LIA4009

Bankruptcy and Winding-up

 Introduction
• Aims of the course
• How the course is conducted
• Lectures: Tuesdays (1-2pm), Thursdays (2-3pm)
• Tutorials:
• 10 tutorial groups
• 16-17 in a group
• Tutors: AP Zue, Mr Sri, Mr Wong and Mr Rafiq
• Time and venue: tbc
• Assessments
• Form a group of 3 in your respective tutorial
• Assignment 1 (Group assignment) 30% groups.
• Deadline for submission: week 7 • Assessments are graded by your respective
• Assignment 2 (Group assignment) 30% tutors.
• Deadline for submission: week 14
• Alternative assessment 40% : Individual assessment
• Conducted in week 14
LIA4009 Bankruptcy and Winding-up
• Personal Insolvency (Bankruptcy)
• Company winding-up under s.466(1)(a) Companies Act 2016
PERSONAL INSOLVENCY - INTRODUCTION
Legislation
Insolvency Act 1967

Subsidiary legislations
∙ Insolvency Rules 2017 (IR);
∙ Insolvency (Costs) Rules 1969;
∙ Insolvency (Fees) Rules 1969; and
∙ Insolvency (Voluntary Arrangement) Rules 2017
Practice Directions
• Practice Direction No.3 of 1993 – bankruptcy cases to be heard before the
Registrar of the High Court (Senior Assistant Registrar and Deputy Registrar)
• Practice Direction No.1 of 1968 - Explains how to serve a document by
substituted service
Objectives of personal insolvency law
• To vest all the debtor’s property and assets on the Director General of
Insolvency;
• To realize the debtor’s property and assets for equitable distribution
among his creditors. This will allow the creditors to recover whatever
the creditors can from the disposal of the debtor’s property;
• To enable the debtor to make a fresh start upon the discharge of his
debts.
Legal Effect of Bankruptcy
When a person becomes a bankrupt –
• He is protected from legal proceedings by his creditors. See s.8(1) IA;
• All the property of the bankrupt vests in the DGI and becomes divisible
among his creditors. See s.8(2) IA
• He is subjected to certain disabilities and disqualification. See s. 36, 38(1)(d)
IA, Art. 48 (1) of the Federal Constitution.
His status as a bankrupt ends if the bankruptcy order is annulled or
when he obtains a discharge See s.18 (10A), 105, 33, 33A, 33B, 33C IA.
Bankruptcy Jurisdiction
Bankruptcy jurisdiction in Malaysia is vested in -
✔ High Court in Malaya
✔ High Court in Sabah and Sarawak
See:
• s. 88 IA – The High Court shall be the court having jurisdiction in
bankruptcy under the IA.
• Arahan amalan No. 3 Tahun 1993 : Pendengaran kes-kes kebankrapan
di hadapan Pendaftar Mahkamah Tinggi
Parties in bankruptcy: Debtor
1. Debtor
Definition of a debtor – see section 3(3) IA
“…includes any person who at the time when the act of bankruptcy was
done… -
(a) was personally present in Malaysia, or
(b) ordinarily resided or had a place of residence in Malaysia; or
(c) was carrying on business in Malaysia either personally or by means
of an agent, or
(d) was a member of a firm or partnership which carried on business in
Malaysia”
Parties in bankruptcy : Creditor
2. Creditor
• Secured creditor;
• Unsecured creditor.
Secured creditor
section 2 IA - “a person holding a mortgage, charge or lien on the property of the
debtor or any part thereof as a security for a debt due to him from the debtor but
shall not include a plaintiff in any action who has attached the property of the
debtor before judgment.”
2 criteria must be met:
1. The creditor must be holding the property of the judgment debtor as security;
2. The property must be held as security for the debt owing by the judgment
debtor to the creditor.
See: Perwira Habib Bank Malaysia Bhd v Samuel Pakianathan [1993] 2 MLJ 423
Parties in bankruptcy : Creditor
Unsecured creditor
• Is a person whom money is owed with no security attached to the
loan.
• For example, trade creditors that provides goods and services to its
customers on credit terms.
Parties in bankruptcy : Director General of Insolvency (DGI)

See section 2 and Part IV of IA

• He is the receiver, manager, administrator and trustee of the property of
the bankrupt upon the making of the Bankruptcy Order. See s.8(1)(b) IA.
• The DGI Heads the Department of Insolvency and is the designated
government official in the administration of bankruptcy in Malaysia. This
encompasses the administration of the estate of the bankrupt as well as
the conduct of the bankrupt. The DGI’s rights and duties are in s.71 – 87
of the IA.
• The DGI also acts as the Official Receiver (OR) in which he administers
companies wound up by the court either as a provisional liquidator or a
liquidator, where private-sector insolvency practitioner is not appointed.
Minimum indebtness threshold

