MEMBERS

1.Aishah Nurfitri LIA160004

2.Hanis Hazidi LIA160039
3.Nurina Haziqah LIA160109
4.Rizq Nurrqausar LIA160122
5.Shazwan Abazah
LIA160128
Tutorial 3 Question 2
 ❖ Corona Sdn Bhd had entered into an agreement with Mr Lockdown for the
supply of a special flour for his cakes on 1.10.2019.

❖ On 15 January 2020 Corona Sdn Bhd obtained judgment in default against Mr

Tutorial 3 Question 2 Lockdown for the amount of RM50,000 with interest at the rate of 4% per annum
from date of judgment until full and final realisation arising from the supply of a
special flour to Mr Lockdown under the agreement.

❖ Mr Lockdown did not make any application to set aside the judgment in default
and did not pay the judgment sum to Corona Sdn Bhd.
 ❖ A BN was issued on 15 March 2020 and served to Mr Lockdown by Corona Sdn

Tutorial 3 Question 2 Bhd.

❖ Subsequently Mr Lockdown filed a claim for damages against Corona Sdn Bhd
because the special flour supplied to him by Corona Sdn Bhd made his cakes
taste bitter and could not be sold. Mr Lockdown comes to you seeking advice on
whether he can set aside the BN on the basis that he has a counterclaim against
Corona Sdn Bhd.
Question 1. Advice Mr Lockdown on the procedure to set
aside the BN on the grounds that the debtor has a
3 (i) counterclaim.
 • Definition of Counterclaim:
• Case: Permodalan Plantations Sdn Bhd v Rachuta Sdn Bhd

• A cross-claim which a defendant has against a plaintiff

Issue 1 Q2(I): but in respect of which the defendant can bring a
Whether this separate action against the plaintiff if he wishes to do so.
counterclaim • Separate and independent action by the defendant,
can be used which the law allows to be joined to the plaintiff’s action
to set aside in order to avoid multiplicity or circuity of suits
the BN?
• Also the creation of Statutes - governed by the provisions
of 0.15 r.2 ROC
 • Order 18, rule 17 (Defence of set-off)
17. Where a claim by a defendant to a sum of money
Difference (whether of an ascertained amount or not) is relied on as a
defence to the whole or part of a claim made by the plaintiff,
between Set it may be included in the defence and set-off against the
plaintiff's claim, whether or not it is also added as a

Off and counterclaim.

Counterclaim • Order 15, rule 2 (Counterclaim against plaintiff):

2.(1) Subject to rule 5(2), a defendant in any action who
alleges that he has any claim or is entitled to any relief or
remedy against a plaintiff in the action in respect of any
matter (whenever and however arising) may, instead of
bringing a separate action, make a counterclaim in respect of
that matter; and where he does so he must add the
counterclaim to his defence.
(2) Rule 1 shall apply in relation to a counterclaim as if the
counterclaim were a separate action and as if the person
making the counterclaim were the plaintiff and the person
against whom it is made a defendant."
Sub-issue 1: What are the requirements of
setting aside the BN?
S.3(1)(i) of the Bankruptcy Act 1967:

• A debtor commits an act of bankruptcy if a creditor has obtained a final judgment for any
amount and has served on him a bankruptcy notice requiring him to pay the judgment
debt or sum ordered to be paid in accordance with the terms of the judgment.
• The counterclaim must either equal or exceeds the amount of the judgement

(a) The law requires you to:

• Quantify the amount;

• Must be done in good faith and has a reasonable probability of success; and
• Counterclaim could not have been set up in the action in which the judgment relied on.
Cases that established these four
requirements
Case: Perwira Held: Before the existence of a counterclaim could be a defence to a judgment
Habib Bank creditors petition, three ingredients had to be satisfied, namely, the burden was on the
Malaysia Bhd v respondent to show, by affidavit, that the (1) counterclaim must be capable of being
quantified in terms of money and the affidavit must quantify it, the (2) counterclaim
Samuel must be put forward in good faith and must have reasonable probabilities of success
Pakianathan and the affidavit must show that the (3) counterclaim could not have been set up in
Jabanickam the action in which the judgment relied on by the creditor was obtained.

