Topic 5 – Proceedings Consequent to a Bankruptcy Order

Debtor’s Statement of Affairs

 S.8(3) IA – within 24 hours after bankruptcy order is served on debtor, the debtor
must file an affidavit in the office of DGI
 This contains a true and correct statement of his assets and liabilities
 If he is carrying a business in partnership, the particulars of the names and residences
of all partners must also be stated in the affidavit
 S.16 IA – provides for requirements of statement of affairs
 S.16(2) IA and Rule 165 IR – time to submit Statement of Affairs
 Debtor’s Petition – within 7 days from the date of bankruptcy order
 Creditor’s Petition – within 21 days from date of bankruptcy order
 DGI may allow for special reasons to allow for extension of time

Submission of the Statement of Affairs

 Statement of Affairs must be submitted in Form 77 – Rule 164 IR
 S.16(1) IA – particulars that must be in statement of affairs:
 particulars of his assets;
 particulars of his debts and liabilities;
 names, residences and occupations of his creditors;
 the securities held by the creditors;
 dates when the securities were given;
 cause of his insolvency;
 the last date when he balanced his accounts before becoming insolvent;
 the amount of his capital at the date of the balance after providing for his
liabilities and making allowances for his bad and doubtful debts;
 any other particulars that are required by the DGI

Failure to Submit the Bankrupt’s Statement of Affairs

 S.16(3) IA – failure to submit statement of affairs amounts to contempt of court
 S.16(4) IA – creditors to the bankrupt may inspect the statement of affairs and make
copies of the statement of affairs

Proof of Debts
 A creditor’s claim for a share in the bankrupt’s estate is made by lodging his proof of
debt with the DGI
 S.62(1) IA – the DGI can pay dividends (payment to creditor) only to creditors who
have proved their debts

How to Lodge Proof of Debts

 S.42 IA and Schedule C of IA and Rule 167 until Rule 176 of IR – governs proof of
debt
 Schedule C, para 1 – every creditor shall prove his debt, as soon as may be after the
making of the bankruptcy order
 Rule 170 and Rule 171 IR – a proof intended to be used at the 1st meeting of creditors
or at an adjournment of the 1st meeting (if not lodged in time for the 1st meeting) shall
be lodged with the DGI not less than 24 hours before the meeting
  Schedule C, para 2 and Rule 167 IR – a proof of debt can be lodged to the DGI by
delivering or sending by prepaid post an affidavit in Form 79
 Schedule C, para 5 – proof of debt shall state whether the creditor is a secured creditor
or not
 For secured creditor:
 Where the secured creditor realizes his property, he can prove for the balance
due to him after deducting the amount realized
 Where the secured creditor surrenders the whole of this property to DGI, he
can prove for his whole debt
 Where the secured creditor values his property, he is entitled to the balance
after deducting the value of property
 Schedule C, para 6 – a creditor shall bear the cost of proving his debt, unless the court
orders otherwise
 Rule 173 IR – DGI shall examine every proof of debt, within 14 days from the latest
date specified in the notice of his intention to declare a dividend, the DGI can admit
or reject wholly or part of the proof of debt
 Rule 174 IR – where a creditor’s proof has been admitted, the DGI will issue notice of
dividend to the creditor
 The creditor may appeal against decision of DGI, if proof of debt is rejected:
 Within 14 days after receiving the notice from creditor, on the creditor’s
intention to appeal against the decision of DGI, the DGI shall file the proof of
debt with the Registrar with a memorandum as to why proof was rejected
 The appeal will be determined by the court
 Rule 172 IR – unless the proof was wholly disallowed, it will be returned to
the DGI for further action
 Rule 175 IR – no application to reverse or vary the decision of DGI in rejecting a
proof of debt shall be made, after expiry of 21 days from date the decision is received
 S.15 IA – creditor who has lodged his proof of debt can examine the debtor in
creditor’s meeting
 S.17(4) IA – and in public examination of the debtor

