(???

) I would advise the Director General Insolvency to administer and distribute Fahrin’s
property accordingly under the Insolvency Act 1967, henceforth be referred to as Act 360. There are
several sub-issues in Fahrin’s situation.

In order for the Director General of Insolvency to administer a bankrupt’s properties he must first
determine which property would pass and which would not pass to the DGI.

Section 47(1) explains the principle of relation back of Director General of Insolvency’s title; The
bankruptcy of a debtor, whether the same takes place on the debtor’s own petition or upon that of a
creditor, shall be deemed to have relation back to and commence at the time of the act of bankruptcy
being committed on which a bankruptcy order is made against him, or if the bankrupt is proved to have
committed more acts of bankruptcy than one to have relation back to and to commence at the time of the
first of the acts of bankruptcy proved to have been committed by the bankrupt within six months next
preceding the date of the presentation of the bankruptcy petition.

Principle of relation back deems the bankruptcy to have commenced at the time of an act of
bankruptcy being committed upon which a bankruptcy order has been made. If the principle of relation
back applies, the property will pass to the Director General of Insolvency to be administered. This
principle is best illustrated in Re Khor Bak Kee 1. In this case it was held that the bankruptcy deemed to
have related back to and commenced at the time of the fraudulent conveyance takes place. In this case, the
debtor sold his interest in a land to his wife for $100,000 four months prior he was adjudicated bankrupt.
Two months after he was adjudicated bankrupt, the wife then sold it to a third party for $240,000. The
land was originally purchased 20 years before that for $420,000. This proved that there was a fraudulent
conveyance made by the debtor. Under Section 3(1)(b) 2, a person is deemed to have committed an act of
bankruptcy when he makes a fraudulent conveyance of his property.

We can see here the principle of relation back applies. On the day the debtor transferred his
interest on the land to his wife, he was yet to be adjudicated a bankrupt. However when the principle of
relation back applies, the bankruptcy was related back to the date he committed the act of bankruptcy.
Therefore the transfer was in the first place void, and that the wife has no title at all over that land to sell
it to the third party. Thus, the land was deemed to still be the debtor’s and the land must pass to the
Official Assignee (now the Director General of Insolvency) to be administered.

Section 523 deals with the avoidance of voluntary settlement. Section 52(1) explains that any
property belonging to the bankrupt that has been conveyed to a third party within two years shall remain
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[1996] MLJ 6
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Act 360
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the bankrupt’s and be absolutely void against the Director General of Insolvency, and for properties
conveyed within five years be void against the Director General of Insolvency provided the bankrupt
could prove that he was able to settle his debt without the aid of the properties he conveyed. However,
this provision also provides some exceptions to this general rule. The exceptions are, if the bankrupt made
the conveyance in consideration for marriage, if the conveyance is made in good faith and for valuable
consideration and if the conveyance is made on or for the wife or children which was accrued after the
marriage in right of his wife, then the property is not void against the Director General of Insolvency and
thus do not pass.

This provision must be also read together with Section 54 of Act 360, in which it protects bona
fide transactions without notice. Basically this provision aims to protect the rights of the innocent third
party whom the property was conveyed to provided that the third party fulfills the conditions set out. Any
payment, conveyance or transactions made by the bankrupt for valuable consideration is a bona fide
transactions if the conveyance takes place before the bankruptcy order was made against the bankrupt,
and the third party receiving has no notice of any act of bankruptcy committed by the bankrupt at the time
of the dealing.

In Fahrin’s situation, he transferred shares worth RM300, 000 to his sister Linda for RM150, 000
on September 2, 2017. On August 13 2018 he was adjudicated bankrupt. Thus, the transfer was made 11
months before he was adjudicated a bankrupt.

The second sub issue is whether the gift made by Fahrin to his daughter void against the Director
General of Insolvency?

