UIS 4612 LAW OF INSOLVENCY

Part 1: Individual Bankruptcy

Part 2: Companies winding-up
Lecture 1: Introduction to Insolvency Law

LEARNING OUTCOME:
Evaluate the law of bankruptcy and companies winding up
Cognitive: Level 4

Prepared and revised by Mr. HS Wong

© . No part of these lecture notes shall be reproduced or distributed in any manner whatsoever.
1.1 Introduction to Insolvency Law-
BANKRUPTCY OF AN INDIVIDUAL or FIRM

What do you
understand by the
terms bankruptcy,
winding up and
Insolvency? Discuss.
What is Bankruptcy?

1. Bankruptcy is a legally declared inability of an

individual to pay their creditors. It involves the
compulsory administration of a person’s estate by
the court for the benefit of the debtor’s creditors.
Proceeding to obtain a court declaration of a person
as bankrupt.

2. The objectives of bankruptcy law are to:-

• to enable a debtor to make a fresh start as soon as he

is discharged by a court.
• to investigate the reasons for the debtor’s insolvency
so as to protect creditors and the public in future.

These objectives are achieved through ‘bankruptcy

proceedings’.
BANKRUPTCY STATISTICS

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<https://www.mdi.gov.my/images/documents/Statistics/Bankrupcy/briefnoteokt.pdf>
2. Sources of Bankruptcy Law
Personal insolvency was previously governed by Bankruptcy Act 1967 (Act 360).
This was amended by the Bankruptcy (Amendment) Act 2017 and is now
renamed as the Insolvency Act 1967 (IA) which came into operation on 6
October 2017.
• The relevant subsidiary legislations are:
• Insolvency Rules 2017 (IR);
• Insolvency (Costs) Rules 1969;
• Insolvency (Fees) Rules 1969; and
• Insolvency (Voluntary Arrangement) Rules 2017
• ROC 2012- cross refer R.284 IR 2017.

COVID 19 Special Provisions

Temporary Measures for Reducing the Impact of Coronavirus Disease 2019
(COVID-19) Act 2020 [Act 829]. Modifications to the Insolvency Act 1967 were
introduced through Sections 19, 20 and 21 in Part VII Act 829. (For information
only]

*Bankruptcy cases to be heard before the Registrar of the High Court (Senior
Assistant Registrar and Deputy Registrar). WHY???
Changes brought about by the 2003 amendments include:
• S.2 A change in the title of the Official Assignee Malaysia to the Director-
General of Insolvency Malaysia (DGI);
• S.2 Inclusion of a definition of 'social guarantor’;
Azham Bin Othman v Ex-Parte: Affin Bank Berhad [2011] 1 LNS 898;
This case raised the question as to whether s. 5(3) of the Bankruptcy Act 1967
(‘the Act’) required a judgment creditor(‘JC’) to obtain leave of court before
commencing bankruptcy proceedings against a social guarantor.
Changes brought about by the 2003 amendments include:
• S.2 A change in the title of the Official Assignee Malaysia to the Director-
General of Insolvency Malaysia (DGI);
• S.2 Inclusion of a definition of 'social guarantor’;
Hong Leong Bank Bhd. v Khairulnizam Bin Jamaludin CA [2014] 1 LNS 1149,
[2016] 7 CLJ 335 FC –. s.5(3)A requirement for a petitioning creditor to prove to
the Court that he or she had exhausted all avenues to recover debts owed to him or
her by the debtor before he or she can commence any bankruptcy action against a
'social guarantor’

• No protection of social guarantors before the 2003 amendments.

Abdul Hamid bin Bakri v Affin Bank Berhad [2011] MLJU 115: only guarantors
who fit the definition in s. 2 of the Act are protected as social guarantors while
corporate guarantors are not.
 s.5(3): A requirement for a petitioning creditor to prove to the Court that he or
she had exhausted all avenues to recover debts owed to him or her by the debtor
before he or she can commence any bankruptcy action against a 'social
guarantor’.

