RECURRING ISSUES IN BANKRUPTCY LAW

HISTORY OF BANKRUPTCY ACT 1967 The Bankruptcy Act 1967 is a derivative of two old English statutes, each bearing the same name: The Bankruptcy Act 1883; and The Bankruptcy Act 1912.

Flow of bankruptcy proceedings

DISTINCTION BETWEEN AO & RO Receiving Order - A receiving order is made first; this is an order of the court requiring the DGI to take possession and control of a person’s   properties. Adjudication Order - If the court is satisfied that a person cannot   pay   his debts, it will allow the DGI to   distribute his   properties amongst his   creditors. Relevant sections: Section 8 - Effect of receiving order.   On the making of a receiving order the Director General of Insolvency shall be thereby constituted receiver of the property of the debtor, and thereafter, except as directed by this Act, no creditor to whom the debtor is indebted in respect of any debt provable in bankruptcy shall have any remedy against the property or person of the debtor in respect of the debt, or shall proceed with or commence any action or other legal proceeding in respect of such debt unless with the leave of the court and on such terms as the court may impose. Section 24 - Adjudication of bankruptcy (4) When a debtor is adjudged bankrupt his property shall become divisible among his creditors and shall vest in the Director General of Insolvency.

FATAL DEFECTS In Judgments In Bankruptcy Notices In Bankruptcy Petitions

Fatal Defects in Judgments See Sovereign General Insurance Sdn Bhd v Koh Tian Bee [1988] 1 CLJ 277 An irregularity or formal defect in the judgment is no sufficient reason for going behind it. (Re Beauchamp). As a general principle, the validity of the judgment debt will only be inquired into when there is evidence of fraud or collusion or miscarriage of justice: (Re Flatau, Re Howell).

Fatal Defects in the BN – BR 94 Every bankruptcy notice shall be endorsed with- (a) the name and place of business of the solicitor who is suing out the notice, or if no solicitor is employed, with a memorandum that it is sued out by the creditor in person; (aa) the name and National Registration Identity Card number of the debtor; (b) an intimation to the debtor that if he has any counter-claim, set off or cross demand which equals or exceeds the amount of the judgment debt, and which he could not have set up in the action in which the judgment or order was obtained, he must within the time specified in the notice file an affidavit to that effect with the Registrar. (2) In the case of a notice served in the Federation the time shall be seven days. In the case of a notice served elsewhere the Registrar when issuing the notice shall fix the time.

Fatal Defects in the CP – BR 99 (1) Every petition shall be dated, signed and witnessed. (2) The creditor or debtor shall lodge with the Registrar sufficient number of copies of the petition to be sealed and issued for service. (3) The creditor or debtor shall transmit a sealed copy of the petition to the Official Assignee by post or otherwise.

PROBLEMS WITH THE NATIONAL LAND CODE Can a secured creditor go after his secured property despite the making of the R.O? No: See operation of s 8(2A) [Amended and w.e.f. 17.7.1992) and OCBC Bank (Malaysia) Bhd v. Tan Eng Kwee [2003] 3 CLJ 161 per Low Hop Bing J Yes: Pre-s8(2A) position, by reason of the presence of s 8(2) which is known as the ‘express reservation of all rights clause’:   (See dicta in White v Simmons LR 6 Ch 555 at 558 per Lord Hartherly LC, commenting on the s 12 of the UK Bankruptcy Act 1869; Chinese Tin Mines Rehabilitation Loans Board [1957) 23 MLJ 65Re Ng Say Tee [1954] MLJ 17; Lee Sang Loong Sawmill [1980] 2 MLJ 118, and Malayan Banking Berhad v The Official Assignee (Velu Marimithu) [1993] 2 AMR 3400 [Oct 18, 1993] These no longer good law. Why? What is the correct position?

