TUTORIAL 1 QUESTION 4

Mr. Baik and his friend Mr. Kawan are business partners who have been operating a
construction business called Bina Enterprise since 2005. However, with the onset of the Covid
pandemic in 2020, their business suffered and the partners decided to take a loan for
RM1million from Good Bank Bhd. to tide over the crisis. Mr. Kawan charged his matrimonial
home that is jointly owned with his wife as security for the loan. He further persuaded Mrs.
Kawan who is a housewife with no share in the business, to act as a guarantor for the loan. By
June 2021, the business had not recovered and Good Bank Bhd. obtained judgment against all
three parties and has now commenced bankruptcy proceedings against all three of them.

Discuss whether:
(i) Good Bank Bhd. may commence bankruptcy proceedings against Mrs. Kawan.
(ii) bankruptcy proceedings can be brought against a partnership.
(iii) Mr. Baik and Mr. Kawan can apply for the Voluntary arrangement provisions
under the Insolvency Act 1967?

ANSWER:
The first issue is whether Good Bank Bhd. may commence bankruptcy proceedings
against Mrs. Kawan?

The relevant authorities are Section 120 of Insolvency Act 1967 which mentions that a
married woman can be adjudicated as a bankrupt as if she was a feme-sole which means a
single woman. In Re Mahmooda bt Ismail, it was held that a married woman cannot be
adjudged as a bankrupt if she has no separate property of her own and is solely dependent on
that of her husband. Section 5 (1) (a) of the Insolvency Act 1967. The amount claimed in the
bankruptcy notice must not be less than RM50,000. On the other hand, Covid-19 Bill provides
that creditor shall not be entitled to present a bankruptcy petition against a debtor under the
Insolvency Act 1967 unless the debt owing by the debtor is at least RM 100,000. The case of
Re Azmer Idris Exparte Malaysia Debt Ventures Bhd says that one who guarantees a loan
for profit is not a social gurantor.

Applying the provisions that were mentioned above, Mrs. Kawan is married to Mr.
Kawan. Under the provision of Section 120 of the Insolvency Act 1967, she can be adjudged
as a bankrupt just as she would be if she were single and not married. However, referring to
the case of Re Mahmooda bt Ismail, Mrs. Kawan is a housewife and that can show that she has
no means of owning any property of her own and she would be highly dependent on her
husband to provide for her. As such, she cannot be adjudged as a bankrupt under the ruling in
the case of Re Mahmooda bt Ismail. However, Mrs. kawan is a non-social guarantor. She is a
business guarantor who enjoy only limited protection. Bankruptcy petition can be brought on
a non social guarantor provided that the creditor first obtain leave of court to commence action
or prove to the satisfaction of the court that all avenues of recovery from the principal debtor
has been exhausted. Mrs Kawan jointly owned the home with her husband so she can charge
matrimonial home or can sell the property.

In conclusion, Good Bank Bhd can commence bankruptcy proceedings against Mrs.
Kawan.

The second issue is whether bankruptcy proceedings can be brought against a

partnership?

We shall refer to Section 3 (3) (d) of Insolvency Act 1967 which states that the word
“debtor” include any person who at the time when the act of bankruptcy was done or suffered
by him was a member of a firm or partnership which carried on business in Malaysia.
Furthermore, Section 5 (d) of Insolvency Act 1967 provides that a creditor shall not be entitled
to present a bankruptcy petition against a debtor unless the debtor carried on business in
Malaysia either personally or by an agent or was a member of a firm or partnership that carried
on business in Malaysia. Section 103(1) of the Insolvency Act 1967 states any two or more
partners or any person carrying on business under a partnership name may take proceedings or
be proceeded against under the Act in the name of the firm. In addition, Rule 220 of the
Insolvency Rules: States that the bankruptcy order shall be made against the partners of the
firm individually and not the firm.

In the current case, Mr. Baik and Mr. Kawan are business partners operating a business
called Bina Enterprise where they are within the definition of debtor as per Section 3 (3) (d).
Good Bank Bhd. who is a creditor has all the rights to bring bankruptcy petition against the
partnership because Section 5 (d) allows to do so. Section 103(1) of the Insolvency Act 1967
allows for the partnership to take proceedings or be proceeded against under the Act in the
name of the firm. Additionally, Rule 220 of the Insolvency Rules orders that a bankruptcy order
should be made against partners of the firm individually and not the firm thus Good Bank Bhd
should issue a bankruptcy order to both Mr. Baik and Mr. Kawan individually and not to Bina
Enterprise. It is advisable for the creditor to find the partnership arrangement and percentage
between the partners so that when the judgment sum is imposed, the partners shall be required
to pay the sum based on the partnership arrangement. It is unfair for both partners to split the
judgment sum equally if the partnership agreement is not equal.