Case: Sovereign Held: "He has seven days after service of the notice to comply with the requirements of
General the notice or satisfy the court that he has a counterclaim, set-off or cross demand
Insurance Sdn which equals or exceeds the amount of the judgment debt or sum ordered to be paid
and which he could not set up in the action in which the judgment was obtained or in
Bhd v Koh Tian the proceedings in which the order was obtained."
Bee
 Recap
• Element 1 - Quantify the amount; and
• Element 2- Must be done in good faith and has a
reasonable probability of success.
Discussion and
application of Application:
Element 1 & 2. • In this present case, the facts are silent as to
whether Mr Lockdown has quantified the amount
of the counter claim for the damages of the flour.
• Considering that he wants to claim for the loss he
suffered, it can also be deduced that it is done in
good faith and has a reasonable probability of
success.
 Element 3- Counterclaim
could not have been set up
in the action in which
Discussion on the judgment relied on.
element 3.
Element is illustrated in the
case of Tractors Malaysia
Bhd v Charles Au
Yong [1982] 1 MLJ 320
 In Tractor Malaysia, the appellants (creditors) brought an
action against the respondent (debtor) for the sum of
$211,800 being the balance of tractors sold and delivered
to the debtor (KL Suit).
Facts of the • No defence was filed.
case: Tractors • JID was entered against the debtor.
Malaysia Bhd v
The creditors issued and served a BN to the debtor since
Charles Au the debtor did not satisfy the judgment sum from the KL
Yong [1982] 1 MLJ Suit.
320
Later at Melaka High Court (Melaka suit), the debtor filed
an action against the creditors on damage which the
debtor claimed arose from re-possession of a tractor.
Decision: Tractors Malaysia Bhd v Charles
Au Yong [1982] 1 MLJ 320
The action by the debtor (Melaka suit) against the creditor could have been filed as a
counterclaim in the KL suit which in which judgment was obtained and the basis of the BN.

The tractor which was repossessed by the creditor was one of the tractors which the 2 parties
had business dealings.

The Melaka suit for a claim founded on the damage that the debtor incurred as a result of the
creditors repossession of the tractor.

CONCLUSION:The debtor’s action (Melaka suit) does not amount to a counter-claim which he
could not have set up in the KL Suit. Meaning, these suits are connected to each other.

The creditor’s appealed was allowed and BN restored.

 • In this case, the first action which JID is obtained by Corona Sdn.
Bhd against is Mr Lockdown is for the supply of a special flour under
the agreement between the parties.
Application
to Element 3
• Based on the facts, Mr Lockdown planned to raise a counterclaim,
which can be a potential second suit. This is because he has suffered
loss for the supplied special flour made his cakes taste bitter and could
not be sold.
 • It can also be assumed that for this reason, Mr Lockdown didn’t pay
the sum of flour supply to Corona Sdn. Bhd in the first action as a form
of objection or protest to the flawed of the special flour.
Application
to Element 3
• Hence, it is observed that the first action and the potential second
action are connected to each other. Mr Lockdown should have
raised the counter claim in the first action, as it could have been set
up in the first action.

• Element 3 is not fulfilled.

 • If Mr Lockdown wants to set aside the BN on the grounds
Conclusion of counterclaim, he needs to ensure that his counterclaims falls within
to Issue 1 the definition in Section 3(1)(I) and fulfils the three requirements
Q2(I): mentioned before.
Advice
whether Mr
Lockdown • In this case, Mr Lockdown did not fulfill the requirement 3 -

can set aside "Counterclaim could not have been set up in the action in which

the BN. the judgment relied on" where in this case, the claim in potential
second suit could have been raised in the first suit.

• Therefore, bankruptcy notice cannot be set aside.