• In the context of Islamic financial transactions, kafalah is used by the IFIs to

provide guarantee services, such as bank guarantee, standby letter of credit
and shipping guarantee. Kafalah refers to a contract that establishes a
guaranteed party’s specified liability as a joint liability of the guaranteed party
and the guarantor.
Further Changes brought about by the 2003 amendments include:

• S.5(1)(a): An increase in the minimum debt which enables a person to be

declared bankrupt from RM10,000 to RM30,000;

• S.33B: Enabling the DGI to give the creditor/s a notice of his or her intention to
issue a certificate of discharge to a bankrupt without having to give any reason;

• Sch. C(24): Stopping the calculation of the rate of interest on the date of the
receiving order granted by the court in cases where the interest is not reserved or
agreed upon;

• S.84A: Conferring powers of a Commissioner of Police to the DGI and the

powers of a police officer on the investigation, officers to facilitate investigation,
prosecution and enforcement;

• S.109(1)(m)(i): An increase from RM100/- to RM1000/- as the maximum

amount that can be borrowed by an undischarged bankrupt without informing the
person who gives the credit or loan that he is an undischarged bankrupt.
INSOLVENCY (AMENDMENT) ACT 2023 (Act A1695)

• The Amendment seeks to provide for a more effective bankruptcy administration

system which is in line with the Government's intention to preserve the welfare
of bankrupt individuals. The Insolvency Act 1967 ("Act") was last amended on 1
September 2021 vide the Insolvency (Amendment) Act 2020.
• Sub-Section 33B (2A) of the Act: Additional Categories of Bankrupt
Individuals to be Discharged.
• The amendment introduces two (2) further categories where bankrupt individuals
may be able to qualify for a discharge of bankruptcy, namely:
• (i) individuals incapable of managing their affairs due to any mental disorder, as
certified by a psychiatrist from any government hospital; and
• (ii) individuals aged 70 and above incapable of managing their affairs based on
the opinion of the Director General of Insolvency;
INSOLVENCY (AMENDMENT) ACT 2023 (Act A1695)

• Section 33C of the Act: Shorter Discharge Period & New Powers for Director
General.
• The amendment seeks to enable bankrupt individuals to be discharged
automatically in a shorter period of time, of three (3) years from the date of the
submission of the Statement of Affairs, provided that the bankrupt individual has
complied with his obligations under the Act and paid the sum of money
determined by the Director General of Insolvency for the purposes of the
administration of the bankrupt's estate.
• As a safeguard, the suggested amendment introduces new powers for the
Director General of Insolvency to suspend the automatic discharge of a bankrupt
for a period of not more than two (2) years if the bankrupt individual does not
fulfil his obligations under the Act. The Director General of Insolvency may also
ask the bankrupt individual to provide further information on his income,
expected income as well as properties.
INSOLVENCY (AMENDMENT) ACT 2023 (Act A1695)

• Section 130 of the Act: Service by Electronic Communication.

• The amendment proposes for deemed service of all notices and
other documents by electronic communication, provided the person
has given consent for use of electronic communication.
 AMEDNMENTS INTRODUCED UNDER THE
Bankruptcy (Amendment) Act 2017

OLD NEW
Bankruptcy Act 1967 Insolvency Act 1967
Bankruptcy Rules 1969 Insolvency Rules 2017
Insolvency Voluntary
Arrangement Rules 2017

Insolvency (Fees)
Amendment Rules 2017

Bankruptcy Rules (Cost, Insolvency (Costs)

Fees, Rules) 1969 (Rules) Amendment Rules 2017
with amendments
Further Amendments introduced by the Bankruptcy (Amendment) Act 2017

1967

•
Changes introduced under INSOLVENCY ACT 1967
1. Insolvency - insufficiency of funds required to pay off debts, cash flow
management problems.
Bankruptcy - is a legal status. Court Order

