Topic 4 – Bankruptcy Order

Hearing of the Bankruptcy Petition (cont.)

 Rule 121 IR 2017 – petition must not be heard until the expiration of 8 days from the
service, unless good cause is shown for the earlier hearing
 S.6 IA – at the hearing, the court must be satisfied of:
a) The creditor’s debt is in existence
b) The act of bankruptcy is alleged in the petition
c) If the debtor doesn’t appear, proof of service of the petition on the debtor
 S.6(3) – if the court is not satisfied, the court may dismiss the application
 S.6(4) – when the act of bankruptcy relied on non compliance with bankruptcy notice
to pay for judgment debt, the court may, if it thinks fit, to stay or dismiss the petition
on the ground that an appeal is pending from the judgment
 If the court is satisfied, the creditor may make a Bankruptcy Order against the
judgment debtor in pursuance of the petition – the effect would the debtor would be
declared a bankrupt – the property and assets of a bankrupt is passed over to the DGI

Second or Subsequent Bankruptcy

 S.49 IA – allows for a second bankruptcy to occur
 The 2017 amendment changed from Adjudicating Order and Receiving Order to a
single Bankruptcy Order
 Receiving Order is applied to the court to allow for the DGI to “receive” the property
and assets of the debtor and Adjudicating Order is applied to the court to declare the
debtor as bankrupt – now in one single Bankruptcy Order
 Therefore any property acquired by the bankrupt, after the Single Order Bankruptcy
(previously known as Adjudication Order) must be treated as an asset belonging to the
1st bankruptcy
 Re Othman b Abu Bakar ex parte Official Assignee – the assets obtained cannot
straight away benefit the creditors in the 2nd bankruptcy until the creditors in the 1st
bankruptcy have been paid in full
 Sama Credit and Leasing Sdn Bhd v Pegawai Pemegang Harta Malaysia – the creditor
in this case had obtained a RO and AO (Bankruptcy Order now) against the judgment
debtor. However, it was later found out that the judgment debtor was already declared
bankrupt two years earlier i.e. he had a 1st bankruptcy, making this present petition the
2nd bankruptcy of the judgment debtor. The High Court held that no further action can
be made without leave of court. Supreme Court on appeal held reinstating the
Bankruptcy Order (RO and AO):
 S.8(1) is relating to the effect of RO and not AO, it restricts the remedies against
the property or person in respect of any debt provable in bankruptcy
 S.49(1) and (2) allows for subsequent RO and AO (Bankruptcy Order) against an
undischarged bankrupt
 Powers to rescind and annul RO and AO are discretionary, and an appellate court
would not interfere with the High Court’s powers unless there was a strong
ground to do as such
 A failure to conduct bankruptcy search was not fatal, but a factor to be
considered
 Bungsar Hill Holdings Sdn Bhd v Dr Amir Farid Datuk Isahak – in this case, a
Bankruptcy Order was issued but at the date of the issuance of said order, the
judgment debtor was able to settle his debts. The judge was satisfied due to evidence
 showing the fact that the debtor was able to settle his debts. However, the Bankruptcy
Order was still issued as the debtor failed to appear during the Creditor’s Petition. The
debtor claimed that he was not served of the notice of CP due to it being made by
substituted service. The fact of this case showed that he had no knowledge of the CP.
The debtor therefore was not disqualified to apply to annul the Bankruptcy Order
since the debtor’s ability to pay his debt specifically was proved under S.6(3) and
S.105(1)