 • Assuming that the counterclaim can be used to set
aside the BN, Mr Lockdown then needs to follow
Issue
certain steps to set aside the BN.
2 Q2(I):
What are
the Procedures that must be followed by Mr Lockdown:
procedures
1. Mr Lockdown may file an application to set the BN by
to set aside
the BN? way of affidavit claiming that he has a counterclaim
against the creditor which equals or exceeds the claim
made by the creditor
 • R.93 Insolvency Rules 2017: Application to set aside
• R.93(1): The filing of an affidavit shall operate as
an application to set aside the bankruptcy notice,
and the Registrar shall fix a day for the hearing of
Governing the application, and shall give not less than three
Law and clear days notice to the debtor, the creditor, and
Application their respective solicitors, if known

• The affidavit must conform to the Form 36 of the

Insolvency Rules 2017.
• Para 2 in Form 36 MUST be filled.
FORM 36
 • Datuk Lim Kheng Kim v Malayan Banking Bhd [1993] 2
MLJ 298 (SC)
• The JC filed an affidavit (Enclosure 3) purportedly to
be an affidavit to set aside the BN.
• The enclosure 3 contains as follows:
• “I deny and further dispute that I am indebted to the
judgement creditors in the sum of RM2,603,913.28 as
Case Law and stated therein. In this respect, I state that the figure
Application was based on an erroneous calculation and
grossly exaggerated.
Issue 2 Q2(I) • There was no reference to any form of counterclaim,
set-off, or cross-demand in the enclosure 3
Held:
• Enclosure 3 merely denied that the JD was indebted
to the JD.
• It failed to disclose any counterclaim, set-off or cross-
demand.
• Hence, it cannot operate as an application to set
aside the BN under s.3(1)(i) Bankruptcy Act 1957.
 2. After filling Form 36, the affidavit must be filed by the JD
within 7 days after the service of the BN on him
• S.3(1)(i) Insolvency Act: the affidavit must be filed
within 7 days after the service of the BN.
• Malayan Banking Bhd v Datuk Lim Kheng Kim [1992]
2 MLJ 540
Governing Law
• The JD filed an application in opposition 7
and Application months after the service of the BN to set aside
to Issue 2 Q2(I) the BN.
• Held:
• If a JD intends to satisfy the court that there is a
counterclaim, set-off or cross-demand, he must
file an affidavit within 7 days of the service of the
BN on him- s.3(1)(i) and r.95.
• In the present case, the 7 days period has long
expired. The JD’s application was dismissed.

Hence, Mr Lockdown must follow these procedures to set

aside the BN on the basis of such counterclaim.
 2. How would your advice differ if instead of
setting aside the BN on the grounds that he has a
counterclaim, Mr Lockdown comes to you and

Question informs you that the BN which was served on him

had claimed for RM50,000 with interest at the
3 (ii) rate of 4% per annum from 15.1.2020 until
15.3.2020, penalty interest of 8% per annum from
1.10.2019 to date of judgment and stamp duty of
RM100?
 • Yes, our advice to Mr Lockdown would differ because
this situation would require a different set of
procedures to set aside the bankruptcy notice, in
contrast to the above situation.
Issue for Q3
(ii)
• In the present case, the issue is whether the
bankruptcy notice that was served on Mr
Lockdown may be set aside and what are the
procedures to do so.
 • Facts : The respondent had obtained a judgement against the appellant
with the sum of RM 2,104,078 with 4% interest rate. However, the sum
demanded by the respondent in the bankruptcy notice served on the
J Raju M
appellant was not the sum awarded in the judgement obtained.
Kerpaya v
Commerce • The bankruptcy notice stated that there was a due sum of
International RM3,013,221.07, which consisted of
Merchant
(i) the principal sum in the judgement,
Banker Bhd.
(ii) several sums of penalty interests and

(iii) a stamp duty claim of RM 80.