2. Introduction of a new pre-bankruptcy rescue mechanism called the Voluntary

Arrangement. Sections 2A-2Q IA 1967

3. Two classes of guarantors:

(i) Social guarantors – now enjoy complete protection
(ii) ‘other’ guarantors – offered limited protection

4. Section 5(1)(a) – Minimum threshold increased to RM50,000

*NOW: Insolvency (Amendment) Act 2020 (A1624)- RM100,000.
Changes introduced under INSOLVENCY ACT 1967
5. Section 3(2) IA1967: Stricter Requirements for Service of Bankruptcy Papers
See also the amendment in INSOLVENCY (AMENDMENT) ACT 2023

6. Single Bankruptcy Order repealing the previous two step orders.

7. Automatic Discharge after 3 years -* subject to conditions

See also the amendment in INSOLVENCY (AMENDMENT) ACT 2023

8. A New Insolvency Assistance Fund.

2. Voluntary Arrangement. Sections 2A-2Q IA 1967

Part 1: Voluntary Arrangement and Proceedings in Bankruptcy: Voluntary

Arrangement

• It is defined as a composition in satisfaction of a debtor’s debt or a scheme of

arrangement of a debtor’s affairs.

• Offers an escape clause for debtors.

• Allows an individual debtor to enter into an arrangement - negotiate or

propose a structured plan to settle his debt - with his creditor at any time prior
to being declared a bankrupt.

• Not applicable to an undischarged bankrupt.

 2. Voluntary Arrangement. Sections 2A-2Q IA 1967

s. 2A - a composition in satisfaction of a debtor’s debt or a scheme of arrangement

of a debtor’s affairs.

A debtor may propose a voluntary arrangement to his creditors at any time between
commencement of bankruptcy proceedings and before being adjudged a bankrupt.

It is an opportunity to work out with his creditors a proposal for the settlement of
his debts either in full or part over a period of time.

Advantages of VA
• Offers more flexibility for negotiation;
• Shows debtors sincerity;
• Debtor can continue working and earning;
• Can use third party funds ;
• Can continue operating bank accounts;
• Avoid the restrictions of bankruptcy;
•Similar to a moratorium –the Interim Order will grant protection from all legal
proceedings against the debtor - no bankruptcy petition and no legal proceedings
against the debtor except with permission from the court.

During the 90 days, the Nominee:

• must hold a creditors meeting- to try to secure their approval for the voluntary
arrangement.
• negotiate a debt discount or compromise with the creditors; The voluntary
arrangement is essentially where the creditors agree to compromise or discount
the debts owing to them.
• secure agreement of more than 50% in number and at least 75% in value of the
creditors’ to the arrangement.
• Rights of the secured creditors’ rights cannot be affected without their consent.
• Once the creditors approve the voluntary arrangement it will be binding on all the
creditors.
Two conditions:
• (i) To obtain the certificate of nominee;
• (ii) No previous application has been filed.
 Steps for voluntary arrangement
(1) Debtor appoints a nominee.

(2) Debtor files a court application for an interim order for voluntary
arrangement.

(3) Debtor to submit a statement of affairs to the nominee for him to prepare the
debtor’s proposal.

Statement of affairs
Where debtor is an individual, a statement of his affairs which contains:

(i) the particulars of the debtor’s assets, creditors, debts and other liabilities; and

(ii) such other information as may be prescribed.

Where debtor is a firm, a statement of his affairs which contains:

(i) the particulars of the assets, creditors, debts and other liabilities of the firm; and

(ii) such other information as may be prescribed.

Steps for voluntary arrangement

(4) Nominee to hold a meeting of creditors.

(5) Nominee to report decision of meeting to court and serve a copy of the report
under seal of court to debtor and creditors.

(6) If meeting of creditors has declined to approve debtor’s proposal, court may
set aside any interim order which is in force.

(6A) If meeting of creditors has approved the proposal:

(i) Decision of the meeting may be reviewed within 30 days after the decision
is reported to the court;

(ii) If debtor fails to comply with any of his obligations under the VA, any
creditor bound by VA may file or proceed with a bankruptcy petition
against the debtor.
Steps for voluntary arrangement
Effect of approval:
• Approved VA shall bind every person who had notice of and was entitled to
vote at the meeting, whether or not he was present or represented at the
meeting, as if he was a party to the arrangement.

