Chapter 12 - Discharge of Bankrupt & Annulment of BO

Question 1

DISCHARGE OF BANKRUPT & ANNULMENT OF BO

Overview

Answer 1

1) General overview on ways for discharge
2) Discharge by order of court
3) Discharge by DGI
4) Automatic discharge
5) Annulment of BO

Question 2

DISCHARGE OF BANKRUPT & ANNULMENT OF BO

General ways for discharge

Answer 2

1) Discharge by order of court - S.33
2) Discharge by DGI - S.33A
3) Automatic discharge - S.33C
4) Annulment of BO - S.105

Question 3

DISCHARGE BY ORDER OF COURT

Overview

Answer 3

1) The law
2) Factors for consideration
3) Recent application - objection for discharge

Question 4

DISCHARGE BY ORDER OF COURT

The law

Answer 4

S.33

• An adjudged bankrupt may at any time apply to the court for an order for discharge.
• On the hearing of the application, the court will take into consideration a report submitted by the DGI pertaining to the bankrupt’s conducts and affairs.
• An order of discharge will be granted in the event the court is satisfied with the report submitted by the DGI.
• Alternatively, the court may make the following order:
  (i) refuse the order;
  (ii) suspend the operation of the order for a specified time;
  (iii) suspend the operation of the order until a dividend of at least 50% has been paid to the creditors; or
  (iv) grant a conditional order for discharge.

In summary:

• when: at any time;
• how: application & consideration of DGI’s report

S.33(3):

• The DGI’s reports on the conduct of the bankrupts is a matter that must be considered in the determination whether the bankrupts could be discharged. (Lok Kew, ex parte Nam Fatt Marketing Sdn Bhd, HC, 2019)

S.33(4):

• when the bankrupts had committed an offence under the Act, the discharge might be refused (Lok Kew, ex parte Nam Fatt Marketing Sdn Bhd, HC, 2019)

Question 5

DISCHARGE BY ORDER OF COURT

Factors for consideration - overview

Answer 5

1) Bankrupt’s conduct & affair

2) Age, extent of debt settled & public interest

Question 6

DISCHARGE BY ORDER OF COURT

Factors for consideration - bankrupt’s conduct & affair

Answer 6

Re Lau Kah Lay & Tang Kuong Tiaw, ex parte Cold Storage Malaysia Bhd:

• among the factors for consideration is the bankrupt’s conduct & affairs & unexplained wealth of wives of the bankrupt;
• OTF, court dismiss the application for discharge after considering above factors.

Question 7

DISCHARGE BY ORDER OF COURT

Factors for consideration - age, extent of debt settled & public interest

Answer 7

Re Mohana Sundari, ex parte United Prime Corporation Bhd:

• court will consider the age of bankrupt, extent of debt settled & the public interest;
• OTF, the court discharge the bankrupt taking into account her young age & the fact that she is not in control of the company.

Question 8

DISCHARGE BY ORDER OF COURT

Recent application

HC, 2019 - objection for discharge

Answer 8

Lok Kew ex p: Nam Fatt Marketing Sdn Bhd:

• JC can object on the discharge if the application to discharge is made to court;
• Application for objection can be made to the court.
• Medical reports to support the application for discharge can only be admitted in the appellate stage only if the report cannot be procured with valid reasons at the hearing postage.

Question 9

DISCHARGE BY DGI

Overview

Answer 9

1) The law
2) Procedures
3) Powers of DGI under S.33A
4) Objection for discharge by DGI

Question 10

DISCHARGE BY DGI

The law

Answer 10

S.33A:

• The DGI may in his discretion issue a certificate to discharge a bankrupt from bankruptcy provided that 5 years has lapsed since the date of the bankruptcy order.
• Prior to the issuance of the certificate of discharge, the DGI is imposed with the obligation to serve a notice of intention to issue the certificate on each creditor who has filed a proof of debt.
• Thereafter, the creditor may within 21 days from the date of service of the notice, file a notice of objection in the event the creditor wishes to object the issuance of the certificate.

