RECURRING ISSUES
IN BANKRUPTCY
LAW
HISTORY OF BANKRUPTCY ACT 1967
1. The Bankruptcy Act 1967 is a derivative
of two old English statutes, each bearing
the same name:
a. The Bankruptcy Act 1883; and
b. The Bankruptcy Act 1912.
FLOW OF BANKRUPTCY PROCEEDINGS
DISTINCTION BETWEEN AO & RO
1
Receiving Order - A receiving order is made first; this is an order of the
court requiring the DGI to take possession and control of a
person’s properties.
2
Adjudication Order - If the court is satisfied that a person
cannot pay his debts, it will allow the DGI to distribute his properties
amongst his creditors.
3
Relevant sections:
Section 8 - Effect of receiving order.
(1)
On the making of a receiving order the Director General of Insolvency shall be thereby constituted
receiver of the property of the debtor, and thereafter, except as directed by this Act, no creditor to
whom the debtor is indebted in respect of any debt provable in bankruptcy shall have any remedy
against the property or person of the debtor in respect of the debt, or shall proceed with or
commence any action or other legal proceeding in respect of such debt unless with the leave of the
court and on such terms as the court may impose.
Section 24 - Adjudication of bankruptcy
(4) When a debtor is adjudged bankrupt his property shall become divisible among his creditors and
shall
vest in the Director General of Insolvency.
FATAL DEFECTS
1. In Judgments
1. In Bankruptcy Notices
2. In Bankruptcy Petitions
Fatal Defects in Judgments
• See Sovereign General Insurance Sdn Bhd v
Koh Tian Bee [1988] 1 CLJ 277
An irregularity or formal defect in the
judgment is no sufficient reason for going
behind it. (Re Beauchamp). As a general
principle, the validity of the judgment debt will
only be inquired into when there is evidence of
fraud or collusion or miscarriage of justice:
(Re Flatau, Re Howell).
Fatal Defects in the BN – BR 94
• Every bankruptcy notice shall be endorsed with(a) the name and place of business of the solicitor who is
suing out the notice, or if no solicitor is employed, with a
memorandum that it is sued out by the creditor in person;
(aa) the name and National Registration Identity Card
number of the debtor;
(b) an intimation to the debtor that if he has any counterclaim, set off or cross demand which equals or exceeds the
amount of the judgment debt, and which he could not have set
up in the action in which the judgment or order was obtained, he
must within the time specified in the notice file an affidavit to that
effect with the Registrar.
(2) In the case of a notice served in the Federation the time
shall be seven days. In the case of a notice served elsewhere
the Registrar when issuing the notice shall fix the time.
Fatal Defects in the CP – BR 99
• (1) Every petition shall be dated, signed
and witnessed.
• (2) The creditor or debtor shall lodge with
the Registrar sufficient number of copies
of the petition to be sealed and issued for
service.
• (3) The creditor or debtor shall transmit a
sealed copy of the petition to the Official
Assignee by post or otherwise.
PROBLEMS WITH THE NATIONAL LAND
CODE
1. Can a secured creditor go after his secured property despite the
making of the R.O?
a.
No: See operation of s 8(2A) [Amended and w.e.f. 17.7.1992)
and OCBC Bank (Malaysia) Bhd v. Tan Eng Kwee [2003] 3
CLJ 161 per Low Hop Bing J
a. Yes: Pre-s8(2A) position, by reason of the presence of s 8(2)
which is known as the ‘express reservation of all rights
clause’:
(See dicta in White v Simmons LR 6 Ch 555 at 558 per Lord
Hartherly LC, commenting on the s 12 of the UK Bankruptcy
Act 1869; Chinese Tin Mines Rehabilitation Loans Board
[1957) 23 MLJ 65Re Ng Say Tee [1954] MLJ 17; Lee Sang
Loong Sawmill [1980] 2 MLJ 118, and Malayan Banking
Berhad v The Official Assignee (Velu Marimithu) [1993] 2
AMR 3400 [Oct 18, 1993]
These no longer good law. Why? What is the correct
position?
Cont…
1.
The vesting of the bankrupt’s property on the DGI, under s 24(4) is not absolute —
Where it involves land, s 24(4) is subject to the operation of s 349, National Land Code
1.
The relevant portions of s24 read as follows:
1.
