Topic 6: Discharge of Bankrupt

Discharge of
bankrupt

1. By order of 2. By certificate 3. By automatic

court S.33 of DGI S.33A discharge S.33C

METHOD 1 – DISCHARGE BY ORDER OF COURT S.33

1.1 – APPLICATION FOR DISCHARGE

 S.33(1) IA – the application for discharge to the court may be made by the bankrupt,
at any time after the bankrupt has been adjudged bankrupt
 R 183(1) IR – the application shall be accompanied by a certificate from the DGI, this
certificate must specify the number of bankrupt’s creditors and whether they have
filed proof of debt
 S.33(1) IA – the court will then fix a date for the hearing of the application
 R 183(2) – the Registrar shall give notice of the hearing to the DGI not less than 28
days before the hearing date
 R 183(3) – the Registrar shall also publish such notice in the Gazette
 S.33(9) and r 183(3) – the DGI shall not less than 14 days from the hearing, send a
copy of the notice to each creditor who has filed its proof of debt
 R 184(1) – the DGI shall file his report not less than 7 days before the hearing and
send a copy of the report to the bankrupt by registered post
 S.33(8) – the DGI’s report is prima facie evidence of the statement in the report
 R 184(2) – if the bankrupt intends to dispute the report, he must give notice in writing
to the DGI not less than 3 days before hearing
 R 184(3) – if a creditor intends to oppose the discharge, he shall give notice to the
DGI not less than 3 days before the hearing

1.2 – HEARING OF THE DISCHARGE APPLICATION

 At the hearing of the discharge application, the court shall:
i. S.33(3) – take into consideration the report of the DGI on the bankrupt’s
conduct and affairs
ii. S.33(9) – shall hear the DGI and may also hear the creditor
iii. S.33(9) – put questions to the debtor and receive such evidence as the court
thinks fit
 S.33(4) – if during hearing, the court is satisfied that the bankrupt has committed an
offence under S.109 to S.114 of IA or S.421 to S.424 of the Penal Code, the court
shall, unless for special reasons otherwise:
a) Refuse the discharge or
b) Order the discharge but suspend the operation of order, until a dividend of not
less than 50% is paid to the creditors
 S.33(6) – list of activities that should not be indulged in by a bankrupt. If there was
proof that the bankrupt involved in such activities, the court shall:
a) Refuse the order
 b) Allow the discharge but suspend the operation of the order for a specified time
c) Allow the discharge but suspend the operation of the order until a dividend of
not less than 50% is paid to the creditors
d) Grant an order of discharge subject to any conditions, with respect to any
earnings or income which may afterwards become due to the bankrupt or with
respect of this after-acquired property
 S.33(5) – if after expiry of 2 years from the date of such order under S.33, the
bankrupt satisfies the court that there is no reasonable probability for him to comply
with the terms of the order, the court may modify the terms of the order

