Pg 193, Question 9, August 1996

(a)

Note a few things:

 That was last time. Now, it is known as Rule 116 of Insolvency Rule of 2017.
 Bankruptcy was an examinable area only from year 1991 onwards.
 In any bankruptcy question, the most important thing to do is to find out at what bankruptcy
stage you are at. Because that decides on what grounds and procedures are required
 From facts, this question is at the petition stage. Should not attack bankruptcy notice at
creditor’s petition stage. Should apply for stay and challenge BN at BN stage. BAD. Procedure
wrong.

Answer (i)

 Rule 116 – show cause against the petition – to oppose the petition at creditor’s petition stage -
hearing at petition stage
 NOTE: cannot at CP stage oppose to BN, should have opposed BN at BN stage – if really want to
attack BN, get a stay for CP first
 File Form 45 within 3 days before hearing date for petition (mandatory) – specify the statement
in the Petition which he intends to deny or dispute
 This notice can be supplemented by an affidavit, which will contain detailed grounds
o OTF: merely file an affidavit is bad, Form 45 is mandatory – affidavit cannot stand as its
own, must stand on something
o However, if mere Form 45 – no issue
 Q: can it be cured under S.131 & Rule 282 – effect of non-compliance will render proceedings
invalid
o D & C Bank Bhd v Datuk Ong Kien Seng: not curable; it fatal
o Duli Yang Amat Mulia – “shall” mandatory

Anwer (ii)

 Awang, form to facts, is not attacking the bankruptcy notice. Instead, he is wrongly challenging
the petition.
 Sec 282 states that any non-compliance of the rules shall not render any proceeding void
unless the Court decides to invalidate the whole proceedings.
 Rule 131 and sec 282 are the same
 Failing to comply with Rule 116 results in the injustice to the practitioner. Because, in the facts,
there is deliberate non-compliance. The defendant will not know who the petitioner is
attacking.
 Case of Datuk Ong Kian Sing**- respondent file objection to the petition. He did not file Form 16
(as it was called then). High Court said they will cure it. Bank not happy, appealed. CoA said they
will cure it. However, on appeal at Federal Court, they said no curing, it is a mandatory
compliance. Form 45 alone can, no req for affidavit. So long in Form 45 state the dispute. the
nature of the dispute, which part of the petition intend to challenge/ dispute. If Form not
 sufficient, may put in supplementary affidavit to support. Non compliance is fatal. Prejudicial to
petitioning creditor.
 What is the point of an affidavit? It is always used in conjunction with an application.
 Now, an affidavit was filed alone without an application. Can an affidavit stand on its own? No, it
cannot. Because there is no foundation for the affidavit to stand on.
 Similarly, here in the facts, the non-filing of Form 45. The affidavit cannot stand on its own.
 Conclusion: procedure invoked here is wrong. Form 45 must be used because it is a mandatory
requirement. Only then, the affidavit can come in and help.
 Moreover, Awang’s affidavit cannot be treated as a valid notice to oppose the said petition.
 Case of Datuk Ong Kian Sing – affidavit cannot stands on its own.
 DYAM v Datuk Captain Hamzah – general application. Mandatory rules have to be complied

(b) (i)

 Doctrine of Relation-Back
o To determine when does the OA title is in – date of Act of Bankruptcy – not date of
petition; If there is more than one Act of Bankruptcy – date will be related back to the
first Act of Bankruptcy provided it is committed within 6 months from the date of
petition – S.47 IA 1967
 1st Limb: The day of the commencement of bankruptcy, is not the date when the
bankruptcy is made under sec 8. Instead, the bankruptcy commences much
earlier, starting from the date of act of bankruptcy
 2nd Limb: If there is more than one act of bankruptcy, then it commences from
the first act of bankruptcy. With the pre-condition, the first act of bankruptcy
must be committed within 6 months of the date of presentation of the petition.
o Easier. Basic facts, just need to show when AOB committed. Whether it was within 6
months. *p/s: voluntary settlement s.52 (up to 5 yrs)
 Significant
o This is significant as it is used to overcome acts by bankrupts who attempts to defraud
the creditors. Such acts could be transfer of properties (eg s.3(1)(b), fraudulent
transfer), creating a trust and transferring property to others, gifting the property to
others. The date relates back to the date the act of bankruptcy.
 Eg if WSS was enforced and the judgment creditor has nil return, it will relate
back to the date of AOB provided it was committed within 6 months from the
date of bankruptcy.
o Relation back allows the identifying of title.
o Also, purpose of bankruptcy is an equitable distribution among the creditors. As it is
also to prove the creditors who is fast in acting/have an upper hand against the other
creditors. This only applies to unsecured creditors.