• Where proceedings of a bankruptcy petition have been stayed by an interim

order, that petition shall be deemed to have been dismissed, unless the court
orders otherwise.

• Debtor shall not enter into a credit facility, unless all the creditors in the VA
agree and the person giving the credit is informed that the debtor has entered
into a VA.
Steps for voluntary arrangement
Effect of approval:

• See: Lim Cheng Pow v Maybank Investment Bank Berhad & Anor [2020]
MLJU 1514
• This is the first decision concerning the voluntary arrangement provisions for
personal bankruptcy.
• The Court emphasised that there was a duty of full and frank disclosure when
applying for the ex parte interim order. The Court found that the Debtor had some
lack of bona fides. The Debtor had failed to make full disclosure.
• The Court could at the preliminary stage assess whether the proposed scheme under
the voluntary arrangement was reasonable and fair or not.
3. Stricter Requirements for Service of Bankruptcy Papers

• The bankruptcy notice and creditor’s petition must be personally served.

Substituted service is possible but there are now stricter requirements. The
creditor must prove to the satisfaction of the court that the debtor has:

(i) the intention to defeat, delay or evade personal service; and

(ii) leaves or stays away from Malaysia, or absents himself from his home or
place of business.

[cf. Section 3 of Insolvency Act 1967 & See also the amendment in
INSOLVENCY (AMENDMENT) ACT 2023]
Where a person has given his consent for a notice or other documents to be served on
him through electronic communication, the notice or other documents shall be deemed
to have been served at the time when the notice or other documents are transmitted to
his account through the electronic communication.
4. Higher Threshold for Bankruptcy: continuously increased
– Section 5 (1)(a).
• 1967: RM2,000
• 1990: RM10,000
• 2017: RM50,000
• 2020: Special Covid 19 provisions RM100,000
• W.e.f. 1. 9. 2021 s. 5(1)(a) IA1967: RM100,000

• Insolvency (Amendment) Act 2020 [Section 2]- Modification to the amount

of indebtedness to RM100,000 w.e.f. 1.9.2021.

• *Temporary Measures For Reducing the Impact of Coronavirus Disease 2019

(Covid-19) Act 2020 [Sections 19-21]. [For information only]
5. Single Bankruptcy Order
• Under the old Section 24(1) of the Act- a confusing reference to the
Adjudication order(AO) and the Receiving order (RO).

• Receiving Order: Protected the estate of the debtor by placing it under the
custody and control of DGI. DGI is appointed as the receiver of the estate and
the rights of creditors against the debtor’s estate is restricted.

• Adjudication Order: Debtor is adjudged a bankrupt and his property is vested

in the DGI and becomes divisible among his creditors.

• Section 24 has now been deleted.

This has now been simplified to a single unified order called the Bankruptcy
Order. The court may, on a bankruptcy petition being presented by:
a creditor under section 6 or
a debtor under section 7, make a bankruptcy order.
6. Social Guarantor: No Bankruptcy
2 types of guarantors: (i) social guarantor; (ii) other guarantor

S. 2 IA 1967 A social guarantor is a person who does not profit and essentially
provides a guarantee for an education loan, hire-purchase transaction for personal
or non-business use, or a housing loan for personal dwelling.

• The old Bankruptcy Act 1967 provided limited protection to a social guarantor.
Permitted a creditor to sue a guarantor on proof that he had exhausted all
avenues of recovery from the debtor.

• Now under s. 5(3) IA1967 a social guarantor is given absolute prohibition

against any bankruptcy action.
6. Social Guarantor: No Bankruptcy
• Other guarantors eg. Business guarantors, now enjoy limited protection:
(i) Creditor must obtain leave of Court to commence action
(ii) Creditor must prove to the satisfaction of the Court that he has exhausted all
avenues of recovery from the principal debtor.
Hong Leong Bank Bhd v Khairulnizam Jamaludin [2016] 7 CLJ 335 FC- the
appellant was deemed to have exhausted all avenues for the recovery of the debt
when the principal debtor was adjudicated bankrupt.