1.3 – CONCLUSION OF THE HEARING

 At the conclusion of the hearing, the court under S.33(3) may make following orders:
- Grant an absolute order of discharge or
- Refuse an absolute order of discharge or
- Grant an order for discharge but suspend its operation for a specified time or
- Grant an order of discharge subject to any conditions with respect to any
earnings or income which may afterward become due to the bankrupt or with
respect of his after-acquired property
1.4 – CASES
 Lim Hun Swee v Malaysia British Assurance Bhd (currently known as Allianz
General Insurance Malaysia Bhd) & Ors (judgment creditors) – the Court of Appeal
held that consideration by the court of the DGI’s report at the hearing of an
application to discharge is mandatory but the court is not bound to accept the report if
the court is satisfied that the report is incomplete and unreliable or made based on
incomplete investigation. In this case, report by DGI was very brief and no thorough
investigation as to better assess the bankrupt’s financial situation. The Court of
Appeal thus dismissed the appeal of the bankrupt
 Lim Tee Keong v HLG Securities Sdn Bhd – the Court of Appeal here referred to the
case above of Lim Hun Swee’s case in this case where the bankrupt had appealed
against the court’s decision at the hearing of his discharge which was rejected. The
appellant appealed on the grounds that he was old and suffering from cancer, that the
trial judge failed to note that the bankrupt suffered losses in the share market during
the Asian Financial Crisis and thus was at no fault of his own for his bankruptcy. The
creditor opposed this discharge as the report by DGI was incomplete as per Lim Hun
Swee. The Court of Appeal held that the discretion under S.33(3) is wide and it must
consider equity, fairness and good conscience. However, in exercising such wide
discretion, the court make take into consideration the report of DGI that is mandatory.
As such, the Court of Appeal here dismissed the bankrupt’s application as the report
was incomplete
 Mohana Sundari d/o E Subramaniam ex parte United Prime Corp – the SAR had
imposed several conditions to the bankrupt for her discharge. The bankrupt appealed
and the court considered that the bankrupt had become so for a guarantee she signed
at the age of 25. The court took the following into consideration i.e. it was no fault of
hers, she was not in control of the affairs of company where her siblings were
directors, the period of bankruptcy, the bankrupt’s domestic, social and financial
circumstances and the number of creditors with their objections. The High Court thus
ordered her to be discharged as a bankrupt, subject to only 1 condition as compared to
several conditions imposed by the SAR
  Re Ah Kang – this application for discharge was made by the bankrupt after 3 years
being adjudged as such. The debts of the bankrupt had been settled by a 3rd party and
only 1 debt was outstanding to which the creditor of said debt would be paid a
dividend of 4.04% as per the OA’s report. The creditor objected. The court took the
following into consideration: that the principal debt had been settled and only interest
remains, the bankrupt was 60 years old, he had faithfully paid RM60 to the OA each
month, he is unlikely to gain employment. The High Court thus discharged the
bankrupt with 1 condition
 Asia Commercial Finance (M) Bhd v Bassanio Teo Yang – the bankrupt in this case
was adjudged as such due to him being a guarantor for a hire purchase for a car where
the principal defaulted, and the bankrupt couldn’t pay. The bankrupt agreed payment
of RM50 a month to the OA. The appellant here objects to the DGI discharging the
bankrupt under S.33A. The court took into consideration that the bankrupt was a mere
social guarantor and didn’t contribute to the bankruptcy. The court held that the power
of court to prohibit the DGI from issuing certificate of discharge should only be used
in clear cut cases of abuse. Example of clear cut cases is where the bankrupt took
huge loans, the bankrupt is maintaining an extravagant lifestyle or reckless in
financial matters. The court thus held that there was no reason to infer that there was
any abuse of S.33A in this case. As such, discharge granted
 Lok Kew ex parte Nam Fatt Marketing Sdn Bhd & Another case – the two bankrupts
were husband and wife who were applying for discharge from the court on the ground
of age and illness suffered. The court had ordered for the two bankrupt to file medical
report supporting their grounds for discharge. The judgment creditor who is still owed
over RM200,000 objected to the discharge. The issue before the court is whether the
judgment creditor can raise an objection. The court referred to the discharge by court
under S.33(1) and the discharge by DGI under S.33A(1). The discharge by court has
no limitation but the discharge by DGI is subject to limitation under S.33B in which
the provision states an objection to the DGI’s issuance of certificate of discharge
cannot be allowed if the application for discharge is made on the ground of serious
illness. The court here held that the provision S.33B is not applicable as the bankrupt
here made their application for discharge is by the court and not the DGI. As such, the
judgment creditor is not prevented from raising objection on the ground of serious
illness as there was no provision restraining the court from restraining similar.

METHOD 2 – DISCHARGE BY THE DGI

1.1 – ISSUANCE OF CERTIFICATE OF DISCHARGE

 S.33A(1) – the DGI may in his discretion issue a certificate discharging a bankrupt
from the bankruptcy
 S.33A(2) – a certificate discharging a bankrupt from bankruptcy shall not be issued
unless a period of 5 years has lapsed since the date of the bankruptcy order
 S.33A(3) – where the DGI has issued a certificate of discharge, the DGI shall give
notice of discharge to the Registrar and shall advertise the notice in a local newspaper

1.2 – OBJECTION BY CREDITOR OF DISCHARGE BY DGI

 S.33B(1) – before issuing certificate of discharge, the DGI shall serve on the creditor
who has filed a proof of debt a notice of his intention to issue the certificate
 S.33B(2) – a creditor who wishes to object to issuance of certificate, shall furnish the
DGI with notice of objection stating the grounds of objection, within 21 days from the
date of service of the notice to issue the certificate of discharge to him
  S.33B(3) – if a notice of objection is not furnished, the creditor is deemed to have no
objections to the discharge
 S.33B(4) – if creditor’s objection is rejected by DGI, the creditor may file an
application to the court within 21 days, from the date he was informed of the rejection
by DGI, for an order prohibiting the DGI from issuing the certificate of objection
 S.33B(5) – the application must be served on the DGI and the bankrupt
 S.33B(6) – the court may after hearing the DGI and the bankrupt:
a) Dismiss the creditor’s application or
b) Make an order that for a period not exceeding 2 years, a certificate of
discharge shall not be issued by the DGI
 S.33B(2A) – no objection can be made against:
a) A social guarantor
b) Person with disability
c) Deceased bankrupt
d) A bankrupt suffering from serious illness certified by a Government Medical
Officer

