REMEDIES (BANKRUPTCY & WINDING UP)

(LAW 549)

FINAL ASSESSMENT

NAME : ABDUL RAHIM BIN MAT YASSIM

STUDENT ID: 2006656070

GROUP : LWH01A

DATE : 27th JULY 2020

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QUESTION 1

On 1st October 2019, Seri Murni Sdn Bhd obtained a judgment in default against
Rahman in the Sessions Court for the amount of RM200,000 with interest at 8% per
annum from the date of judgment to the date of realization and cost in the amount of
RM10,000.

On 4th December 2019, Seri Murni Sdn Bhd issued a bankruptcy notice against
Rahman. The bankruptcy notice demanded RM275,000 with interest at 12% per annum
from date of judgment and cost in the amount of RM15,000. The bankruptcy notice was
served personally on Rahman’s wife, Jelita on 1st May 2020. Rahman also has a
counterclaim amounting to RM200,000 against Seri Murni Sdn Bhd. Rahman failed to
comply with the Bankruptcy Notice within the specified period.

On 9th July 2020, Seri Murni Sdn Bhd filed and served a creditors petition together with
affidavit of truth of petition on Rahman. The creditors petition was dated 9th July 2020
while the affidavit was affirmed on 7th July 2020.

Advise Rahman on the grounds upon which the bankruptcy notice and creditor’s
petition may be challenged.

(10 marks)

QUESTION 2

Distinguish between Compulsory Winding Up and Voluntary Winding Up.

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Question 1
Rahman to be advised whether he has any ground to set aside the Bankruptcy Notice and
opposed the Creditor’s Petition served by Sri Murni Sdn. Bhd. on the following grounds and
procedure to set aside Bankruptcy Notice and Creditor Petition.

1. Where Rahman has a counter-claimed pursuant to section 3(1)(i) of the Insolvency Act
1967; this section emphasizes that the land must be equal to or exceed the amount claimed
and that no action in which judgment has been obtained can be taken. On the fact that
Rahman had a counter-claimed in the default judgment claimed RM200,000 which is equal
to the value of RM200,000.

2. In the case of Re Bankruptcy Notice (1934) c.431; Re A Debtor (1914) 3 KB 726 held that
if the debtor had one or more of the above, he showed:
a. that the amount claim was equal or exceeded;
b. that it could not be identified in the case in which the judgment was obtained;
c. that the essence of the claim had to be specified in the affidavit and that it had to be
quantified and put in good faith and has a reasonable prospect of success.
Applying to the case, Rahman failed to file within seven days, but section 3(1)(i) of the
Insolvency Act 1967 provided that if he fails to comply seven days unless he satisfies the court
that he has a counterclaim equal to the sum set out in Judgment Debt. Rahman should file an
affidavit of the procedure to set aside claims that he has such an argument equal to that of Sri
Murni (Rule 95 BR 1969). The duration of time needed to file an affidavit is 7 days.
Accordingly, Rahman should have objected at the Bankruptcy Notice stage and not at Creditor
Petition by submitting an affidavit-supported summons in chambers under rule 18 BR 1969.

In MBB v Datuk Lim Kheng Khim (SC) where the debtor denying and challenges the amount
owed, he may request that summons be set aside in chambers backed by an affidavit as provided
by Rule 18 BR 1969 and not by an affidavit under Rule 95 BR 1969. The application may be
sent within 7 days or afterwards. Since the counter-claim is similar to what Sri Murni Sdn Bhd
says, there is a cause to object.

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3. A surplus sum in Bankruptcy Notice - the Creditor Judgment is required to strictly comply
with the terms of order or Judgment. About the sum claimed as RM275,000 instead of
RM200,000, section 3(2)(ii) the Insolvency Act 1967 would be the sum claimed as resorting.
Must object Creditor Petition stage as in Dato Hj. Muhammad Bin Hamzah v Public
Bank; Re Arunachalam; and D&C Bank v Datuk Ong Kian Seng at the Bankruptcy
Notice stage. As far as the case is concerned, Rahman did not do so at Bankruptcy Notice
stage and therefore this question cannot at this point be a basis for opposition to the Creditor
Petition .