(cf. Hong Leong Bank Berhad v Ong Moon Huat [2018] 1 LNS 1612)- a
creditor must ensure that all modes of execution and enforcement are first
exhausted against the principal borrower. After that, the creditor can apply for
leave to proceed with bankruptcy against the guarantor.

Re Azmer Idris Exparte Malaysia Debt Ventures Bhd. [2017] 1LNS 448 – one
who guarantees a loan for profit is not a social guarantor.
6. Social Guarantor: No Bankruptcy
• In Re: Malaya Sibuku; Ex P: Kaya Karisma Sdn Bhd [2021] 5 CLJ 403,
• The issue before the Court was whether a corporate principal debtor must be
dissolved (and not just wound up) in order to satisfy the Court that all modes of
execution and enforcement have been exhausted, before leave to commence
bankruptcy proceedings against a guarantor can be granted under s.5(4) read
with s.5(6) Insolvency Act 1967 (“IA 1967”).
Social Guarantor

Section 5 IA 1967.”.
(3) A petitioning creditor shall not be entitled to commence any bankruptcy
action—
(a) against a social guarantor; and
(b) against a guarantor other than a social guarantor unless the petitioning creditor
has obtained leave from the court.

(4) Before granting leave referred to in paragraph (3)(b), the court shall satisfy itself
that the petitioning creditor has exhausted all modes of execution and enforcement
to recover debts owed to him by the debtor.
(5) Where the petition is presented against a guarantor pursuant to subsection (4), a
petitioning creditor shall state in his petition the particulars of his borrower.
(6) For the purposes of subsection (4), modes of execution and enforcement include
seizure and sale, judgment debtor summon, garnishment and bankruptcy or
winding up proceedings against the borrower.
(7) If the petitioning creditor fails to comply with the requirements of this section,
the court shall dismiss the petition.
Mode of execution and enforcement

(i) Seizure and sale;

(ii) Judgment debtor summons;

(iii) Garnishment;

(iv) Bankruptcy or winding up proceedings against borrower.

 7.Automatic Discharge
A bankrupt shall be discharged from bankruptcy on the expiration of 3 years from
the date of submission of the statement of affairs:

(i) if the bankrupt has achieved amount of target contribution of his provable
debt; and

(ii) if the bankrupt has complied with the requirements to render an account of
moneys and property to the DGI.

Creditors can object and apply for an order to suspend the discharge on the
following grounds:
(i) that the bankrupt has committed any offence under this Act or section 421
to 424 of the Penal Code;

(ii) that the discharge under this section would prejudice the administration of
the bankrupt’s estate; or

(iii) that the bankrupt has failed to co-operate in the administration of estate.
At the hearing of the creditor’s objection to the automatic discharge, the Court
may:
(i) dismiss the application and approve the discharge; or

(ii) suspend the discharge for a period of two years.

Q. What will happen at the end of the two years’ period???

• The bankrupt will be discharged automatically?? See also the Insolvency
(Amendment) Act 2023

8. New list of bankrupts to be allowed discharge

(i) Social guarantor - under the old law.

(ii) Bankrupt with a disability under the Persons with Disabilities Act 2008

(iii) Deceased bankrupt

(iv) Bankrupt suffering from serious illness.

9. A New Insolvency Assistance Fund

• There will be the establishment of the Insolvency Assistance Fund

which will be administered and controlled by the DGI for the purposes
of achieving the betterment of the administration and proceedings
relating to bankruptcy.

• The Fund shall consist of the profit of the investment and all costs, fees,
charges, and moneys recovered by the DGI.
 1.2 Who can be adjudged a Bankrupt?
1.2.1 Debtor – Who is a debtor?
• s.3(3) Insolvency Act 1967 debtor in relation to an act of bankruptcy includes
one who –

• (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.

