TUTORIAL 2

QUESTION 1

Ms. Nanas, a member of Parliament for Petaling obtained a housing loan for RM300,000
from Bank Kaya Bhd, for the purchase of a condominium. However, Ms. Nanas was not able
to pay
the loan instalments amounting to RM200,000. Bank Kaya Bhd. commenced a civil suit and
obtained Judgment in Default against Ms.Nanas for the amount of RM200,000 with interest
at 5% per annum from the date of judgment to full and final realisation. Ms. Nans failed to set
aside the Judgment in Default.
On 4.3.2020, Bank Kaya write to you seeking your advice on whether they can issue a
Bankruptcy Notice to Ms. Nanas based on the Judgment in default obtained on 1.3.2013.
(i) Advise Bank Kaya Bhd. whether a Bankruptcy Notice can be issued against Ms. Nanas
(ii) How will the interest be calculated for the purpose of the Bankruptcy Notice?
(iii) What is the procedure to issue a Bankruptcy Notice?
(iv) Can substituted service be affected by electronic methods?
(v) What will be your advice to Bank Kaya if the total judgment sum against Ms. Nans is
only RM85,000?

ANSWER

Issue
Whether Bank Kaya Bhd can issued a bankruptcy notice against Ms.Nanas?

Law
According to Section 5(1)(a) of Insolvency Act 1967(hereinafter IA1967), it is stated that
the amount claimed in the bankruptcy notice must not be less than RM 100,000 with interest
quantified up to date of issue of bankruptcy notice.

Next, in refer to Form 34 Rule 89 of Insolvency Rule 2017 (Hereinafter IR 2017) it stated
that bankruptcy notice is issued by the Court and served by the Creditor who has obtained
final judgment against the debtor.

Following with Section 3(1)(i) of IA 1967, a debtor is said to commit an act of bankruptcy if
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 in Malaysia.

Next, a bankruptcy notice can only be issued on a debtor against whom a final judgment has
been obtained or order of a court designated under the Subordinate Courts Act 1948 (Act
92) or the Court of Judicature Act 1964 (Act 91) against the debtor.

In the case of Re Udos ak Rigging exp Seabanc Kredit S/B, the court held that a judgement
in default is not a final judgement unless the application to set aside the default judgement
has not been made within the period of 30 days. In addition, the case of Re Sashidaran a/l K
V Nair, stated that a debtor who unsuccessfully set aside a judgement in default would let
such default judgement to become a final judgement.

Next, in the case of Dr. Shamsul Bahar Abdul Kadir & Another Appeal v. RHB Bank
Bhd, the court held that a judgment creditor who commences bankruptcy proceedings after
more than six years had lapsed from the date of judgment must obtain the prior leave of the
court pursuant to O.46 r. 2 of ROC 2012

Next, Section 36(1)(b) of IA 1967 stated that once the debtor has been declared bankrupt by
the court. He will be disqualified to be nominated or elected to or holding or exercising the
office of Councillor of a local authority.

Application
In the application, a bankruptcy notice can be issued against Ms. Nanas as she is not able to
pay the loan amount which is up to Rm 200,000 with the interest of 5% per annum that has
satisfy the threshold prescribe under S.5(1)(a) of IA 1967.

Next, a bankruptcy notice can only be issued on a debtor against whom a final judgement has
been obtained as under Form 34 Rule 89 of Insolvency Rule 2017 and Section 3(1)(i) of IA
1967. Next applying the case of Re Udos and Re Sashidaran, the Judgement in default
obtained by Bank Kaya bhd is not a final judgement but as Ms Nanas failed to set aside the
default judgement within 30days, thus it rendered such judgement become a final judgement.

And since Bank Kaya Bhd wants to commence a bankruptcy proceeding against Ms Nanas
after the judgement has been lapsed over the period of 6years. Thus, Bank Kaya Bhd must
obtain the prior leave of court as stated in the case of Dr. Shamsul Bahar

Finally, if Ms Nanas been declared as bankrupt by the court. She shall be disqualified to hold
his office as a member of parliament under Section 36(1)(b) of IA 1967.

Conclusion
Bank Kaya Bhd can issued a bankruptcy notice against Ms.Nanas

Issues
How will the interest be calculated for the purpose of the Bankruptcy Notice?

Law
In Ghazali Mat Noor v Southern Bank Ltd, the court held that a bankruptcy notice should
not be issued on a continuous interest. It should also not be a mere reproduction of the
judgment. Interest should be calculated up to date of issue of Bankruptcy Notice.