Composition or Scheme of Arrangement (after BO)

 S.18 IA – where debtor is adjudged bankrupt, the creditors may by special resolution
resolve to entertain:
i. A proposal for composition to satisfy the debts to the creditors or
ii. A scheme of arrangement of the bankrupt’s affairs
 A scheme of arrangement – plan or proposal to settle debts on certain terms within a
certain period. Which involves the transfer of debtor’s assets to a trustee to administer
and manage the debtor’s assets
 A composition – debtor keeping the assets but undertakes to make payment to his
creditors by a certain percentage or by full settlement

Creditor’s Meetings
 First meeting is held to consider whether proposal for scheme of arrangement or
composition is to be entertained – S.15 IA
 Schedule A, para 1 – shall be summoned not later than 2 months in debtor’s petition
OR 3 months in creditor’s petition, after the date of bankruptcy order, unless court
orders otherwise
  DGI will give notice of meeting to creditors, not less than 7 days and to debtor 3 days
before meeting
 Schedule A, para 2 and Rule 208 – notice shall state the time and place of meeting

First Creditor’s Meeting

 Rule 150(1) IR – terms of composition or scheme shall be settled at first meeting or
adjournment of first meeting
 S.15 – creditor who has lodged proof of debt may question the bankrupt concerning
his affairs and the causes of his failure to pay debts in the meeting

Subsequent Creditor’s Meeting

 Rule 150(2) – subsequent creditor’s meeting shall be held for purpose of confirming
or rejecting the composition or scheme
 Schedule A para 8 IA – creditor cannot vote at any creditors meeting, unless he has
lodged proof of debt
 Schedule A para 10 IA – vote by a secured creditor
 S.18(3) – any creditor who has proved his debt, may assent or dissent from
composition or scheme of arrangement, by sending a letter to DGI, attested by
witness, not later than the day before subsequent meeting

Binding Effect of Composition or Scheme of Arrangement

 S.18(2) IA – scheme of arrangement or composition is only binding on creditors
when;
1. S.18(2) IA – it is confirmed at a subsequent meeting of creditors by a special
resolution
2. Rule 151 IR – terms of resolution must specify the terms of proposed
composition and manner in which payment of composition is to be secured
3. S.18(10) IA – it is approved by court

Process
 S.18(6) IA and Rule 152(1) IR – DGI or bankrupt may within 30 days, after
resolution of meeting, make an application to court for approval of the composition or
scheme of arrangement
 Rule 152(2) – if application exceeds 30 days, must file with leave of court
 Rule 152(3) – if application filed by bankrupt, he must notify the DGI 14 days before
the meeting
 S.18(8) IA – DGI’s report (Form 125) must be filed not less than 4 days before the
time fixed for hearing of application

Hearing
 S.18(8) IA – the court shall hear the report of DGI and any objections which may be
made by any creditor
 Rule 155 IR – the court shall require proof that the provisions in S.18(1) until (3) is
complied with
 Rule 156 IR – the court must also be satisfied on DGI’s report that provision is made
for payment of all proper costs, charges and expenses of the proceedings and all fees
and percentages payable to the DGI
The court may refuse to approve composition or scheme of arrangement if:
 S.18(8) IA – the court is of the opinion that terms of composition or scheme are not
reasonable or are not calculated to benefit the general body of creditors
 S.18(9) IA – the case is one where the court is required under the Act to refuse the
bankrupt to discharge
 S.18(18) IA – the composition or scheme does not provide for the payment of all
debts of priority as directed in the distribution of property of bankrupt

The court if accept and approve composition or scheme of arrangement

 S.18(10A) IA – the court may make order in Form 71 annulling the bankruptcy order
and vesting the property of the bankrupt in the bankrupt or in such other person as the
court appoints
 Rule 155(2) – Order shall be published in Gazette
 S.18(11) IA – composition or scheme of arrangement shall be binding on all creditors