• The judgement awarded to the respondent did not mention anything

about (ii) and (iii).
 • This appeal centers around the validity of the bankruptcy notice that was
issued.
• Appellant's argument: the notice was not served in accordance with the
judgement and applied to set aside the notice under section 3(1)(i) of the
Decision of Bankruptcy Act 1967 .
J Raju • Respondent's argument:
• the situation was merely an instance where a larger sum had been
M Kerpaya specified in the bankruptcy notice thus falling within section 3(2)(ii) of
the Bankruptcy Act 1967.
• this provision requires the appellant to dispute the validity of the
notice within the time prescribed in the bankruptcy notice on the
ground that it mistakenly claims an amount larger than what is
lawfully due.
• Since the appellant did not do so, he should not be allowed to
challenge its validity.
 • The court disagreed with the respondent's argument. The court held that the
appellant’s complaint is not merely that the respondent has mistakenly claimed
more than what is due in its bankruptcy notice, but that the bankruptcy notice
Decision of is not in accordance with the judgement obtained.
J Raju • The court held that the complaint fell within section 3(1)(i) of the Bankruptcy
M Kerpaya Act 1967 as it is a condition precedent to the exercise of bankruptcy jurisdiction
that a bankruptcy notice shall require the debtor to pay the judgment debt in
accordance with the judgement terms.

• The court allowed the appeal and held that the appellant had acted accordingly
by taking out a summons to set aside the bankruptcy notice as prescribed by
rule 18 of the Bankruptcy Rules 1969
 • The case of J Raju is referred to in this case
• Facts: Bankruptcy notice that interest of 3.5% is claimed in respect of the sum of
RM3,234.539.73 (subject to deductions due to payments made from time to
Tan Chwee time) from 21 March 2000 until 6 June 2008. It is also to be noted that the words
'tarikh matang' are nowhere to be found in the bankruptcy notice. Instead the
Hock v bankruptcy notice mentions the date '21 March 2000', a date that is not found in
Ambank the judgment.
• Held : Muhammad Hishammudin JC accepted the contention of the
appellant/judgment debtor on this issue; and held that the bankruptcy notice is
bad in law . The order of the High Court is set aside. The bankruptcy notice is set
aside as it is bad in law, a nullity ab initio.
• Based on this case, it shows that a simple discrepancy between bankruptcy
notice and the final judgement may result in the nullity of the BN.
 • This situation is similar to the case at present where the bankruptcy notice
served on Mr Lockdown contained a claim of RM 50,000 with interest rate
of 4% per annum from 15.1.2020 until 15.3.2020, penalty interest of 8%
Application per annum from 1.10.2019 to date of judgement and stamp duty of RM
to issue for 100.
Q3 (ii)
• The claims for penalty interest and stamp duty were not stipulated in the
judgement that was obtained by Corona Sdn Bhd.

• The bankruptcy notice is invalid because it does not follow the terms
stipulated in the judgement. Hence, the bankruptcy notice can be set aside
 • Based on J Raju’s case, this situation falls within the ambit of section 3(1)(i)
of the Insolvency Act 1967 where the debtor is required to pay the
judgement debt according to the terms of the judgement obtained.

Issue 2 Q3(II) : • Accordingly, the procedures to set aside the notice is as prescribed in Rule
Procedures to set 18 of the Bankruptcy Rules 1969 which requires an application to be made
aside the
by motion supported by affidavit.
bankruptcy notice
• J Raju referred to Datuk Lim Kheng Kim, where the Supreme Court held that
failure to follow rule 18 will render an affidavit in opposition ineffective and
bad in law.
Comparison between Rule 17 and 93(1)
Insolvency Rules 2017
Rule 17 Insolvency Rules Rule 93(1) Insolvency Rules
• except where these Rules or the Act • The filing of an affidavit shall
otherwise provide, every application operate as an application to set aside
to the court shall, unless the Chief the bankruptcy notice, and the
Judge otherwise directs, be made by Registrar shall fix a day for the hearing
summons in chambers supported by of the application, and shall give
affidavit. not less than three clear days
notice to the debtor, the creditor, and
their respective solicitors, if known
 • Since the bankruptcy notice that was served by
Corona Sdn Bhd contained sums not awarded in the
judgement, Mr Lockdown may apply to set aside the notice
under rule 17 of the Insolvency Rules 2017 (previously was
rule 18 of the Bankruptcy Rules 1969).
Application
• This rule requires that such an application to the court be
made by a summons in chamber supported by an affidavit.

• This indirectly means that there is no

need for a hearing (set by Registrar) for the application like
the one under Rule 93(1) of the Insolvency Rules 2017.
END.
THANK YOU.
Aishah – Hanis – Nurina – Qausar – Abazah