Single Order Bankruptcy

 The 2017 amendment changed from Adjudicating Order and Receiving Order to a
single Bankruptcy Order
 Receiving Order is applied to the court to allow for the DGI to “receive” the property
and assets of the debtor and Adjudicating Order is applied to the court to declare the
debtor as bankrupt – now in one single Bankruptcy Order
 Therefore any property acquired by the bankrupt, after the Single Order Bankruptcy
(previously known as Adjudication Order) must be treated as an asset belonging to the
1st bankruptcy (i.e. the DGI to be passed to creditors)
 RO merely protects the debtor’s property but until AO is issued, the debtor shall not
be declared bankrupt
 Upon RO being issued, the property shall be passed to the DGI
 Kwan Chew Shen v Citibank N.A – vesting of property takes place
immediately upon issuance of the RO, not when the RO is published and
advertised
 Chew Kean Kor v Beh Seng Siew – upon issuance of RO, the property of the
debtor shall become property of his creditors to which the DGI is the trustee
on behalf of the creditors
 Hong Leong Bank Bhd v Khairulnizam Jamaludin – debtor is only made bankrupt,
upon the issue of an adjudication order
 Tan Sri Kishu Tirathraj; ex parte Affin Bank Bhd – although previously AO and RO
is made simultaneously, the issuance of AO does not necessarily follow the issuance
of an RO – if the debtor is able to satisfy to the court that he is able to pay off his
debts, by way of offer of composition or make a scheme of arrangement acceptable to
his creditors, then only an AO will be made
 CURRENT POSITION:
 Today, when a Bankruptcy Order is made,
 No creditor can proceed with or commence any action or any other legal
proceedings against the debtor, without the leave of court
 The bankrupt’s property becomes divisible among his creditors and vests in
the DGI, who will be the receiver, manager, administrator and trustee

It does not affect the right of any secured creditor to deal with his security
 S.8(2A) IA – except to ss. (2), a secured creditor must realize his security within 12
months from the date of bankruptcy order, otherwise he would not be entitled to
interest therein
 S.8(3) IA – debtor must within 24 hours after order is served, file an affidavit
containing as true and correct statement as follows to the DGI:
 Name
 Residences of all partners
 Business and principal assets and liabilities
  Tanavus Sdn Bhd v Simon Jungking Pigguan – the court referred to S.8(1) of BA held
that once RO is granted, no creditor without leave of court can commence action
against debtor. In regards to S.40(1) BA, leave of court is a must before commencing
action against debtor due to debt provable under bankruptcy includes demand for
unliquidated damages under a contract

