJ 324 at p.327

2) Defect in BN/ Service of BN


53

a) Final Judgment or OrderA BN can only be issued on a final judgment or

order of the court.

This include the judgment or order from the Federal Court, Court of Appeal, High Court, Sessions Court, Magistrates Court but not the Syariah Court or the Penghulu Court.

“Final” if it disposed of the rights of the parties and no further step is necessary to perfect it

2) Defect in BN/ Service of BN


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Example i : Judgment in default

Re Udos ak Riging [1994] 3 CLJ 377

Held: A default judgment is not a final judgment as long as the debtor has not exhausted the avenue to challenge the judgment. Such a judgment does not finally dispose off the rights of the parties as it is not decided on the merits.

The default judgment becomes a final judgment when: 1) the debtor has failed to apply to set aside the judgment

within the time (? Days), or 2) where the debtor has filed an application to set aside the

judgment, and the application is dismissed, the debtor has failed to appeal against the dismissal within time (? Days), or

3) where an appeal against the dismissal has been filed, the appeal is dismissed and no further appeal is possible.


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- This case has been followed by many cases, such as:

- Michael Kho Miang Haw v Teo Siaw Keng [1996] 2 MLJ 388,

- Vijendran Ponniah v MBF Country Homes & Anor [2002] 1 MLJ 535

- in Re Tan Hwee Earn [1999] 4 MLJ 248, it was decided that a default judgment on liquidated amount is a final judgment.


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ii) Summary JudgmentPerwira Habib Bank Bhd v. Samuel Pakianathan [1993] 2

MLJ 423Re Lo Kon Wan, exp Jupiter Securities Sdn Bhd [2000] 5

MLJ 180 - Summary Judgment is a final judgment irrespective

whether the debtor had filed defence or counter claim or an appeal has been filed against the judgment

iii) A judgment or order is final even if it contains an error, a BN founded upon such a judgment or order may be amended to rectify the error

- - Re Aisha Zainab Mahmud [1999]1 MLJ 644


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iv) Notice should based on the terms of the final judgment or order and not by mutual agreement between the parties subsequently

- Datuk Mohd Sari v. Norwich Winterthur Insurance [1992] 2 MLJ 344 – estoppel will apply

v) Notice cannot be founded on 2 judgment or orders - Re Chen Chong Fatt Willy ; ex parte Hitachi Lease ( 1987 ) 1 MLJ 94

vi) Where the judgment against two or more persons and jointly liable ; BN against one debtor only is contrary to the judgment

See Yeo Ah Wang v UMBC ( 1995 )1 AMR 38


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vii) Notice founded on an allocatur is a valid notice- A Registrar Certificate as to costs issued pursuant to a court order

setting aside a judgment is neither a final judgment or final order.- But where a taxation is made pursuant to a final order, the allocatur

which bears the result of the taxation constitutes part of the final order and is able to support a bankruptcy proceeding.

See Khoo Kay Hoe v Chor Phaik Har and Another Appeal [2002] 1 CLJ 317

Nevertheless, if the allocatur is based on more than one judgment or order, it cannot be the basis of a bankruptcy notice. – Re Dr. R Ramachandran [2003] 5 MLJ 84

viii) Order for specific performance compelling the defendant to purchase the Plaintiff’s shares is not an order to pay a judgment debt.

See Re Eng Poh Hong, exp MBF Leasing Sdn Bhd [2008] 2 CLJ 108


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ix) Can a BN be founded based on a judgment for costs only?

Supreme Court in obiter in Low Mun v Chung Khiaw Banks Ltd [1988] 1 MLJ 263 , confirmed the provision as in S. 3(1)(i) BA which speaks of a “final judgment or final order”. Therefore a bankruptcy proceedings can be founded on a judgment or order for costs.

x) Whether judgment that includes interest based on BLR is a final judgment Tuan Haji Ahmed Abdul Rahman v Arab-Malaysian Finance

Bhd [1996] 1 MLJ 30- Such a judgment is a nullity as it depends on a

fluctuating rate which is subject to the absolute discretion of the plaintiff. Hence such a judgment cannot support a BN

b) Amount of interest due must be properly quantified in the notice


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Uncertainty or ambiguity would invalidate it. Amount merely quantifiable is not sufficienta JD need not inquire or do the calculation in order to get

the amount demanded Re Undoh bin Asai [1995] 4 MLJ 382 - when the interest is claimed up to a date

before the date of the issue, the BN is void .

Re Fawzia v. BBMB - words “… to the date of realization” is bad in law

because it creates uncertainty. It is not curable under S. 131 BA


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Low Mun v. Chung Kiaw Bank [1988] 1 MLJ 263

(Supreme Court)- Continuing interest is not recognized. Interest must be quantified and not merely quantifiable.

Ghazali bin Mat Noor v. Southern Bank Bhd [1989] 2 MLJ

142 (Supreme Court) - BN was bad even though the amount was quantifiable -Interest must be calculated up to the date of the issuance of the

BN except in the case of limitation. This means the solicitor have to make sure about the filling date and then can quantify the interest up to that day.