1.3 – CASES
 Asia Commercial Finance (M) Bhd v Bassanio Teo Yang – the bankrupt in this case
was adjudged as such due to him being a guarantor for a hire purchase for a car where
the principal defaulted, and the bankrupt couldn’t pay. The bankrupt agreed payment
of RM50 a month to the OA. The appellant here objects to the DGI discharging the
bankrupt under S.33A on the ground that the DGI had not updated his report on the
bankrupt and not considered his present financial situation. The court took into
consideration that the bankrupt was a mere social guarantor and didn’t contribute to
the bankruptcy. The court held that the power of court to prohibit the DGI from
issuing certificate of discharge should only be used in clear cut cases of abuse.
Example of clear cut cases is where the bankrupt took huge loans, the bankrupt is
maintaining an extravagant lifestyle or reckless in financial matters. On the issue of
report by DGI, although the DGI has not updated his report, it must be assumed that
all relevant information was considered as it is common sense that the DGI need not
report to himself. The court thus held that there was no reason to infer that there was
any abuse of S.33A in this case. As such, discharge granted.
 Re Benny Ong Swee Siang, ex parte United Overseas Bank (M) Bhd (formerly known
as United Overseas Finance (M) Bhd) – the bankrupt was adjudged as such in 1998.
The DGI wrote twice at the bankrupt’s last known address to attend a meeting for his
estate left unadministered. Later in 2012 the DGI issued a notice of intention to issue
certificate of discharge. The JC objected. The DGI rejected JC’s objection on the
grounds that the case is already 16 years, the JD could not be detected and JD has no
known assets to be distributed to JC. The JC applied to court under S.33B(4) to
prohibit DGI from issuing certificate of discharge. At High Court, the court held that
the DGI does not have absolute discretion. From the information by JC, the bankrupt
was still gainfully employed in Penang i.e. he was traceable. If the bankrupt was
discharged, he would get off scot free as there was no recovery of the judgment debt
to the JC. As such, the court held that the DGI should procure the attendance of
bankrupt and commence the administration of estate in the bankruptcy. This appeal
was allowed
 Mayban Finance Bhd v Lee Kee Sen – the court held that the burden is on DGI to
prove reasonableness for a discharge. A bankrupt cannot be discharged at the cost of
commercial morality and public interest. There is a need to strike a balance
METHOD 3 – AUTOMATIC DISCHARGE

1.1 – Application for automatic discharge

 This is a new provision under the IA 1967
 S.33C(1) – an adjudged bankrupt may be discharged from bankruptcy upon expiration
of 3 years from the date of the submission of statement of affairs if:
a) The bankrupt has achieved the amount of targeted contribution set by DGI and
b) The bankrupt has complied with the requirement to render an account of
moneys and property to the DGI
 S.33C(2) – the targeted contribution shall be determined by the DGI upon considering
the following factors:
a) Total debts of the bankrupt
b) The current monthly income of bankrupt
c) Current monthly income of bankrupt’s spouse that may contribute to the
maintenance of bankrupt’s family
d) Prospective monthly income of the bankrupt during bankruptcy
e) Expenses for maintenance of the bankrupt and the bankrupt’s family
f) Total property of bankrupt which may be realized during the period of 3 years