Cause of Action is Vested in the DGI

 S.38(1)(a) IA – a bankrupt cannot bring an action, other than action for damages for
personal injury without approval of DGI
 Chin Kon Nam & Anor v Chai Yun Phin Development – in this case a contract was
entered into between the plaintiff and defendant. A breach of said contract was made
by the defendant before the plaintiff was declared bankrupt. Therefore, to commence
action against the defendant, the plaintiff must obtain prior approval of DGI under
S.39(1)(a) BA. Without this approval, the plaintiff is not even competent to engage a
lawyer
 Re Chua Tin Hong ex parte Castrol (M) Sdn Bhd – a bankruptcy order (RO and AO)
was issued against the bankrupt. Several months later, he had made a transfer of
property to his nephew without consideration, to which the nephew transferred the
property to another for RM79,000. The OA applied to declare it as voluntary
settlement under S.52 BA and the transfer of property as void. The court held:
 Plain meaning of word “action” in S.38(1)(a) BA is only civil action and not
in regards to conveyance of property
 S.52 is restriction to settlements made prior to debtor being adjudged as
bankrupt. Thus, in this case a land was transferred AFTER the debtor was
adjudged bankrupt, not before
 The other person who paid with consideration for the transfer of property
acted in good faith
 By virtue of S.24(4), the title of property was not vested to the OA yet until a
transmission is registered in the official capacity of the OA, if the bankrupt
transferred the property before transmission, the transfer is valid
 The OA should have caveat the land under S.323 NLC to avoid transfer of
property
 Richard Trade & Development Sdn Bhd v UMBC Bhd – a debtor who has any
pending civil actions does not have to withdraw such actions but he must obtain the
consent of the DGI (or OA)
 Perwira Affin Bank v Sardar Md. Roshan Khan & Anor – the respondent in this case
commenced civil action (not bankruptcy proceedings) against the bank to recover
over RM233,000 in a trial between 2004 until 2006. However, the bank in 2002 was
declared bankrupt (thus was not supposed to be involved in civil action without prior
approval of OA or DGI). In 2006, the bank sought to annul the bankruptcy order as
the bank had settled all debts. The issue up to the Federal Court was whether the bank
was competent to maintain the action brought by the respondent. Federal Court held
that an annulment order was to operate retrospectively against the bank and thus the
bank was incompetent to maintain the civil suit without prior consent of the OA
 Tong Soon Tiong & Ors v FA Securities Sdn Bhd – the issue before the court is
whether a bankrupt may appear as a witness in a civil action. the court held that an
undischarged bankrupt remains competent as witness, as such they may testify. The
evidence of a bankrupt are not inadmissible simply by reason of bankruptcy
 Upon being adjudged bankrupt, the bankrupt shall be restricted from:
 i. Holding office of MP- Art 48(1) Fed Cons
ii. Holding public office – S.37 IA
iii. Holding certain positions in statutory bodies or registered societies
iv. Practising in certain professions – S.11(b)(ii) of LPA 1976
v. Carrying on business alone or in partnership or by way of company – S.35
Partnership Act
vi. Working in the business of relative – S.38(1)(e)(i) IA
vii. Maintain any action, without prior sanction of DGI, other than action for
damages in respect of personal injury – S.38(1)(a) IA
viii. Leave Malaysia without permission of DGI or court S.38(1)(c)
ix. Receive pension or other gratuity
x. Enforce his rights under certain legislations
 Gan Hong Hoe – apart from the above, the bankrupt is free to enter into a contract
 Tam Wee Jim v Inchcape Equatron (M) Sdn Bhd – contract entered by bankrupt
without permission of the DGI is not illegal and unenforceable ab initio
 Lim Wah Siang v Perwira Affin Bank Bhd – a bankrupt may exercise all his other
rights as an ordinary person i.e. witnessing a signature
 MBf Finance Bhd v Syarikat Noma Pengangkutan Sdn Bhd – the bankrupt may also
sign an agreement as a representation of a company (agent)
 The Topps Company Inc v Mally Jaya Sdn Bhd – the bankrupt may also affirm
affidavits on the condition that he must disclose his status as an undischarged
bankrupt in the affidavit
 Debtor i.e. bankrupt shall therefore not be debilitated by his bankrupt status. If the
bankrupt cannot be a witness, that would affect in the provision requiring the bankrupt
to affirm affidavit of his assets redundant. Under the Evidence Act particularly S.118
does not mention of a bankrupt person to be disqualified as a witness
 Ho Ken Seng v Progressive Insurance Sdn Bhd – a bankrupt is not required to obtain
prior sanction of DGI to apply for rescind, vary or review of a decision of a
Bankruptcy Court. This sanction of DGI is only needed in civil cases brought
involving the bankrupt
 Bathamani Suppiah v Southern Finance Company Bhd – overruled Low Kok Tuan ex
parte Arab Malaysia and Merchant Bank Bhd, where the court held that the
disqualification of a bankrupt in a civil actions involving the bankrupts includes the
filing of appeal after the trial action
 Ng Yen Kok v AmFinance Bhd – RO and AO granted based upon creditor’s petition
that was invalid. This is due to the judgment debt obtained and subsequently the
Bankruptcy Notice that was served by way of substituted service. In which was not
recorded in the Appeal Record. The court held that RO and AO were set aside

Annulment of Bankruptcy Order

 S.105(1) – bankruptcy order may be annulled where:
 It ought not to be made in the first place (e.g. defective notice/service/non-
existence of debt) or
 Debts belonging to the bankrupt against the creditors are paid in full or
 There are proceedings pending in Singapore’s Court
 S.105(2) – when BO is annulled, all sales and disposition of property and payments
and acts done by DGI or any other person acting under same authority, shall be valid,
but property shall vest in the person as court appoints or to debtor
  S.105(3) – notice of annulling a BO shall be gazetted and published in at least one
local newspaper
 Effect of annulment:
i. Terminates bankruptcy order
ii. Debtor reinstated to his original position i.e. not bankrupt
iii. All property will be vested back to the debtor, except those that have been
disposed