(b) (ii)

 S.50 & S.51 IA – effect of bankruptcy on execution and attachment proceedings

o Once a person is made a bankrupt, DGI comes in and takes as much as he can for
equitable distribution to judgment creditors.
 o S.50 and s.51 assists the DGI to reap the proceeds of the execution and bring it into the
bankrupt’s estate. However, it is subject to the principle where the execution has not
been completed. Proceeds must maintain in court for 14 days.
o DGI shall not allow an execution creditor who moves fast as compared to than other
creditors to keep the benefit of their execution proceedings
o Assist DGI to collect proceeds of execution and bring it to the bankrupt’s estate
o However, subject to ‘where execution has been completed” – DGI cannot touch
 Writ of Seizure & Sale
o It is an execution proceeding – 2 stages
 1st – sheriff has to go in and seizes the goods – S.3(1) Debtor Act;
 2nd – if more than 10k, appoint …
o Where a creditor seizes to enforce a judgement against a judgment debtor. The general
rule is he can reap the benefit. There are two stages, the first is the seizure stage. Sheriff
can seize everything. Only exception is s3(1)(f) Debtors Act. If above 10k, must appoint a
licensed auctioneer. Will have to draw up a proclamation of sale. Then only goods will
be sold. The second is the sale stage. Advertise in the locality etc. Money has to be paid
into court and Registry has to keep it for min statutory time period of 14 days. Sheriff
will issue a bill (the executioner expenses + licensed auctioneer to the Registry of the
civil courts). Deducted before payment out is made. Once bill issued and deduction of
fee, the money is paid out to execution creditor. The execution completes upon the
payment to the execution creditor. When execution completed, execution creditor can
retain benefit notwithstanding judgment debtor has become a bankrupt.
o However, when bankruptcy creeps in, while process of execution is taking place, then
the execution creditor cannot retain the benefits unless the execution has been
completed (meaning the money was paid to the execution creditors (sec 51))
 Attachment (i.e. garnishee proceedings) – 2 stages
o 1st – to show cause – money/bank account is frozen at this stage
o 2nd – further considerations – if not dispute, then order is absolutely made – frozen
money have to be paid to the judgement creditors
o Once it is completed, DGI cannot be compelled payment of money from garnishee.

August 1997, Pg 194, Q8

Part a

The disabilities are sec 38.

1) Incompetent to maintain any actions except actions in relation to personal injury unless you
obtain prior sanction from the DGI
2) The bankrupt is not allowed to leave the country.
3) Cannot take part, carry on, or enter any business, partnership. Cannot be director of company.
Cannot take part in the management of a company
4) Cannot engage in the control/management of any business, or be in employment of his/her
spouse, siblings, sibling’s spouse or an ancestor/descendant.
Part b
 Composition or scheme of arrangement are mechanisms for a person to come out of
bankruptcy. Consequently, the bankruptcy will be annulled. This is contained under sec 18-26 IA
1967.
 Composition is payment of a percentage of the total debts. For instance, total debt is RM100k
and you pay 16% as the full and final sum. This is approved by the creditors with a 2/3 majority
and is approved by the court. the court will then annul the bankruptcy order.
 Scheme of arrangement is time-based. The bankrupt is asking for time to settle his total debts.
This is again approved by the creditors. Once approved by court, then the bankrupt is annulled.
 The above were the previous positions.
 Under old position, composition and scheme of arrangement only came into effect after
bankruptcy.

The present positions after amendments in 2017.