1.2 – Notice for automatic discharge

 S.33C(3) – DGI must serve notice of discharge to each creditor at least 6 months
before the expiration of 3 years, but the notice shall not be served earlier than 1 year
before the expiration of the 3 years
 S.33C(4) – upon receiving notice from DGI, the creditor may file an application to
court within 21 days from date of receipt of notice, objecting the discharge.
Application can only be made for the following grounds:
a) That the bankrupt has committed offence under IA or S.421 to S.424 of PC
relating to fraudulent deeds and disposition of property
b) The discharge would prejudice the administration of bankrupt’s estate or
c) The bankrupt has failed to co-operate in the administration of estate
 S.33C(6) – the notice of application to object shall be served on the DGI and the
bankrupt at least 14 days before the hearing of the application
 S.33C(7) – on the hearing of application for objection, the court may:
a) Dismiss the application and approve the discharge or
b) Suspend the discharge for a period of 2 years
 S.33C(8) – in the event the court made an order to suspend the discharge, the
bankrupt shall continue to fulfill his obligations under IA, during the period of
suspension and be discharged automatically at the expiry of 2 years
 S.33C(9) – issuance of certificate of discharge

EFFECT OF DISCHARGE
 S.35(1) – discharge shall release a bankrupt from all his debts, subject to conditions
imposed
 S.35(1) to (5) – discharge shall not operate to release the bankrupt from any debts due
to the government or any branch of public revenue, or due to any person under any
offence, fines or fraud or fraudulent breach of trust
ANNULMENT OF BANKRUPTCY ORDER
 S.105(1) – grounds to annul bankruptcy order:
- Where in the opinion of the court, the debtor ought not have been adjudged a
bankrupt: burden is on bankrupt to prove that he ought not to have been
adjudged bankrupt
- All debts have been paid in full: the court is satisfied that all debts which have
been actually and properly proved in the bankruptcy have been settled in full
- All property in Singapore and distribution ought to be effected there and there
is nothing to administer in Malaysia
 The court may also grant annulment to bankruptcy order in other ground such as
where a composition or scheme proposed by the bankrupt is approved by the court
(different from S.105 as the annulment is not pursuant to application by bankrupt)

Effect of Annulment of Bankruptcy Order

1. Terminates the bankruptcy
2. Debtor is reinstated to his original position
3. All property will re-vest on him except those that have been disposed

 The court in hearing the application for annulment, should take into consideration thef
following:
- Bankrupt’s conduct
- Interest of creditors
- Interest of public
Cases

 See also cases:

 Re Peter Wong Ex Parte Mirandolle Voute & Co Ltd – the court has the discretion
whether to annul the bankruptcy order made to the debtor

 Re Yong Tet On Paul, Ex Parte Chung Khiaw Bank Ltd – wordings of S.92(1) and
S.105(1) uses the word “may” which signifies that the court has a discretion, whether
or not to annul the orders, where the bankruptcy notices and bankruptcy orders are
null. Therefore, the debtor of whom the order was made against, must comply by the
order, until it is set aside or annulled

 Re Seow Yin Foong, ex parte United Orient Leasing Co Bhd & Anor – the court held
that the power of court under S.105 to annul adjudication order i.e. Bankruptcy Order
is discretionary which must be exercised in compliance with established principles

 Sardar Mohd Roshan Khan (the sole owner trading under the name and style of Omar
Khayam Enterprise) v Perwira Affin Bank Bhd – the Federal Court held that the
granting of an order for annulment of bankruptcy order is discretionary and not
mandatory. The court must consider all facts, circumstances, effect to which the court
must first be satisfied that the facts proven in the affidavit

 Per: Saadiatul bt Ibrahim; ex parte Southern Asia Special Asset Management Bhd –
recent case of 2015 in which the bankrupt appealed against decision of SAR in
granting AO and RO against the bankrupt. The bankrupt applied to have the
 bankruptcy order (AO and RO) annulled. The High Court however found that the
bankrupt failed to prove sufficient ground that the bankruptcy order should be
annulled. The bankrupt’s application was rejected