4. Non quantified interest - from the date of judgment, the Bankruptcy Notice notifies 12 per
cent per annum and costs the sum of RM15,000. Section 3(1)(i) the Insolvency Act 1967
includes quantification of the interest before Bankruptcy Notice’s issue date. The Supreme
Court held that such Bankruptcy Notice is bad in Ghazali Mat Noor and in Fauzia Osman
case. The judgment creditor should estimate the interest, and not to determine the amount for
the judgment debtor. Bankruptcy Notice's demand must be absolute and reasonable and the
decision must know at once how much it has to pay because it has very little time to comply
with the Bankruptcy Notice. At Bankruptcy Notice point Rahman will oppose it.

a. Irregularity of Bankruptcy Notice regarding service and validity of Bankruptcy Notice -

The irregularity of service that Sri Murni served the Bankruptcy Notice to Rahman 's
wife Jelita. BR 1969 Rule 97, 109 and Rule 111 stipulated that Bankruptcy Notice must
be personally served to Rahman and must be proved by an affidavit. Sri Murni may apply
for substituted service in compliance with Rule 110 BR 1969, for substitute service to
succeed the court must be satisfied that personal service is unlikely as Rahman can evade
or the substitute service method sought is successful in informing Rahman and Sri Murni
has not complied with the procedure Note 1/68. In this case, the service is bad and will be
ground to set Bankruptcy Notice aside and also ground against the petition to challenge
or show cause.
b. The validity of the Bankruptcy Notice issued on 4th December 2019 and served on 1st
May 2020 is against the rule 96 BR 1969 that stipulated the duration of the Bankruptcy
Notice is three months from the date of issue. If Sri Murni wants to extend the validity

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 period Sri Murni may apply to the court but this was not done and the Bankruptcy Notice
has been expired when it served. It is to be noted that this kind of irregularity is serious
according to the section 6 the Insolvency Act 1967 and rule 106 of BR 1969, and it is the
ground to challenge of Bankruptcy Notice and Creditor’s Petition stage as well.

On the irregularity of Bankruptcy Notice is the ground other than the counterclaim, that
proceed under rule 18 BR 1969, Rahman shall apply by way of Summon in Chamber
supported by Affidavit in Datuk Lim Kheng Kim v MBB . This application can be done in
the stage of Bankruptcy Notice.

5. That the summary judgment obtained is not final. According to the section 3(1)(i) of the
Insolvency Act 1967 provides that a definitive judgment or order has to be obtained by the
creditor. A final judgment or order is one which eventually disposed of the parties' rights and
this shall include a judgment in default not set aside and a summary judgment not set aside or
appealed against as in Re Udos Ak Rigging was held JID is not a final judgment as JD has
applied to set it aside. If JD has not applied to set it aside within the time period, then the JD
would crystalise into a final judgment. Meanwhile in Michale Kho Miang How court held
that filing of an appeal renders the lower court’s judgment as not final.

Sri Murni secured summary judgment against Rahman on the facts he did not file an appeal.
The summary judgment thus constitutes a final judgment within the context of Section 3(1)
(i) the Insolvency Act 1967. Hence Rahman cannot challenge the Creditor’s Petition.

6. The next question is whether the completion of the Creditor’s Petition on 9 July 2020 will be
the basis for disputing the petition.
a. The Creditor’s Petition must be presented within 6 months after the act of bankruptcy
pursuant to section 5 the Insolvency Act 1967.
b. On the facts, the act of bankruptcy was committed on 12th May 2020 after 7 working day
from 1st May 2020 the Creditor’s Petition was served 9th July 2020.
c. Since the Creditor’s Petition was served with 6 months, Rahman has no ground to
challenge the issue in Creditor’s Petition stage.

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7. If the Affidavit of Truth of Petition issued on 7 July 2020 before the presentation of the
Creditor’s Petition on 9 July 2020 could be rooted in opposition to or challenge Rahman's
Petition.
a. In Sobri Arshad v Associated Tractor Sdn Bhd that affidavit to verify creditor’s
petition was affirmed 1 day before the presentation of the petition, held the petition is
nullified and cannot be cured by section 131 the Insolvency Act 1967.
b. In Koh Kim Kuang v MBF Finance Bhd, the petition was confirmed by affidavit that
had been affirmed before the petition was filed. Court held that section 6(1) BA 1967 and
Rule 106 BR 1969 stipulate that the petition of a creditor shall be confirmed by affidavit,
but shall not prescribe the time for confirmation of the affidavit. The petition lodged here
is valid.
In conclusion, the decision in Koh Kim Kuang v MBF Finance Bhd is followed, then the
petition is valid and Rahman cannot oppose the Creditor’s Petition.