Algemene Bank Nederland NV v Loo Choon Yow [1989] 2MLJ 258

The bankruptcy petition was then filed stating that the JD had for the greater part
of six months preceding the presentation of the petition resided in Singapore,
within the jurisdiction of the court.
Leong Nyuk Weng, exp Public Bank [2003]4CLJ260

Although the debtor's affidavit showed evidence he was residing in Brunei, it

was insufficient to strike out the bankruptcy petition on the grounds that he
was not a debtor within Ss. 3(3) and 5(1)(d) BA.

[Issue of foreigner]
• See also See Re Alfred Lam Choong Choy; Ex-parte: Downtown
Condominium Joint Management Body & Other Case [2016] 1 LNS
1444
1.2.2 Who is a bankrupt?
Bankrupt – is a debtor who has been adjudged as a bankrupt pursuant to an
application for an Bankruptcy Order (BO). (Previously AO &RO). This has the
legal effect of stripping a debtor of title / ownership to all his assets and vesting
it in the Director General of Insolvency.
3. Classes of Debtors who may be adjudged a bankrupt.
(i) Minors – under 18 years of age. eg. tax liabilities, necessaries, judgment
arising from an action in tort. Minors may be sued through their Guardian – Re
Davenport [1963]1WLR 817

(ii) Married women s.120 IA1967 – same as if they were single. See also
s.4(d) of the Married Women Act 1957
But not if a married woman does not have separate property of her own – Re
Mahmooda b Ismail [1961] MLJ 195
See also Re Lai Ah Sen (MW) [1954] 1 MLJ 207
 (iii) Foreigner – s.3(3) 5(1)(d) provided he falls within the definition of a
‘debtor’ and is domiciled in Malaysia or has a residence / business in Malaysia.
Citizenship is not a prerequisite.
Leong Nyuk Weng,exp Public Bank [2003]4CLJ260
Algemene Bank Nederland NV v Loo Choon Yow [1989] 2MLJ 258
(iv) Diplomatic corps – unless there is a waiver or immunity under the
Diplomatic Privileges (Vienna Convention) Act 1966; R v Madan (1961)
2QB1– court had no jurisdiction until that immunity had been waived

(v) Deceased debtor – s. 122 death of a debtor does not invalidate

bankruptcy proceedings provided it was commenced and served during his
lifetime. Petition may be stayed if debtor dies before service of petition on
him. Refer to s. 96 IA too.

(vi) Lunatics, persons of unsound mind – protected from proceedings.

Only with leave of committee appointed to oversee them.
See also Section 2(1) of the Mental Health Act 2001 and Section 133(c)
IA.
(vii) Member of Parliament – not covered by parliamentary privilege. See
also A.48(1)(b) of FC
See Re Haji Yahya Lampang [1987] 2 MLJ 488

(viii) Estate of deceased debtor

Section 122 (2) IA – a creditor may commence bankruptcy against the
estate of a deceased debtor.
 1.2.3. Can bankruptcy proceedings be commenced against
a Company or Partnership?
Company
Partnership
S.121 IA-
s.103(1) IA
Case: Timbunan Alam
s.98 IA
Development Sdn. Bhd. v.
Rule 220 IR
Platicorp Holding (M)
Case: Re Chan Tse
Sdn. Bhd. [2000] 2 MLJ
Yuen & Co; Ex Parte
636
M Wealth Corridor
Sdn Bhd [2020]
MLJU 1828
1.2.4. Classes of Creditors – unsecured, secured and preferential

• Unsecured Creditor – one who is not entitled to any priority towards

settlement of a debt owing to him and may include a judgment creditor.

