QUESTION 4

The JC had lodged a proof of debt with the DGI for a sum of RM150,000 inclusive of
interest which was initially approved. Subsequently, at the creditor’s meeting, the JD,
consequent upon negotiations for a scheme of arrangement with the creditors,
informed the DGI of the reduction in the JC’s debt to RM75,000. The DGI later
applied under s. 42 Schedule C IA1967 and r. 152 IR 2017, for approval of the
Scheme of Arrangement and this was allowed by the SAR. The JC appealed against
the decision of the SAR in allowing the DGI’s reduction of the Proof of Debt. Discuss
whether the bankrupt himself could after the Bankruptcy Order has been made,
negotiate with the judgment creditor for a reduction of his debt;

The first issue in this situation is Whether the bankrupt himself can negotiate with the
judgment creditor for a reduction of his debt after the Bankruptcy Order has been
made?

The relevant laws for this issue are firstly Section 18(1) of the Insolvency Act
1967(IA 1967) which provides that Should a debtor becomes a bankrupt, the creditors
by a special resolution can resolve to entertain. Proposal for composition to satisfy the
debts to the creditors. Scheme of arrangement of the bankrupt’s Affairs. In the case of
Re Hashbudin Hashim; Ex P Citic Ka Wah Bank Ltd it was held that A bankrupt is
competent to negotiate any settlement of his debt with his creditor provided that any
agreement that is reached pursuant to that negotiation is brought to the attention of the
DGI for approval. Additionally, in the case of Big Team Construction Sdn Bhd v
Sedia Gaya Sdn Bhd the principal in Re Hashbudin Hashim was adopted and the court
stated stated that the DGI in this case could adopt the settlement and reduce the
amount of the proof of debt lodged by the creditor who had agreed with the bankrupt's
proposal for settlement
In application, it can be seen from the facts that the bankrupt had negotiated for a
scheme of arrangement during the creditor’s meeting following which he informed
the DGI on the reduction of debt to RM75,000. From Re Hashbudin Hashim, it is
established that any settlement agreed must be brought to the attention of the DGI and
as such the bankrupt is entitled to negotiate for the settlement of the debt. From the
facts it can be seen that the bankrupt had duly informed the DGI complying with the
requirement. Applying the case of Big Team Construction Sdn Bhd, it is established
that the DGI would adopt the settlement as long as there is an agreement between the
bankrupt and the creditor. Thus, following the creditors acceptance of the scheme of
arrangement and the approval from the DGI, the creditors no longer have the option to
retract. As such, the DGI is not in the position to reduce the amount of debt and
merely acts as the administrating authority whereas the negotiations must be between
the bankrupt and the creditor

In conclusion, the bankrupt himself can negotiate with the judgment creditor for are
duction of his debt after the Bankruptcy Order has been made and the appeal most
likely dismissed.

The second issue in this situation is Whether the DGI may apply for approval of the
Scheme of Arrangement?

The relevant laws for this issue are firstly Section 18(2) IA 1967 which provides that
the composition or scheme shall not be binding on the creditors unless it is confirmed
at a subsequent meeting of the creditors by special resolution. In the situation at hand,
it can be assumed that the subsequent meetings have been concluded given that the
SAR had already approved the scheme of arrangement. With reference to Section
18(8) IA 1967, it can be seen that the court before approving a composition or scheme
shall hear a report of DGI as to the terms of the composition or scheme and as to the
conduct of the bankrupt, and shall hear any objections which may be made by or on
behalf of any creditor. From the facts it can be seen that the approval as already be
given and as such the stage for objections had passed. Therefore, the judgment
creditors cannot at this juncture make objections. Finally, from Section 18(11) IA
1967 it is provided that a composition or scheme accepted& approved in pursuance of
this section shall be binding on all the creditors so far as relates to any debts due to
them from the bankrupt & provable in bankruptcy. Thus, it can be concluded that
the approved scheme of arrangement is now binding on the judgement creditor and
objections should have been made prior to the approval.

In conclusion, since the scheme of arrangement has already been approved the
judgement creditor cannot now raise objections.

Prepared by ,

Marvin Raja
1161100438