LAW 549-REMEDIES (BANKRUPTCY)

TUTORIAL
BANKRUPTCY NOTICE (GROUP 3)

Question 3
On 23.7.2017, Zeto Bank berhad obtained Judgment in default against David for
the sum of RM70,000.00 together with interest at the rate of 8% per annum from
23.7.2017 to date of realization and RM3,500.00 costs.

On 30.7.2017, David applied to set aside the default judgment. In the meantime,
David through his solicitor had been negotiating with Zeto Bank Berhad to settle
the judgment sum. David paid a sum of RM15,000.00 to Zeto Bank berhad as
part payment of the judgment sum.

Zeto then proceeded to issue a Bankruptcy Notice against David for the judgment
sum.

The bankruptcy notice demanded payment of RM70,000.00 together with interest

at the rate of 8% per annum calculated from 23.7.2017 to date of realization and
RM3,500.00 costs.

The bankruptcy notice which was issued on 6.8.2017 was served on David’s
solicitor on 16.12.2017.

David seeks your advice whether he has any grounds to set aside bankruptcy
notice, and if so, the relevant procedure applicable.
The issue is whether David can set aside the bankruptcy notice on the grounds that it is
served based on default judgment and not final judgment by the court.

According to Section 3(1)(i) of the Insolvency Act, one of the requirements of issuing a
bankruptcy notice is that it can be issued only on the application of a creditor who has
obtained a final judgment or order against the debtor. In the case of Re Udos Andrew
Riging, a judgment in default was made against the debtor and the debtor has applied to
set aside the judgment. The petitioner served a bankruptcy notice to the debtor based on
the judgment in default made by the court while waiting for the debtor’s application to set
aside the judgment. It was held that the bankruptcy notice will be set aside because a
bankruptcy notice cannot be served based on judgment in default as it is not decided on
merits. Any judgment not given on merits can be set aside on application and this
application must be made within time. If the debtor failed to make an application to set
aside the judgment, it would later crystallise and become final judgment.

In the above situation, Zeto served the bankruptcy notice to David before obtaining final
judgment from the court. By virtue of Section 3(1)(i), Zeto has failed to fulfilled one of
the requirements to serve a bankruptcy notice – which is to obtain a final judgment
beforehand. By applying the case of Re Udos Andrew Riging, the notice served by Zeto
will be set aside. Furthermore, David managed to make an application to set aside the
judgment within 7 days from the date of obtaining the judgment in default which prevents
the judgment to crystallise and become final judgment.

To conclude, David can set aside the bankruptcy notice on the grounds that it is issued
based on default judgment and not final judgment by the court. Zeto has failed to comply
to the requirements of serving a bankruptcy notice, hence the notice should be set aside.
There are four requirements to serve BN:
1. Served upon a final judgment
2. Creditor is in position to execute judgment
- within limitation period
- judgment obtained less than 6 years
- leave has not been obtained
3. Must solely based on final judgment
- Creditor and debtor cannot make other mutual agreement
4. Amount & interest demanded must be quantified up to the date of issuance

Debtor may apply to set aside a BN:

1. If debtor has a counter claim, set off or cross demand against the creditor.
2. Defects in BN
3. Defects in service of BN
4. Fraud
5. BN does not fulfill requirements (ie.served based on default judgment, aftet limitation
period has lapsed, amount demanded is not quantified etc)

In the issue of service of BN, there are two ways for Zeto Bank to serve the BN to David.
These two are by way of personal service or substituted service. Rule 95 provides that a
bankruptcy notice shall be served and the service of a bankruptcy notice shall be proved
in the manner specified in these rules which prescribed for the service of a creditor’s
petition. For the first method which is personal service, Rule 108 states that a creditor’s
petition shall be personally served and the service shall be affected by an officer of the
court or by the creditor or his solicitor or a person in their employment by delivering a
sealed copy of a petition to the debtor. Personal service is effected by leaving a sealed
copy of the BN after the server satisfied himself that the person he served the notice to is
the debtor himself. If the server has informed the debtor regarding the nature of the
document yet the debtor refused to accept the BN, the server may leave the BN at a place
close to the debtor and the service will still be effective.
For substituted service, Section 6(1A) & Rule 109 provides that where a bankruptcy
notice cannot be served by personal service, the creditor may apply to have it served by
substituted service. In order to apply for service by way of substitute service, Section
3(2A) states that the court may make an order for substituted service of BN if the creditor
can prove to the satisfaction of the court that the debtor, with intent to defeat, delay or
evade personal service has either departed out of Malaysia or remained out of Malaysia
or debtor has departed from his dwelling house or secludes and absents himself or closes
his place of business. If the creditor is able to prove this, court may allow substituted
service which include modes such as advertising in newspapers, placing notice on court’s
notice board or any other means the court thinks fit.

In this situation, Zeto served the BN to David’s solicitor which did not fall under either
personal service or substituted service. Ideally, Zeto should have approached David
personally to serve the notice to effect personal service instead of approaching David’s
solicitor. If Zeto failed to meet David for any reasons as provided under Section 3(2A),
Zeto may then apply to the court for substitute service to be done. Since Zeto did neither
and chose to leave the BN to David’s solicitor, Zeto has failed to serve the BN
successfully and thus rendering the service as invalid.

According to Rule 94 of Insolvency Rules, a BN will be valid for only 3 months from the
date of issuance. However, by virtue of Section 93(4), the creditors may apply for
extension of service of notice and the court may grant an extension of time upon such
terms it seems fit.

In this situation, the bankruptcy notice was issued on 6.8.2017 and was only served on
16.12.2017. This showed that the time lapsed has exceeded 3 months from the date of
issuance to the date of service. Zeto also did not apply for extension of time to serve
notice. Therefore, it is clear that the bankruptcy notice is no longer valid upon issuance to
the debtor.
Bankruptcy petition can be filed by either debtor himself or the creditor.

DEBTOR’S PETITION   

What is the effect of debtor’s petition?

 Debtor has committed an act of bankruptcy.
Why debtor wants to file petition against himself?
 Because he knows he won’t be able to pay the amount claimed by the creditor.
Can debtor withdraw the petition after it has been made?
 No. Except with the leave of court.
Requirement of debt to enable debtor to petition?
 No minimum. Any amount of debt would do.

CREDITOR’S PETITION

Is there a time restriction?

 Yes. Petition must be based on bankruptcy act occurred within the past 6 months.
Requirement of debt to enable creditor to petition?
 Minimum of RM50,000.
Type of debt?
 Liquidated sum. This means the debt must be foreseeable and can be assessed by
a fixed formula.
Requirement of debtor?
 Debtor must be domiciled/ordinarily resides/has place of business/has dwelling
house in Malaysia within 1 year before date of petition.
Where to file petition?
 At the state where debtor resides.

How to serve petition?
 Personal or substituted service (same as BN)

Forms required?
 Form 41
 Form 42 – Affidavit supporting the petition
 Form 44 – Affidavit proving service of petition

**If debtor is against the petition, what should he do?

 File a notice to oppose petition in Form 45
 Notice must state grounds of opposition
 If debtor did not state grounds, notice becomes insufficient and fatal.
 Notice to oppose must be filed within 7 days (D&C Bank Bhd’s case)