We have discussed Section 524 which deals with the avoidance of voluntary settlement and the
exceptions attached to it. Section 52(1) explains that any property belonging to the bankrupt that has been
conveyed to a third party within two years shall remain the bankrupt’s and be absolutely void against the
Director General of Insolvency, and for properties conveyed within five years be void against the Director
General of Insolvency provided the bankrupt could prove that he was able to settle his debt without the
aid of the properties he conveyed. The exceptions provided under this provision are if bankrupt made the
conveyance in consideration for marriage, if the conveyance is made in good faith and for valuable
consideration and if the conveyance is made on or for the wife or children which was accrued after the
marriage in right of his wife, then the property is not void against the Director General of Insolvency and
thus do not pass.

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Act 360

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 For the first exception, basically, any transfer of the bankrupt’s property to a person within five
years before he is made a bankrupt is not void if the transfer was made before marriage and in
consideration of the marriage. The marriage could either be his own or his children. In other words, if the
transfer of the property was done in consideration for marriage, whether his or his children’s, the transfer
is valid and not void against the Director General of Insolvency and thus do not pass.

However, if it can be proven that the transfer is made to defeat the creditors, then the property
transferred is not void against the Director General of Insolvency. In this case of Fahrin, he made the gift
of his holiday house to his daughter Nana. The transfer was made in consideration for her marriage.
Under….

The third sub issue is whether the DGI can disclaim the tenancy? Section 59(1) deals with
disclaiming of tenancy. It states that….

Basically, the Director General of Insolvency has the rights to disclaim with notice in writing any
property of the bankrupt which consists of land of any tenure burdened with onerous covenants or stocks,
or of shares, unprofitable contracts or any unsaleable property. If the DG do not disclaim the tenancy, the
bankrupt’s commitment passes on to the DG. This is because when a person is adjudicated a bankrupt, all
his properties pass to the DG to be administered and to settle all his debt. This includes tenancies by the
bankrupt. When the DG has disclaimed the tenancy, the right of possession of the premises are no longer
vested in the bankrupt, but passes to the landlord. Failure of the bankrupt to vacate the premises renders
him to be trespassing the premises.

This can be best illustrated in Re Karuppiah 5, whereby the bankrupt was held to be trespassing the
premises upon the bankruptcy order. In this case, before Karuppiah became a bankrupt, he was in
occupation of the premises by virtue of the existence of a contract of tenancy between him and the
landlord. On his bankruptcy, his rights under the contract passed to the Official Assignee and no interest
under the contract remained vested in him. So long as the OA was the tenant and allowed the bankrupt to
remain on the premises, the bankrupt was entitled to do so as his licensee. When the OA disclaimed tht
tenancy, the right of possession passed to the landlord whereupon the bankrupt’s right to remain on his
premises came to an end and he became a trespasser.

Section 59(8) provides that any person affected by the disclaimer made by the DG is deemed to
be a creditor of the bankrupt and may prove the same as a debt under bankruptcy. (elaborate)

Section 59(3) provides the DG shall disclaim any bankrupt’s property with the leave of the court,
unless in any cases prescribed, or when all persons interested in the property has consented to such
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[1962] MLJ 389

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disclaimer. In section 54 states that an application in writing may be made by anyone interested in the
property to require the DG to decide whether to disclaim the property or not. Upon the application, should
the DG fail to give notice of intention within 28 days, the DG can no longer disclaim the property. As
discussed before, DG shall disclaim a bankrupt’s property with the leave of the court.

However it must be read together with rule 262 of the Rules of Insolvency, that the disclaimer
may still be made without the leave of the court in such cases where; the maximum recoverable rent on
the property is less than RM4,800 per annum, the estate is administered summarily under Section 106 and
if the DG serves the lessor with notice of the intention to disclaim and lessor does not within 7 days after
receipt give notice to DG requiring the matter to be brought to court.

Upon disclaimer on the said property, the rights, interests and liabilities of the bankrupt and his
property in or in respect of the property is terminated. This is provided in Section 59(2) of Act 360. Upon
completion of disclaiming of the bankrupt’s property, all rights of the bankrupt over the property is
terminated and the DG is discharged from all personal liability in respect of the property disclaimed as
from the date when the property vested in him.

In application to Fahrin’s situation,