The debt threshold for initiating a bankruptcy proceeding is

RM100,000 as provided under s. 5(1)(a)IA
Persons subjected to bankruptcy
1. Foreigner
• As long as he fulfils all the requirements under s.3(3) and at the time
the bankruptcy petition is presented all the conditions under s.5(1)IA
is met.
Therefore:
First, the creditor must show that the person is a debtor under s.3(3)
IA;
Second, the creditor must show that all the conditions under s.5(1) IA is
met when the bankruptcy petition is presented.
Persons subjected to bankruptcy
2. Married women
S. 120 IA – “a married woman shall be subjected to this Act in all respects
as if she was a feme-sole”
 married women may be subjected to bankruptcy as if they were
single.
3. Minors
Bankruptcy proceedings may be taken against a minor in respect of debts
that are legally enforceable against him. For example, judgment arising
from an action in tort.
Minors – Individuals before the attainment of 18 years old. See s.2 of Age
of Majority Act 1971
Persons subjected to bankruptcy
4. Persons of unsound mind
A person of unsound mind may be adjudged a bankrupt -
▪ S.133(c) IA – a mentally disordered person or lunatic may act by his
committee or curator bonis. [A legal representative appointed to
manage his finances, property or estate which the person is unable to
manage due to his mental or physical capacity]
▪ Rule 226 IR – where his lunacy is not confirmed by inquisition, the
court may appoint a suitable person to represent him in the
proceedings.
 Persons subjected to bankruptcy
5. Deceased
1. Death of the debtor does not invalidate the bankruptcy proceedings.
S.96 IA – “If a debtor or against whom a bankruptcy petition has been presented
dies, the proceedings in the matter shall, unless the court otherwise orders, be
continued as if he were alive, and the court may dispense with service of the
petition upon him”
The court may order under r.111 IR for service to be affected on his personal
representative or such other person as it thinks fit.
2. Bankruptcy proceedings cannot be initiated against a debtor after the debtor has
died. However, a petition may be presented for the administration of his estate in
accordance with bankruptcy law. See: S.122(2) IA
Service of the petition is to the executor or the person who has taken the letter of
administration r.240
Persons subjected to bankruptcy
6. Members of Parliament
Members of either House of Parliament cannot claim parliamentary privilege
to avoid bankruptcy proceedings.
Re Haji Yahya Lampang [1987] 2 MLJ 488 at page 489 – the judgment debtor
holds political posts of State Assembly Member of Tempasuk and M.P. for
Kota Belud
7. Members of diplomatic corps
Diplomatic corps are ambassadors and other diplomatic personal posted in
other countries. The Diplomatic Privileges (Vienna Convention) Act 1966
provides certain immunities to diplomatic corps. However, if a debt is
incurred by the diplomat outside his scope of duty, he may be subject to
bankruptcy proceedings.
 Social Guarantors and Guarantors
Social guarantors
s. 2 IA – definition of social
guarantor
s. 5(3)(a) IA – a creditor cannot
commence any bankruptcy action
against a social guarantor
s. 33B(2A)(a) IA – a creditor cannot
object to a discharge by a
certificate of DGI against a
bankrupt who was adjudged a
bankrupt because he was a social
guarantor
8. Guarantors
s. 5(3)(b) IA – a creditor cannot commence any bankruptcy action
against a guarantor other than a social guarantor unless the
creditor has obtained leave from the court.
s. 5(4) IA – to obtain leave a petitioning creditor must satisfy the
court that he has exhausted all modes of execution and
enforcement to recover the debts owed to him by the debtor
before commencing any bankruptcy action against a guarantor
other than a social guarantor.
s. 5(6) IA – describes what are the modes of execution and
enforcement in s. 5(4) IA.
Case:
Hong Leong Bank Berhad v Ong Moon Huat [2018] MLJU 1576.
Re Wong Choon Loong; exparte Ambank (M) Bank [2022]
MLJU20
Re:Malaya Sibuku; Ex P: Kaya Karisma Sdn Bhd [2021] 5 CLJ 403
 Persons subjected to bankruptcy
9. Companies
Bankruptcy proceedings cannot be instituted against any company or corporation that
is incorporated under the Companies Act 2016. Distribution of a company’s assets
among its creditors in the case of insolvency is by way of winding up proceedings
under the Companies Act 2016. See s. 121 IA

10. Partnerships
s.103(1) IA – A partnership may be the subject of bankruptcy proceedings.
rule 220 IR – The bankruptcy order shall be made against the partners of the firm
individually and not the firm.
s.98 IA – a creditor may commence bankruptcy proceedings against all partners of a
firm, or any one of them without including the others.
Case: Re Chan Tse Yuen & Co; Ex Parte M Wealth Corridor Sdn Bhd [2020] MLJU 1828
 Stages of personal insolvency
1. Pre-bankruptcy
- Part I, IA 1967 sections 2A – 2Q
- New provision under the IA 1967
- Provision of ‘voluntary arrangement’ by the debtor any time before he is adjudicated
as a bankrupt
- If debtor fails to comply with the voluntary arrangement, the creditor may proceed
with bankruptcy petition against the debtor. See S.2O IA
2. Commencement of bankruptcy proceedings
- Starts when a debtor commits an act of bankruptcy. The most frequent act of
bankruptcy is non-compliance of a bankruptcy notice.
3. Bankruptcy petition
- Once an act of bankruptcy is committed, the creditor may present a bankruptcy
petition.
- Where the HC is satisfied that the debtor is unable to pay his debts and the debtor
has no valid grounds to set aside the bankruptcy petition, the HC will adjudge the
debtor as a bankrupt by making a bankruptcy order.
 Stages of personal insolvency
4. Bankruptcy Order – debtor becomes a bankrupt
 Legal effects of a Bankruptcy Order
 Proceedings consequent to a Bankruptcy Order
 What a bankrupt must do
 What creditors must do
 Role of the DGI
 Composition and scheme of arrangement
*Note the difference between voluntary arrangement under
s.2A-2Q (any time before debtor is adjudged a bankrupt) and
composition or scheme of arrangement under s.18 IA which
happens after debtor is adjudge a bankrupt.
 Stages of personal insolvency
5. Realisation of the property of the bankrupt by the DGI
- Which property can pass to the DGI (s.48(1) IA)
- Doctrine of relation back(s.47(1)IA), avoidance of
voluntary settlement (s.52 IA) and preferences (s.53 IA)
- Protection of bona fide transactions
6. Discharge
- where all assets of the bankrupt have been distributed
to its creditors the bankrupt may apply for discharge from
bankruptcy