Possession of Property
DGI to take possession of all property
 S.55 – the DGI shall take possession of the deeds, books and documents of the
bankrupt, and all other parts of his property capable of manual delivery
 Hasnah Che Hasan v Hongkong Bank Malaysia Bhd – in this case an appeal was filed
by the judgment debtor against the decision dismissing application to annul the RO
and AO. The creditor objected on the ground that the debtor did not obtain sanction
from OA to appeal
 The court held that the sanction under S.38(1)(a) did not apply to a bankrupt
seeking the court to set aside the RO and AO in a bankruptcy proceedings
 The court also held that it would be unfair to the debtor to be declared
bankrupt based on defects found i.e. during service, wrong calculation making
notice null and void and period of delay

Properties that do not pass to DGI

 S.48(1)(a) IA – property held on trust and tools of trade, necessaries valued not
exceed RM5000
 S.68(2) and (3) IA – DGI may give bankrupt allowance, but court may reduce such
allowances and limit time for which it is made. Even if the bankrupt dies, the DGI
may make allowances to his family
 Merchantile Bank Ltd v OA of Property of How Han – the court held that the DGI
must honour all charges, liens and caveats
 Goods on hire purchase, unless all installments have been paid

Property that can pass to DGI

 S.48(1)(b)(i) –
 All property that is vested or acquired or devolves to him upon commence of
bankruptcy and before his discharge
 Property over which bankrupt can exercise rights
 Property under reputed ownership i.e. possession with consent of owner at
time of bankruptcy or acquired before discharge – to protect creditors who
may given credit for goods to bankrupt unknowingly “order and disposition
clause”
 Share and shareholdings

Doctrine of Relation Back (S.47)

 S.47(1) – this doctrine is established to protect creditors against fraudulent
conveyances of property or land and also to bar third party dealings, after the debtor
has committed an act of bankruptcy
 S.47(1) – provides for the 6 months period prior to creditor’s petition
 Within 6 months from CP, 2 years of prior BO (S.52) and 5 years of prior BO
  This doctrine has a great effect on bankrupt’s ability to deal dealings, property and
actions from the time the act of bankruptcy occurred. This is because when debtor
commits an act of bankruptcy, his property is vested on the DGI and thus he had no
right over the property anymore
 Re Khor Bak Kee – 4 months before the debtor was adjudicated bankrupt, the debtor
sold off his interest in land to his wife who sold it to a third party. Court of Appeal
held that this was a fraudulent conveyance and although the debtor is yet declared
bankrupt at this time of transaction, the doctrine of relation back applies which deems
the debtor to be bankrupt at the time of transaction.
 Koh Lian Hee (a bankrupt) v Koh Thong Chuan & Anor – a family of a father, sons
and brothers controlled several limited companies. Sometime later, the father
transferred a land to his youngest son and the land was registered in the youngest
son’s name on 26/3/1991 which is less than 6 months before the creditor’s petition. In
August, a creditor’s petition was filed against the father and he was adjudged
bankrupt later. The court agreed with the OA that the conveyance of the property was
fraudulent since it was made within the 6 months period of creditor’s petition also it
was not bona fide. Doctrine of relation back under S.47 applied
 Koh Thong Chuan v The OA of the property of Koh Lian Hee, Bankrupt – in this case
a fraudulent transfer of a title of a landed property was committed. The general rule of
doctrine of relation back would allow the landed property transferred to be vested to
OA as the transferor was bankrupt. However, the court held that an exception is made
when the purchaser is a bona fide purchaser for value i.e. consideration. The bona fide
purchaser’s title to the landed property is indefeasible
 This position is different and exception would not apply if there was knowledge of the
bankrupt
 Abu Bakar b Jaafar & Anor v MBB – in this case, the plaintiff was a partner in a
corporation who’s a customer of the bank. MBB here sued the corporation. Summons
was served by substituted service, later there was JID and Bankruptcy Notice was also
served by SS. The bank on becoming aware of the SS to the plaintiff, froze the
plaintiff’s account. The court held that the bank was right in freezing the account.
Doctrine of relation back i.e. protection for bona fide transactions do not apply where
the bank had knowledge of the bankruptcy proceedings