Power of Court to Annul the composition/scheme of arrangement

 The court may, on application of creditor adjudge the debtor bankrupt and annul the
composition or scheme of arrangement where;
 There is default in payment of any instalment under the composition or
scheme
 The composition or scheme cannot proceed without injustice or undue delay to
both parties
 S.18(14) – the approval of court was obtained by fraud
 Where composition or scheme is annulled, the property of debtor shall vest in DGI
unless ordered otherwise by the court – Rule 161 IR

Payment by Third Party

 S.61(g) – DGI shall make compromise or arrangement only on debts proved under the
bankruptcy
 DGI shall not give written authorization to the bankrupt to negotiate with any creditor
 S.115 – any creditor who obtains, receives money, property, security as inducement
for forbearing to propose shall be punished with a fine up to 3 times value of such
inducement received
 Financial institutions should cease to receive third party settlements
 Ting Nguk Yong v Bank Utama (Malaysia) Bhd – full settlement was made by a third
party after issue of RO and AO. The debtor then applied for annulment and DGI
opposed as debts had not settled. The High Court held that the power to annul is
discretionary. The debtor need to prove special circumstances. In this case, only one
judgment creditor had written to the DGI that payment had been made and debt was
satisfied (doesn’t mean that other creditors had also satisfied)
 Ketua Pengarah Insolvensi, Bagi Harta Goh Ah Kai, Bankrap v Goh Ah Kai and
Parkway Hospitals Singapore Pte Ltd – the Court of Appeal held that a creditor
cannot accept payment from a third party. All payments must be made through the
DGI

Disclaimer of Onerous Property by DGI

 DGI has power to disclaim in bankruptcy any onerous property
 S.59 – provides this power
  Onerous property include matters like tenancy, statutory, or ordinary or any other
property which is unsaleable e.g. warehouse goods
 R.262 – where debtor remains in possession of leasehold property, the lease may be
disclaimed where:
 Maximum rent recoverable is less than RM4,800 p.a.
 Estate is administered summarily under S.106
 OA serves the lessor with notice of intention to disclaim and lessor does not
within 7 days of service, respond
 S.59(2) – DGI may at any time disclaim any such property by writing signed by him.
Upon such disclaimer, anyone having interest may apply to court for relief
 S.59(3) – in the case of lease, the DGI cannot exercise his power of disclaimer
without leave of court, unless parties interested in the property consent to such
disclaimer
 Re Hup Store Ex of Chang Kim Choon – the High Court held that the DGI has
statutory right to disclaim any onerous property (in this case was a monthly tenancy)
where he finds that the property will not produce a surplus beyond the value of its
liability
 Re Karuppiah – the court held that the bankrupt’s wife and children to remain on
premises disclaimed by OA is tied up with the bankrupt’s right to remain on premises.
Upon disclaiming the tenancy, the bankrupt had no right to remain on property. By
implication, neither the wife nor children similarly to the bankrupt is entitled to
remain on property

Duties and Responsibilities of DGI

 S.71(1) – these duties and responsibilities are 2 folds; administration of estate of
bankrupt and the general conduct of bankrupt
 Duties of DGI:
 Section 73(1)(a): act as Receiver of the debtor’s estate.
 Section 73(1)(b): He can raise money or make advances where it appears to be in
the interests of the creditors
 Section 73(1)(c): he may summon and preside over all meetings
 Section 73(1)(d): can issue proxy forms for use at creditors meetings
 Section 73(1)(e): reports to the creditors on debtor’s proposals if any on mode of
liquidating his affairs
 Section 73(1)(f): has to advertise the debtor’s RO, date of his public examination
and any other matters
 Section 62: He may admit or reject the Proof of Debt that has been filed and rank
them for the declaration and distribution of dividends. The proof of debt has to be
filed and used at the 1st. creditor’s meeting for the examination and grounds of the
debt. The DGI may admit the or reject the proof in whole or in part

Priority of Debts
 S.43
 S.44
 S.46