Finally, Rahman to be explained the procedure for showing cause against the petition according
to Rule 117 BR 1969 when a debtor wants to show cause by filing a notice in Form 16 with the
Registrar stating the claims in the petition that he wish to deny or challenge and send a copy of
the notice to the petitioner (Creditor and his solicitor) 3 days before the petition hearing. The
notice to be supported by affidavit, however, an affidavit in opposition is held not a notice under
rule 117 which is mandatory and is not curable under section 131 the Insolvency Act 1967.

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Question 2
Distinguish Voluntary Winding Up and Compulsory Winding Up
Two way of company winding up according to section 432 (1) of the Company Act 2016, the
winding up by order of the court i.e. compulsory winding up and voluntary winding up. Section
432(2) further explains that there are two forms of voluntary winding up which are member’s
winding up and creditor’s winding up. There are several differences between voluntary winding
up and creditor winding up.

No. Voluntary Winding Up Compulsory Winding Up

1. Mode of Initiating the Winding-Up Process
According to section 439, it is decided According to section 432(1)(b), it is initiated
by the company itself (directors and by presenting a petition to wind up to the
shareholders) can decide to wind up court by the person who is entitled to do so
the company by a special resolution. pursuant to section 464(1) of the Company
It should also be noted that the Act) – Re William Hockey, a person who is
creditors can not initiate creditor's owed a debt which is unpaid by the company
voluntary winding up despite its name. on the date of application is a creditor, hence,
can file a petition.

2. How the Proceedings Come About and the Ground

As mentioned under section 439 of The circumstances under which a court may
the Company Act 2016, a company order for a company to be wound up are set
may be wound up voluntarily when out in section 465, from para a to para l.
the company passed a resolution in The relevant ground to discuss in light of the
general meeting. present situation is paragraph e, which is
This is a solvent method of winding up when the company is unable to pay its debt.
where the company must be very well In a simple word, this compulsory winding up
solvent. takes place when the company is insolvent
Except that, for creditor’s voluntary and the creditors take legal action in pursuit
winding up, the company is insolvent of the monies owed.
i.e. unable to pay off all of its debts. In regards to proviso (e) it is important to

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 Nonetheless, this process is also further determine when or in what situation a
initiated by the company (directors company is said to be unable to pay debts, the
and shareholders). test can be referred to section 466 (1).
If any of the two situations under In the case of Hotel Royal Sdn Bhd v Tina
section 488 of of the Company Act Travel – it was held that “unable to pay the
arises, a member’s voluntary winding debt” means inability to meet current
up is converted into compulsary demands irrespective of whether the company
winding up. is possessed of assets which, if realized,
would enable it to discharge its liabilities in
full.

3. Appointment of Liquidator
Pursuant to section 445 – liquidator Liquidator can be appointed either by the
appointed by the members of the company itself or by the court.
company in their General Meeting Section 476 (1) – the court may appoint an
Official Receiver from the DGI’s office or an
approved liquidator as an interim liquidator.
Section 477 (1)(e) – Official Receiver shall
be the liquidator during any vacancy

4. The Role of Liquidator in Winding Up Process

The liquidator in a voluntary winding up Creditor’s winding up is different from
is involved from the beginning of the voluntary winding up, the liquidator in
process. creditor’s winding up starts to play his
After being appointed by the members of role almost at the end of the process.
the company via special resolution in the It begin after the court has granted a
general meeting, the liquidator begins to winding up order upon application by the
play his role. petitioner, a liquidator will be appointed
If the liquidator subsequently discovers to wind up the company.
that the company is insolvent, in other Liquidator shall take over the affairs of
words, is unable to pay its debt in full the company and proceed with winding

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 within period stated in the declaration of up. The powers of a liquidator in winding
solvency, the liquidator must convert the up under section 486 of the Company
member’s voluntary winding up into a Act 2016 the order by court stated under
creditor’s voluntary winding up. the Twelfth Schedule.
Section 447 (1) explains in a creditors’
winding-up, the liquidator is required to
summon a meeting of creditors to
formalise the liquidation and the choice of
liquidator.
The liquidator is required to lay before the
creditors’ meeting the assets and liabilities
of the company as well as draw their
attention to the right conferred upon the
creditors under subsection 2 (creditors
discretion to appoint the liquidator
appointed by the company or a new
liquidator).
Section 447 (4) – lodge with the registrar
and Official Receiver a notice.
The liquidator may exercise any power
and duty specified under Eleventh
Schedule - Section 456.