3) Irregularities


62S. 3(2)(ii) – A bankruptcy notice under this Act (ii)

shall not be invalidated by reason only that the sum specified in the notice as the amount due exceeds the amount actually due unless the debtor within the time allowed for payment gives notice to the creditor that he disputes the validity of the notice on the ground of such mistake; but if the debtor does not give such notice he shall be deemed to have complied with the bankruptcy notice, if within the time allowed he takes such steps as would have constituted compliance with the notice had the actual amount due been correctly specified therein.

- debtor must give notice within 7 days of the service of the BN. Where debtor failed to give any notice, the BN shall not be invalidated by reason that it exceeded the amount actually due.


63- Re Arunachalam, ex parte Indian Overseas Bank Ltf [1968] 1 MLJ 89- Sovereign General Insurance Sdn Bhd v Koh Tian Bee [1988] 1 MLJ 304- J Raju M Kerpaya v Commerce International Merchant Bankers Bhd [2000] 3

CLJ 104- Re Lin Ah Hee, exp Perwira Affin Bank Bhd [2000] 3 CLJ 354- Tan Ah Tong v Dato’ Seri Kuljit Singh [2003] 6 MLJ 39- Re KV Sathasivam, exp Phileo Allied Bank (M) Bhd (2004) 5 CLJ 549

- D & C Bank v. Datuk Ong Kien Seng (1995) 3 AMR 2063 , Federal Ct

- - where no such notice is given, the debtor is barred from challenging the BN on the ground of the excess.

- Excessive Demand:- SOO KOK LOONG V. HONG KONG & SHANGHAI BANKING CORPORATION

LTD - [2009] 6 CLJ 62 [2009] 1 LNS 583- ..\bankrutcy news\12_ct of appeal.docx

3) Examples of Irregularities


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i. No final judgment or order - Re Udos ak Riging [1994] 3 CLJ 377

ii. Demand not in accordance with the terms of judgment , example:

iii. Sum demanded is excessive, Demand an unspecified sum, terms of judgment has been modified by subsequent agreement, Demands for sum not provided in the judgment / order

iv. See J Raju M Kerpaya v. Commerce International Merchant Bankers Bhd [2000] 3 MLJ 177

v. 2 or more judgment combined - Chen Chong Fatt Willy [1987] 1 MLJ 94

vi. Creditor out of jurisdiction - Re Peter Wong 919570 MLJ 87vii. BN issued without authority - Re Nyana Pandithan [1994] 2

CLJ 448


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viii) Illegal ContractRe Sebastian [1990] 3 MLJ 248 - judgment based on illegal contract, adjudication order annuled.

ix) Bad Service - If service is bad, no AOB is committed.

x) JC claim interest more than 6 years from the date the interest became due

S. 6 (3) Limitation Act 1953 See Perwira Affin Bank v Lim Ah Hee (FC) [2004] 2 CLJ 787 Tan Ah Tong v Dato’ Seri Dr Kuljit Singh [2003] 6 MLJ 39 Re Ngan Ching Wen, ex parte Narodny Bank Ltd [1996] 2 CLJ

943 Moscow Narodny Bank Ltd v Ngan Ching Wen (FC) (2004) 2 CLJ

241

Irregularities that does not set aside BN


661) Miscalculation of amount owing

- UOB Bank v. Loke Lai Ying [2003] 4 AMR2) Omission of description of debt- MUI Bank Bhd v. Datuk Syek Kechik [1993]1 AMR 7573) Mis-description of judgment 4) Irregular or defective judgment- Court will not consider if the judgment is not appealed against. A

judgment stands valid until it is set aside.- -see Re Tioh Ngee Heng [2000] 6 MLJ 1555) Non-disclosure of petitioner’s address ;6) Non-disclosure of petitioner’s solicitors’ address ;- Note: S. 131 BABut see RE MOHD ZUHRI MOHD IDRIS; EX P BUMIPUTRA-

COMMERCE BANK BHD [2010] 1 CLJ 786 [2009] 1 LNS 554

..\bankrutcy news\4th case.docx

Prepared by Ooi Sheow Yean 67

Misstatement of date of commission of AOB Re Fadzil b. Othman ex parte Malayan Banking Bhd [1994] 2 MLJ 474 - fatal defect and cannot be cured under S. 131BA

But later cases, for example :

Re Arif bin Sionggong [1995] 3 MLJ 252- Not fatal and can be curable.

Prepared by Ooi Sheow Yean 68

Formal Defects

S. 131 BA Formal defects and irregularities in bankruptcy

proceedings shall not invalidate such proceedings unless the Court is of the opinion that these have caused substantial injustice which cannot be remedied by any order of the Court.

Demand for an excessive amount is not a defect that can be cured by S. 131 BA – Re Saloma Co (1963) MLJ 46

However, if JD fails to prove that the amount claimed is excessive on the hearing of the application, the application shall be dismissed with costs – Re Rengasamy Pillai [1968] 1 MLJ 103

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2014_bankruptcy law preliminary issues and bn amended

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