Bankrupt vs Debtor

● Bankrupt
○ You can only call a person bankruptcy when the court declares a person
bankrupt by making a bankruptcy order under the Bankruptcy Act.
○ Until and unless the court declares a person bankrupt, if you call them a
bankrupt, it amounts to defamation.
● Debtor:
○ In natural english: someone who owes money
○ Just because you owe money, doesn’t mean you are bankrupt.
○ A person’s liability exceeds his asset - debtor/insolvent. (not bankrupt)
○ The consequence of being a debtor, if the creditor takes out a bankruptcy
petition, then you can be declared a bankrupt.

Reasons for bankruptcy laws:

● To protect debtors from unreasonable financial pressure
● To safeguard the interest of the creditor
● To vest all property of the debtor to the DG of insolvency
○ So the DGI can liquidate the asset and distribute it to all creditors equally.
○ To investigate the state of affairs of the bankrupt.

Main governing act

● Insolvency Act 1967 (prev name Bankruptcy Act 1967)
○ Changes:
■ Amount to be declared bankrupt
■ Abolish AO and RO
● Bankruptcy proceedings are quasi-penal
○ The law of bankruptcy proceeding entails cleaner consequences to the debtor.
○ Declaring a person is serious, there are certain restrictions imposed on
bankrupts.
■ Cannot go out of the country
■ Cannot hold public office
■ Cannot run a business
■ Have to declare income if it exceeds certain amount.
○ Strict compliance with IA and IR is a must.
○ Failure to comply with the IA and IR, may result in:
■ the bankruptcy proceeding be declared null and void OR
■ the bankruptcy order dissatisfied.

Court of competent jurisdiction (to hear bankruptcy proceedings)

● Court of competent jurisdiction is the HC
● In practice, all BP are heard by SAR so that any decision from SAR, an appeal can
proceed to the HC judge in chambers. From HC, can appeal to COA. From COA, can
appeal to FC with leave.
Debtor
● For the purpose of AI & AR, a debtor refers to a judgement debtor - a person who owes
money to another under a court order or a judgement of the court.
● S 3(3) defines the word debtor - debtor means:
○ + S 5(1)(a) must have a debt of 50k

● Who can be declared bankrupt?

○ Foreigner
○ Members of parliament
○ Married women
○ Nutcase
■ Acts of bankruptcy reqs intention. Nutcase can’t form intention due to
unsoundness of mind. So the nutcase can’t commit acts of bankruptcy.
○ Company
■ Cannot because only a natural person can be declared a bankrupt.
Where a company is unable to pay its debt, it can only undergo winding
up proceeding.
○ Partnership
■ S 103 - can, but the bankruptcy order cannot be made under the name of
the firm, but under the individual names of the partners.

Creditor
● 3 categories
○ Ordinary creditor
■ Unsecured loan/debt - i.e. A sues B, has judgment of the court against B.
○ Secured creditor
■ In the case of charge - chargee
■ Bankruptcy proceeding does not affect the rights of secured creditor to
deal with his security. So the creditor can do whatever he likes with the
secured assets. So this property cannot be passed to DGI for distribution
to all the creditors.
○ Preferential creditor
■ Someone who has been given a priority.
■ The most common preferential creditor is LHDN (income tax)
● Given preferential for one year.
■ S 43 - priority of debts

In order to declared a person bankrupt, the person must commit an act of bankruptcy.
● S 3(1) - read all the types of acts of bankruptcy but CONCENTRATE ON S 3(1)(i) for
practical and exam purposes.

Office of DGI
● In the insolvency department, it’s headed by DGI.
 ● Main function of DGI is basically to receive assets of debtor and to distribute debts in
pari pasu to all the creditors.
● S 71 - 87 (READ)

You can also declare yourself a bankrupt

● S 3(1)(f) Filing by the debtor of a declaration of his inability to pay his debt or
presentation of debtor’s petition in court
● This is actually a strategic move. You cannot sue a bankrupt.

BO is to:
● Declare a person bankrupt
● Designate assets of debtor and to distribute debts in pari pasu to all the creditors

S 3(1)(i)
● The creditor has obtained final judgment or final order;
○ A final judgement: a judgement which has been pronounced on the merits, where
the issue of liability and damages has been fully heard.
○ Default judgement: a judgement which is not based on merits, e.g. jid.
■ O32r14 - 30 days to set aside jid
■ If jid isn't set aside within 30 days, it becomes a final judgement.
○ Summary judgement: a judgement which has been pronounced on the merits.
● Until and unless a stay of execution is granted, the judgement is still valid and
enforceable.
● A notice must be served on the debtor.
● Must calculate the principal sum, together w interest up until the date of issuance of BN.
● After service of BN, the judgement debtor has 14 days to comply w the BN. If he does
not comply,
● Bankruptcy notice can also be served after 50k
● Bankruptcy order.

READ
● S 3(3)
● S 3(1)(i)

PRESENTATION:
● Topic: Secured creditor
● 3 people
● 15 minutes