Where Creditor Has Issued Execution (S.50)

 S.50(1) – creditor cannot retain benefit of the execution or attachment, unless he has
completed and realized the proceeds of the attachment, before the bankruptcy order
was made
 S.50(2) – execution is complete when:
a) Attachment or goods or land is completed upon the seizure and sale, or in the
case of equitable interest in land when appointment of a receiver
b) Attachment of debt is complete by receipt of debt
c) Attachment of property complete by sale of such property
 Re Syed Ahmand & Co ex parte the OA – where a RO has been made and creditor
has not completed the execution within 6 months of the RO, the creditor cannot retain
the benefit. The benefit must be handed over to the DGI
 Re Low Nai Bros & Co – creditor took garnishee proceedings (order to execute
judgment debt) after the RO was made. The court held that the creditor is not entitled
to the proceeds
  OA of property of Lim Chiak Kim v United Bank – in this case the bank had notice of
the act of bankruptcy and the petition before the said execution. The court held not
entitled

Avoidances of Voluntary Settlement (S.52)

 Voluntary settlement – one without valuable consideration though generally be valid,
may be void against the DGI i.e. the property will be over-reached by DGI
 1st Limb – any settlement of property by a settler who becomes bankrupt within 2
years after the date of settlement (anything sold 2 years before BO), will be void
against the DGI, unless can prove that:
 Settlements made before and in consideration of marriage
 Settlements made in favour of purchaser or encumbrances in good faith or for
valuable consideration
 Settlements made on or for the wife, children of the settlers, of property which
has accrued to him after marriage in the right of his wife
 2 Limb – if a settler becomes bankrupt within 5 years after date of settlement
nd

(anything sold 5 years before BO), the settlement is void unless parties under
settlement can prove that the settler:
 Was solvent at the time of settlement
 The whole interest of the settler in such property passed on the execution to
the trustee of such settlement
 Chin Yau King v Liew Chi Shing @ Liaw Chi Sing & Anor – plaintiff gave loan of
RM155,000 to defendant who then gifted a land as gift to his son. Plaintiff
commenced action against defendant for the loan. RO and AO were made. Issues
were whether the transfer of land was gift of love, whether transfer was done to
defraud plaintiff and whether at the time of loan, the defendant was able to cover the
loan. The court held that defendant was already bankrupt and DGI not made a party,
as such the plaintiff’s claim was dismissed. Though transactions fall under S.52, DGI
must be made a party
 Ooi Siew Chin v Jemari Bhd & 3 Ors – contracts entered into by an undischarged
bankrupt without knowledge of DGI is void
 Senator Ibrahim Hj Yaakob (bankrupt) Siti Ramiah b Bajau – in this case the property
of bankrupt was held jointly with the wife including half share under the “harta
sepencarian”. The court held that upon death of bankrupt, the wife shall be entitled to
her half share of joint property
 Silver Corridor Sdn Bhd v Gallant Acres Sdn Bhd & Anor – for a company under
liquidation, S.293 Companies Act must be read together with S.52 or S.53 of IA. This
is to determine whether transaction were void/voidable due to it being undue
preference against creditors of company. Apply S.52 when there is alleged bona fide
or consideration. Apply S.53 when company is already insolvent and challenge is to
invalidate transaction against creditors

Avoidance of Preferences (S.53)