24. Adjudication of bankruptcy
(1) At the time of making a receiving order the court shall adjudge the debtor
bankrupt unless the debtor can show to the satisfaction of the court that he is
in a position to offer a composition or make a scheme of arrangement
satisfactory to his creditors; provided that when a receiving order is made
against a firm in the firm's name the court shall not adjudge any person bankrupt
as a member of the firm unless such person is proved to the satisfaction of the
court to be a partner by his own admission or by evidence on oath.
…
(4) When a debtor is adjudged bankrupt his property shall become
divisible among his creditors and shall vest in the Director General of
Insolvency.
The relevant portions of s 349, National Land Code, read as follows:
PART TWENTY-TWO ; TRANSMISSION ON DEATH AND BANKRUPTCY
349. Registration of Official Assignee.
…
(3) No land, share or interest shall vest in the Official Assignee under any
adjudication of bankruptcy, or order for administration in bankruptcy, until it
has become registered in his name pursuant to this section.
Effect of the triumvirate Federal Court cases
Issue: Conflict between Sec 6(3) Limitation Act
1953 and the triumvirate FC cases.
1. United Malayan Banking Corporation Bhd V.
Ernest Cheong Yong Yin [2002] 2 CLJ 413
1. Perwira Affin Bank Bhd v Lim Ah Hee [2004] 2
CLJ 787
1. Moscow Narody Bank Ltd v Ngan Ching Wen
[2004] 2 CLJ 241
1.
The relevant words of section 6 (3), and which have given so much trouble to so many judges
over the years, are that ‘and no arrears of interest in respect of any judgment that shall be
recovered after the expiration of 6 years from the date on which the interest became due.’
2.
The catch phrase ‘arrears of interest’ in sec 6(3) ought to be read as ‘pre-judgment’ interest.
a. The Federal Court cases cited above do not pay sufficient attention to the following
words:
i.
‘no arrears of interest’,
ii.
‘in respect of any judgment’, and
iii.
‘expiration of 6 years from the date on which the interest became due’.
b. The Federal Court cases are distinguishable and dealt with future interest and not
past interest.
i.
The two catch phrases of “arrears” and “from the date interest became due”
speak of past interest.
ii.
This was not properly considered in the three Federal Court cases.
iii.
to that extent, any decision by the Federal Court on the interpretation of section
6(3) are therefore per incuriam.
The questions posed to the Federal Court
Conflict in the 3 decisions - ratio of the case
•
Question posed and ratio of case is on post judgment interest
IS SANCTION UNDER SECTION 38(1)(a) OF THE
BANKRUPCTCY ACT 1967 REQUIRED?
Section 38. Consequences of refusal of discharge
(1) Where a bankrupt has not obtained his discharge—
(a) the bankrupt shall be incompetent to maintain any action (other than
an action for damages in respect of an injury to his person) without the
previous sanction of the Director General of Insolvency;
Is a bankrupt required to obtain the DGI’s sanction to challenge the
bankruptcy?
1. The key words in Sec. 38 (1)(a) are
‘maintain’ and ‘action’
2. The proper meaning of the word ‘property’ in
the Act does not include the right of appeal
of the bankrupt against the order making
him a bankrupt, nor the right to set aside the
order
RE KHOO KIM HOCK
1.
Issue: whether a bankrupt could apply for annulment of the
adjudication order without sanction from the O.A.
2.
Mohamed Azmi J held as follows:
The exception contained within brackets in section 38(1)(a) clearly indicates that the
section is intended to apply only to actions for recovery of something—either real or
personal—which can be turned into assets such as a claim for recovery of property or
money due.
He went on to conclude at page --- that:… section 38(1)(a) does not apply to an application under sections 92(1) and 105(1)
of the Bankruptcy Act, where a bankrupt is seeking the court's discretion to review,
rescind or vary any order made by it, and as such no previous sanction of the Official
Assignee is necessary in the present case.
HO KEN SENG V PROGRESSIVE INSURANCE SDN
BHD
1.
Issue: Whether a bankrupt who has not obtained the
previous sanction of the DG of Insolvency is competent to
maintain the appeal
1.
The Judgment Creditor raised a preliminary objection under
s. 38 of the Bankruptcy Act
1.
The Court of Appeal agreed with the JC and held that a
bankrupt must obtain sanction from the DGI in order to
challenge the bankruptcy
2.
The Federal Court unanimously allowed the JD’s appeal – it
held that the right to appeal is not property, so the JD does
not need sanction from the DGI to challenge the bankruptcy.
Re Khoo was correctly decided.