Cont… The vesting of the bankrupt’s property on the DGI, under s 24(4) is not absolute — Where it involves land, s 24(4) is subject to the operation of s 349, National Land Code The relevant portions of s24 read as follows: 24. Adjudication of bankruptcy (1) At the time of making a receiving order the court shall adjudge the debtor bankrupt unless the debtor can show to the satisfaction of the court that he is in a position to offer a composition or make a scheme of arrangement satisfactory to his creditors; provided that when a receiving order is made against a firm in the firm's name the court shall not adjudge any person bankrupt as a member of the firm unless such person is proved to the satisfaction of the court to be a partner by his own admission or by evidence on oath. … (4) When a debtor is adjudged bankrupt his property shall become divisible among his creditors and shall vest in the Director General of Insolvency. The relevant portions of s 349, National Land Code, read as follows: PART TWENTY-TWO ; TRANSMISSION ON DEATH AND BANKRUPTCY 349. Registration of Official Assignee. (3) No land, share or interest shall vest in the Official Assignee under any adjudication of bankruptcy, or order for administration in bankruptcy, until it has become registered in his name pursuant to this section.

Effect of the triumvirate Federal Court cases Issue: Conflict between Sec 6(3) Limitation Act 1953 and the triumvirate FC cases. United Malayan Banking Corporation Bhd V. Ernest Cheong Yong Yin [2002] 2 CLJ 413 Perwira Affin Bank Bhd v Lim Ah Hee [2004] 2 CLJ 787 Moscow Narody Bank Ltd v Ngan Ching Wen [2004] 2 CLJ 241

The relevant words of section 6 (3), and which have given so much trouble to so many judges over the years, are that ‘and no arrears of interest in respect of any judgment that shall be recovered after the expiration of 6 years from the date on which the interest became due.’ The catch phrase ‘arrears of interest’ in sec 6(3) ought to be read as ‘pre-judgment’ interest. a. The Federal Court cases cited above do not pay sufficient attention to the following words: ‘no arrears of interest’, ‘in respect of any judgment’, and ‘expiration of 6 years from the date on which the interest became due’. b. The Federal Court cases are distinguishable and dealt with future interest and not past interest. The two catch phrases of “arrears” and “from the date interest became due” speak of past interest. This was not properly considered in the three Federal Court cases. to that extent, any decision by the Federal Court on the interpretation of section 6(3) are therefore per incuriam.

The questions posed to the Federal Court

Conflict in the 3 decisions - ratio of the case Question posed and ratio of case is on post judgment interest

is Sanction under section 38(1)(a) of the Bankrupctcy Act 1967 required? Section 38. Consequences of refusal of discharge Where a bankrupt has not obtained his discharge— the bankrupt shall be incompetent to maintain any action (other than an action for damages in respect of an injury to his person) without the previous sanction of the Director General of Insolvency; Is a bankrupt required to obtain the DGI’s sanction to challenge the bankruptcy?

The key words in Sec. 38 (1)(a) are ‘maintain’ and ‘action’ The proper meaning of the word ‘property’ in the Act does not include the right of appeal of the bankrupt against the order making him a bankrupt, nor the right to set aside the order

RE KHOO KIM HOCK Issue: whether a bankrupt could apply for annulment of the adjudication order without sanction from the O.A. Mohamed Azmi J held as follows:   The exception contained within brackets in section 38(1)(a) clearly indicates that the section is intended to apply only to actions for recovery of something—either real or personal—which can be turned into assets such as a claim for recovery of property or money due. He went on to conclude at page --- that:- … section 38(1)(a) does not apply to an application under sections 92(1) and 105(1) of the Bankruptcy Act, where a bankrupt is seeking the court's discretion to review, rescind or vary any order made by it, and as such no previous sanction of the Official Assignee is necessary in the present case.

HO KEN SENG V PROGRESSIVE INSURANCE SDN BHD Issue: Whether a bankrupt who has not obtained the previous sanction of the DG of Insolvency is competent to maintain the appeal The Judgment Creditor raised a preliminary objection under s. 38 of the Bankruptcy Act The Court of Appeal agreed with the JC and held that a bankrupt must obtain sanction from the DGI in order to challenge the bankruptcy The Federal Court unanimously allowed the JD’s appeal – it held that the right to appeal is not property, so the JD does not need sanction from the DGI to challenge the bankruptcy. Re Khoo was correctly decided.