 However, in view of sec 2A onwards, the new provisions, known as voluntary arrangement.
Under this provision, a debtor (not a bankrupt) can make this proposal, a voluntary arrangement
which can either be a composition/scheme of arrangement even before bankruptcy has taken
place.
 If the debtor intends to propose this, he is required to appoint a nominee, and make an
application to court for the purpose on obtaining an interim order for the voluntary
arrangement.
 Once the interim order is approved by the court, it has a validity period of 90 days and the
nominee is required to supervise the carrying out of the voluntary arrangement.
 When this is in effect, there can be no bankruptcy proceedings commenced.

Part c (i)

 According to facts, that is not the date of bankruptcy. Instead, the act of bankruptcy started
much earlier. Applying sec 52, the avoidance of voluntary settlement. The general rule of sec 52,
any transaction/settlement caught within two years of the voluntary settlement from date of
bankrupt, will be within the grasp of the DGI. since the date of gift is 1 July 1994, within two
years. The DGI can therefore void that transaction unless it is caught within the three
exceptions:
o a) in consideration of marriage
o b) purchaser of good faith with valuable consideration
o c) … in line with merits with his wife
 the law does not make it clear what type of consideration of marriage. Arguably, it can come
under the exception of a). Therefore, the transaction can potentially be safe.
 However, he can also be caught under sec 34. Because there is potentially an element of fraud.
 At the time of the transfer, Damian had not settled all his debts. At the time of making the
settlement, there was an unsatisfied money judgment made against Damian. Therefore, burden
of proof is on Judith, to prove that at the time of transfer, Damian had the capabilities to settle
his debts even without that property at that time.
  Judith had to prove this was not a fraudulent settled. Otherwise, the property will come under
the DGI.

Note: won’t go into sec 47 because we do not know the date of act of bankruptcy.

Part c (ii)

 Once the bankruptcy kicks in, the law will protect Damian. This is sec 8(1)(a), look up the statute.
No one can now proceed with a suit against Damian. Therefore, once Damian becomes a
bankrupt, Arthur will not be able to continue the action against Damian until he obtains leave of
the court. Arthur must apply to court for leave to continue the action.
 The nature of Arthur’s action is personal injury. Most likely the court will grant leave. Because in
such actions, it is Damian’s insurance who will be paying.

Part c (iii)

 Sec 36, one person becomes bankrupt, he will be disqualified. It is an automatic disqualification.
 The properties are registered in the name of the trustee
 The general, under sec 8(1)(b), once the bankruptcy order is made, all property shall be vested
in the DGI and all property will be distributed among the creditors.
 Sec 48(1)(a)(i)- property held on trust as a trustee, shall not be pass to the DGI.
 Therefore, the position of property registered in the name of the trustee, it shall not pass to the
DGI. The property does not belong to the trustee, he holds the legal title but the beneficial title
belongs to someone else.

Pg 194, Question 8, Supplementary 1998 – Bankruptcy Notice

Part a

Note: What are the defects in the bankruptcy notice?

1. The parties description are wrong. RE must be the judgment debtor. Ex parte must be judgment
creditor. Other way round. It should be “Ex parte: Panas” and Re: Denggi
2. The full name, address & IC number of the judgment debtor
3. Time period for compliance - It cannot be three days, it has to be seven days. (s.3(1)(i) –
statutory time period. Cannot reduce)
4. The interest, what is the total amount payable? Required to quantify the interest up to date of
issue of bankruptcy notice, in the schedule, the total amount to be paid. Requirement under
s.3(1)(i) Insolvency Act 2017. Must be definite/ certain amount. (Fadzil Osman, Ghazali Mat
Noor, Low Mun- don’t give formula. Variation in calculation. Will lead to dispute. JC must
demand.)s.3(2) proviso can overcome if excessive time period. Unless notice given
5. Signature of the registrar for the bankruptcy notice
6. The endorsement is missing. The consequences of the endorsement of notice is missing.
Otherwise, the form is irregular. (Douglas Tay- pg 37)

Part b
Notes: The general rule- sec 38. “incompetent to maintain an action unless obtain the previous sanction
of the DGI”

 Exception: suit for personal injuries

 From facts, it is a suit for personal injuries
 No effect from the bankruptcy. The suit can be maintained

Part b (i)

 When is the act of bankruptcy committed? Based of date of service of bankruptcy notice, 3.1.96,
we know the act of the bankruptcy was committed on 11.1.96, based of 7 days. Relation back
would result in the date of 11.1.1996. the transaction will be caught by relation back.
Consequently, the transaction is impeachable (void).
 Potentially, transaction can be saved under sec 54. Even under this, there are string of
conditions to comply with. This transaction took place before the receiving order made on
1.4.96. transaction itself is not complete as Tharu had yet to receive the purchase price.