Conclusively, bankruptcy proceedings can be brought against the partners individually

and not the partnership.

The third issue is, Whether Mr. Baik and Mr. Kawan apply for the voluntary agreement
provisions under the Insolvency Act 1967?

The law that we should refer here will the Section 2A of Insolvency Act 1967 - Defines
the meaning of Voluntary Arrangement. A debtor may propose a VA to his creditors at any
time between commencement of bankruptcy proceedings & before being adjudged a bankrupt.
The procedure to apply for Voluntary Arrangement is stated under Section 2C(1) where a
Debtor may propose a VA to his creditors at any time before he is adjudged bankrupt and
Section 2C(2) where a Debtor who intends to propose for VA shall appoint a nominee, Make
an application as prescribed to the court for an interim order of VA and submit a copy to the
DGI. Section 2D(1) states that Upon receiving the application, the court shall make an interim
order for VA. Section 2D(2) states The court shall satisfy two conditions which states that no
previous application has been made by the debtor during the period of 12 months and the
nominee appointed is willing to act. Section 2D(3) states that Interim order shall be valid for
90 days from the date that the order is made. Section 2D(4) states that a Debtor shall notify the
nominee within 7 days from the date of interim order. Section 2D(5) states The nominee shall
notify all the debtor’s creditors for the commencement of interim order. Section 2I(1) states a
Nominee shall summon every of the debtor’s creditor to hold a meeting as to approve the
debtor’s proposal for a VA. Section 2I(2)(b) also states The debtor shall submit to the nominee
where the debtor is a firm the statement of affairs that includes the particulars of debtor’s assets,
creditors debts and other liabilities and such information that prescribed. Section 2J(1) states
that The nominee shall report the decision of the meeting and serve a copy of the report as soon
as possible to the debtor and creditor under the seal of the court. Section 2J(2) states If the
meeting of creditors has declined for the approval, the court may set aside the interim order.
Section 2K(1) states Where the meeting has been approved the proposed VA, the approved
VA shall bind all every person who had notice and was entitled to vote at the meeting. Section
2O(1) states If a debtor fails to comply with the obligations under VA, any creditor may file
or proceed with the bankruptcy petition against the debtor. In the case of Lim Cheng Pow v
Maybank Investment Bank Berhad & Anor, First, the Court emphasised that there was a
duty of full and frank disclosure when applying for the ex parte interim order. The Court found
that the Debtor had some lack of bona fides. The Debtor had failed to make full disclosure. In
particular, section 2D(2)(a) of the Insolvency Act 1967 states that the Court must be satisfied
that “no previous application has been filed by the debtor“. This would extend to include any
previous application of a similar nature, like a debtor’s petition for restructuring his debts.
Second, there must be meticulous compliance with the procedural requirements and timelines
for the voluntary arrangement. This is in light of the interim order only lasting for 90 days and
there cannot be an extension. Third, the Court could at the preliminary stage assess whether
the proposed scheme under the voluntary arrangement was reasonable and fair or not. The
Court assessed the proposed scheme in this case, and found it to be inherently flawed, defective
and misguided.

Applying all the law and cases stated above, Good Bank Bhd had commenced
bankruptcy proceedings against Mr. Baik and Mr. Kawan. However, since both of them have
not been declared bankrupt yet, thus they can apply for the voluntary arrangement. They shall
follow the procedure provided under the IA 1976 which include Mr Baik and Mr Kawan shall
appoint a nominee, Mr Baik and Mr Kawan shall file a court application for an interim order
for voluntary arrangement, Mr Baik and Mr Kawan shall submit a statement of affairs to the
nominee for him to prepare their proposal, Nominee to hold a meeting of creditors, Nominee
to report decision of meeting to court and serve a copy of the report under seal of court to debtor
and creditors and, If meeting of creditors has declined to approve Mr Baik and Mr Kawan’s
proposal, court may set aside any interim order which is in force.
 In conclusion, Mr. Baik and Mr. Kawan may apply for Voluntary Arrangement
following the provisions under IA 1967.