 Similar to doctrine of relation back, when a debtor makes fraudulent preference and
was declared bankrupt by petition within 6 months of fraudulent preference, the
transaction will be void
 The DGI may recover the preferred creditor any money paid or property transferred to
him, even if the creditor did not know he was preferred
 However, any person who is in good faith for value without notice, they are protected
  S.53A – avoidance of assignment – bad debts
 S.53B – property or proceeds acquired by anyone, under void or voidable transaction,
shall be deemed to belong to DGI – he has right to recover, unless it was bona fide for
value and good faith
 S.54(1) – protection of bona fide transaction without notice, include attachments,
executions, settlements, preferences shall not be invalidated:
a) Any payment by bankrupt to any of his creditors
b) Any payment or delivery to the bankrupt
c) Any conveyance or assignment by bankrupt for valuable considerations
d) Any contract, dealing or transaction by or with the bankrupt, for valuable
consideration, if:
i. It takes place before date of RO and
ii. Person took without notice of bankruptcy

Disqualification of a Bankrupt
 Upon being adjudged bankrupt, the bankrupt shall be restricted from:
xi. Holding office of MP- Art 48(1) Fed Cons
xii. Holding public office – S.37 IA
xiii. Holding certain positions in statutory bodies or registered societies
xiv. Practising in certain professions – S.11(b)(ii) of LPA 1976
xv. Carrying on business alone or in partnership or by way of company – S.35
Partnership Act
xvi. Working in the business of relative – S.38(1)(e)(i) IA
xvii. Main any action, without prior sanction of DGI, other than action for damages
in respect of personal injury – S.38(1)(a) IA
xviii. Leave Malaysia without permission of DGI or court S.38(1)(c)
xix. Receive pension or other gratuity
xx. Enforce his rights under certain legislations
 S.36(2)(a) – disqualification above will cease once bankruptcy order is cancelled or
annulled

Disabilities of a Bankrupt
 Section 38(1)(a): cannot maintain any civil action other than for personal injuries
without the sanction of the DGI
 Section 38(1)(b): every 6 months bankrupt has to tender accounts to the DGI
 Section 38(1)(ba): to report any monies / properties in any form received exceeding
 RM500/-
 Section 38(1)(bb): inform DGI of any change of address.
 Section 38(1)(c): cannot leave the country without the prior sanction of the DGI
 Section 38(1)(d): cannot carry on any business directly; or
 Section 38(1)(e): participate / manage any family business without prior consent of
DGI
 Foo Fatt Chuen v Jacobson Cheong Weng Hin & Ors – undischarged bankrupt
carrying on business. Issue was whether contractual transactions entered was void.
The court held that contracts entered without approval of DGI is void

 Section 38(1A): discretion of the DGI to grant any permission & the court may also
impose such conditions as it considers fit.
  Section 38(2): breach of any of the above conditions – deemed to be contempt of
court.

Proceedings Consequent upon Adjudication

Proof of debt by creditors – S.40 & S.42, Schedule C of IA

 Formal claim made by creditor – affidavit and delivered to OA
 Provable debts S.40(1) – all present, future and contingent debts
 Unprovable debts S.40(1) – unliquidated damages
 Malayan Banking Bhd v Boau Yoon Fut

Statement of Affairs by Bankrupt

 S.16 IA – debtor has to prove Statement of Affairs, verified by Affidavit within 21
days of service of bankruptcy order on him under a CP, or if under a DP – 7 days
 Lim Tee Keong v HLG Securities Sdn Bhd

Creditors Meeting – S.15 IA

 Schedule A – DGI to call for 1st creditors meeting upon Statement of Affairs being
filed. Any creditor who has filed his proof of debt may question the debtor
 DGI may consider or propose scheme of arrangement or composition

Public Examination of debtor – S.17 IA

 After the 1st creditors meeting, the DGI may apply to court for Public Examination of
the debtor. Creditors will be notified by the DGI of the date which should also be
advertised in local newspaper and gazette
 Should the debtor fail to attend, a warrant for his arrest may be issued S.28 IA
 Public Bank Bhd v Choong Yew Wah
 R.145 IR – where court finds bankruptcy was brought by adverse factors i.e. fraud or
cheating, the court may adjourn the bankruptcy proceedings sine die
 R..149 IR – the public examination of the debtor may be dispensed with if he is under
some mental or physical disability