 Bungsar Hills Holdings Sdn Bhd v Dr Amir Farid Datuk Ishak – the issue was
whether there was sufficient ground to annul the bankruptcy order where the debtor
was in the middle of negotiating a settlement. The bankruptcy notice was served by
substituted service to which the JD was not aware of. The High Court granted
annulment of BO. The Federal Court held that the phrase “where in the opinion of the
court a debtor ought not to have been adjudged bankrupt” covers all grounds
including technical and legal grounds such as ability to pay his debt as it was a legal
ground. The fact that the debtor didn’t appear at the hearing to contest the petition did
not disqualify him from applying the annulment
 Ho Ken Seng v Progeressive Insurance Sdn Bhd – the court held that a prior sanction
(leave) by the DGI is required before a bankrupt may appeal against an AO or RO
(now BO) issued against him
 Re Cheyne Finance plc – the UK court established the test of “cash flow v balance
sheet” relating to a structured investment vehicle. The court must not only consider
whether the current debts are unable to be paid as they are due and also consider
whether future debts will not be able to be paid. This would make it possible for
creditors to call for insolvency earlier
 Kwong Yik Bank v Haw Chiew Yin – judgment was obtained in 1976 for RM30,000
by JD. JD then paid half of it. By 1981, the debt with interest amounted to RM30,000
again. The JC issued a bankruptcy notice and bankruptcy order issued. The JD later
paid RM6,000. The JD filed a motion to annul the BO (RO and AO). The annulment
was allowed by High Court to which the JC appealed. Federal Court held that JD had
failed to satisfy the requirement that the proved debt had been fully paid. The effect is
different whereby an annulment is to wipe out the whole bankruptcy while a
discharge is more appropriate
 Affin Bank Bhd v Abu Bakar Ismail – the Federal Court held that the solvency of a
debtor, under S.6(3) read together with S.105(1) of the BA (now IA) must necessarily
relate to his ability to pay his debts as they become due, at the time of hearing of the
creditor's petition. The solvency does not relate to the debtor's ability to pay his debts
subsequent to the making of the AORO. Further, it related to 'commercial solvency'
and not 'balance sheet solvency'. At the time the AORO was granted against the
debtor, there was no evidence that he was solvent. No consideration ought to be given
to the debtor's ability to pay his debts based on subsequent change of circumstances.
The Court of Appeal having found that the AORO was rightly made, the Court of
Appeal erred in taking into account the Singapore judgment obtained after the AORO,
which was not material to determine the solvency of the debtor at the date the AORO
was made. The decision of the Court of Appeal, in allowing the second annulment
application by the debtor, was contrary to the established principles of law and
warranted appellate intervention. Thus, the annulment orders were set aside
 Re Subramaniam Palani ex parte Tharenpalan Subramniam – the JC had sued and
obtained final judgment against JD for failure to pay. A bankruptcy notice was issued
by way of substituted service to the JD. The SAR then struck off the proceedings
since the creditor’s petition was filed out of time. This was successfully appealed by
the JC who then granted AO and RO (now BO). JD later appealed on the grounds that
the service was irregular in that he was not made aware and the creditor’s petition was
filed out of time. The High Court allowed the appeal held that the court was functus
 officio in regard to the creditor’s petition filed out of time since it was already dealt
with during the appeal earlier. On the issue of service, the court held that although JC
complied with SS order of court, the hearing was made ex parte invoking O 32 of
ROC which is merely a provisional order and not a definitive order, it is subject to
evidence and arguments adduced by opposing party. As such, the AO and RO may be
set aside. On the issue of merger principle of interest, it didn’t apply automatically to
all pre-judgment interest unless it was contractually agreed by the parties in the
contract. Here , the JC had computed interest excessively and thus the due sum in the
BN was excessive as the time barred pre-judgment interest must be discarded.
Similarly, the AO and RO granted is void as it was less than the statutory threshold of
RM30,000.

Appeals in Bankruptcy
 S.90(1) IA – High Court shall have jurisdiction to hear all issues
 S.92(1) – High Court may review, rescind or vary any order
 R 67 – DGI is not required to give security for costs
 Time for appeal shall be 14 days from the date of judgment/order appealed from was
perfected – extraction of signed/sealed order
 An appeal shall not operate as a stay of bankruptcy

Reciprocal Arrangements – Singapore & Other Countries

 S.104 – reciprocal recognition and arrangement relating to Singapore, Brunei, UK,
Hong Kong, New Zealand, Sri Lanka and India
 Effect – property of the bankrupt in these countries will vest in the respective DGI
who will deal with property and send the proceeds to the DGI of Malaysia – less
administrative expenses
 Similarly, property in any jurisdiction will be vested in the OA appointed in other
jurisdiction where proceedings have been opened in respect of other debtor in such
other jurisdictions
 Dato Kuah Tian Nam v Tan Wring Peng – plaintiff was adjudged bankrupt in
Republic of Singapore, instituted an action for the return of land transferred to the
defendant. In reply, the defendant contended that the plaintiff being bankrupt had no
locus standi to commence the present proceedings. The High Court dismissed the
plaintiff’s application as he had been adjudicated bankrupt by the Singapore Courts
and in the absence of leave from the OA, he was incompetent to commence present
proceedings