• Secured Creditor – s.2 Insolvency Act 1967 Sch. C para 9-12

Insolvency Act 1967: S3: "secured creditor"

Secured Creditor:
Re Ng Say Tee [1954] 1 MLJ 177

M Hashimi b Ibrahim v Asia Commercial Finance Bhd.[2001] 4 MLJ 67

Compare and see also –

Md. Supardi b Md. Noor ex parte Public Finance Bhd.[2004] 6 AMR 72

Perwira Habib Bank (M) Bhd. v. Samuel Pakianathan [1993] 2MLJ 423

See also:
Goh Kein Hooi v OCBC Bank (Malaysia) Berhad & Another Appeal [2014] 4
CLJ 274
(iii) Preferential creditor – one who has priority over the unsecured creditors
but not over creditors with secured fixed charges.

• Is a creditor who/that is eligible to receive payments first from a bankrupt

person. Examples are:

• Employees – unpaid wages of employees of a bankrupt;

• Revenue officials. If the bankrupt owe taxes, the government is at the top of
the list to be paid from the bankrupt.

• contributions to provident fund payable by the bankrupt as an employer;

• contributions to workmen’s compensation fund payable by the bankrupt as an

employer

See section 43 IA
S. 43 IA 1967 deals with the priority of certain debts which shall be paid in
priority to all other debts. These include:

(a) all local rates and land tax due from the bankrupt at the date of the BO
(previously AO & RO) and having become due and payable within twelve
months next before that time;
(b) income tax and other assessed taxes assessed on the bankrupt up to the 31st
day of December
(c) all wages or salary not exceeding RM 1,000 …during the period of 5 months
before the date of the BO or the date of the termination of his service – 12
months before the BO ….as the Court may decide.
(d) all amounts due in respect of contributions payable during the twelve months
before the date of the bankruptcy order by the bankrupt as the employer
(e) all amounts due in respect of workmen's compensation accrued before the date
of the BO.

Ranking of the preferential debts: s. 43(2) IA 1967 rank equally between

themselves, and shall be paid in full unless the property of the bankrupt is
insufficient to meet them, in which case they shall be paid in equal proportions
1.3 What is an ‘Act of Bankruptcy’?
Under Insolvency Act 1967, S3 (1) (a-j), para (h), has been deleted. Para (h)
reads as,
(f) if he files in the court a declaration of his inability to pay his debts or
presents a bankruptcy petition against himself;

(i) if a creditor having obtained a (i) final judgment against him for any amount
for which (ii)execution has not been stayed has (iii) served, a bankruptcy notice
requiring him to pay the judgment debt or any variation thereof with (iv) interest
quantified up to the date of issue of the bankruptcy notice ,and he (v) does not
within seven days comply with the notice or satisfy the court that he has a (vi)
counter-claim, set off or cross demand which equals or exceeds the amount of
the judgment debt or sum ordered to be paid

S3 (1) (a-j) Insolvency Act 1967

An act of bankruptcy is a precondition to the presentation of a bankruptcy
petition.
For the purposes of calculating the date of commission of an act of bankruptcy, the
date of service of the bankruptcy notice is excluded-
Re Fadzil b. Othman v. Malayan Building Ltd [1994] 2 MLJ 474

Conditions for a creditor to present a bankruptcy petition:

s. 5 A creditor cannot present a bankruptcy petition against a debtor unless:

(i) The judgment debt amounts to not less than RM100,000 (w.e.f.1.9.2021)
(ii) The liquidated sum is payable immediately or some certain future time
(iii)The act of bankruptcy has occurred within 6 months before the presentation of
the petition
(iv)The debtor is:
• domiciled in Malaysia or
• within one year of the presentation of the petition, is ordinarily resident or
• had a dwelling house or
• place of business or
• carried on business in Malaysia either personally or by an agent or was a
member of a firm or partnership that carried on business in Malaysia
Is leave of court needed to issue a bankruptcy notice 6 years after judgment?