In another case of Re Ismail b Daud and Haja Qameriah, it is given that interest cannot be
stated to be ‘continuing’ and left unquantified. This would render the notice uncertain and
invalidate it.

And according to Section 6(3) of Limitation Act 1953, an action given by any judgement
obtain shall not be enforce after the expiration of twelve years from the date the judgement is
enforceable and no arrears of interest in any judgement debt shall be recovered after the
expiration of six years from the date on the interest set in. It can be seen in the case of
UMBC v Ernest Cheong Yong Yin where the court held that interest claimed cannot exceed
6 years.

Application
In the application, the interest shall be calculated up to the date of issuance of bankruptcy
notice. The interest calculated must include the principal sum that has to be paid by Ms
Nanas to Bank Kaya Bhd.

However, applying Section 6(3) of Limitation Act 1953 and UMBC cases, the claim of
interest has been limited to up to 6 years from the date of judgement. Hence, Bank Kaya Bhd
can only claimed the interest up to the date of 1.3.2019.

Conclusion
The interest claimed shall be calculated up to the period of 6 years which is on the date of
1.3.2019.

Issues
What is the procedure to issue a bankruptcy notice?

Steps
First, a bankruptcy notice is only valid for 3 months from the date of issues. Next, the creditor
shall ensure that the bankruptcy notice is personally served on the debtor or by way of
substitute service. Third, upon service of the bankruptcy notice, the debtor shall has 7 days to
respond to the bankruptcy notice, failing which he or she would have committed an act of
bankruptcy.

In the event a creditor is unable to serve the bankruptcy notice personally on the debtor, he
would then at liberty to file a summon in chambers and seek for an order for substituted
service of the bankruptcy notice to dispense with the need for personal service.

Next, upon the expiry of the 7-days period to respond to the bankruptcy notice and in the
absence of opposition or setting aside, the creditor is at liberty to file the creditor’s petition
against the debtor. And every petition must be verified by an affidavit verifying the contents
of the petition to be affirmed by either the creditor or someone on the creditor’s behalf who
has knowledge of the facts.

After the compliance with all the above. The court will then fix a date for the hearing of the
petition. At the hearing, the court may require proof of debt owing to the creditor, the
existence of the act of bankruptcy, and that petition was properly served on the debtor.

Finally, if the creditor’s petition is allowed at the hearing. The court will issue a bankruptcy
order and the debtor will be declared bankrupt.

Issues
Can substituted service be affected by electronic methods?

Law
According to Rule 95 of IR 2017, a bankruptcy notice shall be served and the service of the
bankruptcy notice shall be proved in the manner specified in these rules which prescribed for
the service of a creditor’s petition.

Next, Rule 108 of IR 2017 stated that a creditor’s petition shall be personally served and the
service shall be affected by an officer of the court or by the creditor or his solicitor or a
person in their employment by delivering a sealed copy of the petition to the debtor.

Order.62 rule 5(1) of the Rules of Court 2012(hereinafter ROC 2012) stated that the court
may order a substituted service if personal service is not possible.

Rule 109(1) of IR 2017 stated that if the court is satisfied by an affidavit or other evidence on
oath that prompt personal service cannot be affected under rule 108, the court may order a
substituted service to be effected as follows (a) by advertising the petition in one local paper,
(b) by placing the petition on the notice board of the court premises; and (c) any other means
that the court think fit and just to bring the petition to the notice of the person to be served.

Order 62 Rule 6(1)(cc) of ROC 2012 is amended that a document served by means of
electronic communication is allowed due to the pandemic.
Application
In the application, by virtue of Rule 109(1) of IR 2017 and Order 62 Rule 6(1)(cc) of ROC
2012, the service by electronic methods shall be valid as long as the court is satisfying that
creditor is unable to serve the bankruptcy notice personally on the debtor.

Conclusion
A substituted service can be affected by electronic methods

Issues
What will be your advice to Bank Kaya if the total judgment sum against Ms. Nans is only
RM85,000?

Law
According to Insolvency (Amendment) Act 2020 & The Temporary Measures for
Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020, the threshold to
present bankruptcy petition raised to RM100,000 which takes effect on 18 March2020.

Therefore, before 18 March 2020 the threshold to present bankruptcy petition was Rm50,000.

Application
Thus, since the bankruptcy notice was issued on 4th March 2020. Bank Kaya Bhd can still
issue the bankruptcy notice against Ms Nanas.

Conclusion
Bank Kaya can still present his bankruptcy petition against Ms Nanas.