Pg 196, Supplementary 1998, Question 8

 Whether A can challenge excessive amount in BN at petition stage?

o Petition stage. Cannot challenge excessive amount
o S.3(2) IA - … shall not be invalidated unless the debtor within 7 days upon receiving the
notice give a notice of the excessive amount to the creditor
 Is there an Act of Bankruptcy?
o Upon service of the BN, debtor is required to comply with the notice (i.e. make
payment)
o Other things that he can do: S.3(1)(i) – to counterclaim, set off, cross demand (will
extinguish the claim)
o OTF: A ignored the BN – yes, non-compliance of BN is an Act of Bankruptcy under S.3(1)
(i)
 Notice on 1/11/97 – start counting from 2/11/97 – expiry on 8/11/97 (FULL
BENEFIT OF 7 DAYS)
 Act of Bankruptcy takes place on 9/11/97
 Is there any ground to oppose creditor’s petition?
o 1st Ground (valid)
 In 1998, min. amount is RM10k
 OTF: File on 11/5/98 – balance is RM9750 – below statutory amount
nd
o 2 Ground
 Sobri Arshah – held that affidavit before petition date is bad
 c/f Koh Kim Kuang; Re Ho Weng Keong: nothing in the Act/Rules that provides
that must petition first then only can affidavit
 As such, not a valid ground to oppose
o 3rd Ground (valid)
 S.5 – within 6 months must file the petition
 OTF: can oppose under this ground
 o Procedure
 Shall file in Form 45 – specify the statement that you want to dispute/deny – 3
days before hearing – it is a mandatory requirement
 Mere filing affidavit renders the petition bad – not curable – D & C Bank Bhd v
Datuk Ong Kien Seng
 S.49 IA – allow for second and subsequent bankruptcy
o The OA (DGI) should not allow it – DGI should object for the second/subsequent
bankruptcy as far as possible
o This is because the other creditors still have other option – i.e. file proof of debt under
the existing bankruptcy – no need to go for another new bankruptcy proceedings
o If DGI overlooked it, second/subsequent bankruptcy can be taken place

Pg 198, Question 8, July 2000

 OTF: at petition stage

 Q: can set aside BN?
o Irregularities of BN
 interest not quantified, valid ground to set aside the BN. (Ghazali Othman, Low
Mun)
 S.3(6) – cannot claim interest – 6 years is lapsed
 UMBC v Ernest Cheong
 limitation period (6 years) – exceed 6 years must get leave
 Under O.46r.2 – after lapsed of 6 years must get leave in order to
execute a judgement
 OTF: leave is not obtained – Dr Shamsul Bahar Bin Abdul Kadir
o However, these 3 grounds cannot be raised during CP ground – therefore, S is advised to
get a stay for CP from court
 Procedure: rule 17 – summons in chamber supported by affidavit – Datuk Lim
Kheng Kim v Malayan Banking Berhad

NOTE: excessive demand, counterclaim, set off, cross demand, debt settled must be opposed within 7
days – Rule 93. Other grounds can be opposed at a later date. (pg 185)

 Grounds to oppose petition

o 18/5/99 – Act of Bankruptcy takes place – S.5 – within 6 months file present petition
 OTF: over 6 months – valid ground to oppose
o Ability to settle
 OTF: cannot – the balance still exceeds RM50k
o Counter-claim must be filed within 7 days
 OTF: not a valid ground to oppose
 Procedure – Rule 116
o File in Form 45 – specify statement that you intend to deny/dispute within 3 days before
hearing – serve it on creditors
o Mere filing affidavit renders the petition bad – not curable – D & C Bank Bhd v Datuk
Ong Kien Seng