See Dr Shamsul Bahar Abdul Kadir v RHB Bank Bhd [2015] 4 CLJ 561

Whether the Bankruptcy Notice contains sufficient particulars,

See Goh Wee Peng v Standard Chartered Bank Malaysia Berhad [2018] 1 LNS
2179 (Court of Appeal).
‘Other Guarantor’

Section 5 of the principal Act is amended—

“(4) Before granting leave referred to in paragraph (3)(b), the court shall satisfy
itself that the petitioning creditor has exhausted all modes of execution and
enforcement to recover debts owed to him by the debtor.

(5) Where the petition is presented against a guarantor pursuant to subsection

(4), a petitioning creditor shall state in his petition the particulars of his
borrower.

(6) For the purposes of subsection (4), modes of execution and enforcement
include seizure and sale, judgment debtor summon, garnishment and bankruptcy
or winding up proceedings against the borrower.

(7) If the petitioning creditor fails to comply with the requirements of this
section, the court shall dismiss the petition.”.
TUTORIAL 1
QUESTION 1

On 24 March 2023, Honey & Co. obtained judgment in default against D for a sum
of RM234,000/-at the Melaka Sessions Court. On 15 May 2023, Honey & Co.
applied for a Request to issue Notice of Bankruptcy. On 18 Aug. 2023, Honey &
Co. obtained an order to serve the Bankruptcy Notice by way of substituted service.
On 25 Sept. 2023, it was advertised in the Malay Mail and Star newspaper, posted at
D’s last known address and at the notice board at the Melaka High Court. On 30
Oct. 2023, D applied to set aside the Bankruptcy Notice on the grounds that :-
• the service was irregular
• the amount stated in the Bankruptcy Notice was wrong as he had paid a sum of
RM175,000/- towards full and final settlement of his judgment sum in June 2022
before he left for China.
• Since June 2022 he was working in China and was resident there with his family.
• He had no residence or bank accounts or assets of any kind in Malaysia.

Advise D on the merits of his application.

TUTORIAL 1
QUESTION 2

Ali came to see you. He mentioned that following default in a housing loan
repayment, the lending bank has obtained and served to him teh copy of a judgment
against him demanding for full repayment amounting to RM350,000-00 within 14
days from the service of the judgment, failing which a bankruptcy proceeding will
be taken against him. He is not in the position to make full payment as currently he
is jobless.

Advise him on how to avoid the bankruptcy proceeding provided by the Insolvency
Act 1967.
TUTORIAL 1
QUESTION 3

Can a Judgment creditor issue a bankruptcy petition against the following persons?

(i) Siti, is an 18-year-old student, pursuing a Foundation in Law course in one of

the Malaysian universities. She has been given a Supplementary credit card by
her Mother to help meet her financial needs. She has over the last 6 months
incurred outstanding bills of RM120,000 for tuition fees, accommodation and
lifestyle expenses.

(ii) Vlad Wakanda, is an officer at the embassy of Palau, and has been living in
Kuala Lumpur since September 2014. He enjoys the good life and often spends
beyond his means. He has outstanding credit card bills amounting to RM
RM156,000.

(iii) Mrs. Cash, is a happily maried young woman who loves collecting antiques.
Recently she bought a 15th. Century black lacquer painted chest for
RM150,000 on 3 months credit, from Antique Furnitures Sdn. Bhd. Contrary to
the credit arrangements she has not paid for it to date.
(iv) Datuk Ta Da, a member of parliament for Tampin, bought a new car for
RM300,000 and has not been able to meet his car loan payments amounting
to RM136,000 over the last 5 months.

(vi) Tok Sayang died on the 20 Sept. 2016 leaving unpaid debts in the sum of
RM120,000.
TUTORIAL 1
QUESTION 4

Identify whether there is an act of bankruptcy in the following situation. Provide

your answer with the relevant provision.

(a) Ali paid his debt in full to his friend, Abu, two months before he was adjudged
bankrupt upon petition made by a bank.

(b) A bailiff came to Ali’s office to execute an order for attachment of his property
but found nothing worth for sale.

(c) Ali, fed up with calls and debt collection agents coming to his house and office,
moved house and changed his phone number.

(d) Ali sold his house to his son three months before adjudication of bankrupt
below market price.