In summary:

• when: 5 years after BO
• how: notice of intention must be served to creditor prior
• objection: within 21 days from date of service of notice

Question 11

DISCHARGE BY DGI

Procedures

Answer 11

• The DGI issue a certificate to discharge a bankrupt from bankruptcy;
• Prior to the issuance of the certificate of discharge, the DGI is imposed with the obligation to serve a notice of intention to issue the certificate on each creditor who has filed a proof of debt.
• Thereafter, the creditor may within 21 days from the date of service of the notice, file a notice of objection in the event the creditor wishes to object the issuance of the certificate.
• Upon receiving the objection from the creditor(s), the DGI shall assess and determine the merit of the objection.
• A notice will then be issued by the DGI to the creditors accordingly.
• In the event the creditor is dissatisfied with the DGI’s rejection of the objection, the creditor may file an application to the court for an order prohibiting the DGI from issuing a certificate of discharge.
• The application shall be filed within 21 days from the date of service of the notice.
• Accordingly, the court shall have the discretion either to dismiss the application; or order that a certificate of discharge shall not be issued by the DGI within a period of 2 years.

Question 12

DISCHARGE BY DGI

Powers of DGI under S.33A

HC, 2020

Answer 12

TA Securities Holdings Bhd & Anor v Ketua Pengarah Insolvensi:

• DGI power does not extend to vitiating or reversing a decision, order or directive of the court.
• when court has dismissed the application for bankrupt, it is not open for DGI to subsequently discharge the bankrupt under S.33A.
• such conduct is illegal, irrational & properly improper;
• such conduct is liable to be reviewed & quashed.

Question 13

DISCHARGE BY DGI

Objection for discharge by DGI - the law

Answer 13

S.33B - no objection shall be filed against:

(i) a bankrupt who was adjudged bankrupt by reason of him being a social guarantor;
(ii) a bankrupt who is registered as a person with disability under the Persons with Disabilities Act 2008;
(iii) a deceased bankrupt; and
(iv) a bankrupt suffering from a serious illness certified by a Government Medical Officer.

Question 14

DISCHARGE BY DGI

Objection for discharge by DGI - application

HC, 2019

Answer 14

Lok Kew, ex parte Nam Fatt Marketing Sdn Bhd:

• By virtue of S.33B, an objection to the issuance of certificate cannot be allowed if the discharge is based on serious illness.
• Objection by JC can only be allowed if the application for discharge is made to the court.

Question 15

AUTOMATIC DISCHARGE

Overview

Answer 15

1) The law
2) Factors for consideration
3) Procedures
4) Application

Question 16

AUTOMATIC DISCHARGE

The law

Answer 16

S.33C:

An adjudged bankrupt may be discharged from bankruptcy upon expiration of 3 years from the date of the submission of the statement of affairs if:

(i) the bankrupt has achieved the amount of targeted contribution set by the DGI; and
(ii) the bankrupt has complied with the requirement to render an account of moneys and property to the DGI.

Question 17

AUTOMATIC DISCHARGE

Factors for consideration

Answer 17

S.33C(2):

The targeted contribution shall be determined by the DGI upon considering amongst others the following factors:

(i) total debts of the bankrupt;
(ii) current monthly income of the bankrupt;
(iii) prospective monthly income of the bankrupt;
(iv) expenses for maintenance of the bankrupt and the bankrupt’s family; and
(v) total property which may be realised.

Question 18

AUTOMATIC DISCHARGE

Procedures

Answer 18

• The DGI is required to serve a notice of discharge to each creditor at least 6 months before the expiration of the 3 years.
• Upon receiving the notice from the DGI, the creditor may file an application to court within 21 days from the date of receipt of the notice, objecting the discharge from bankruptcy.
• However, the objection shall only be made on the following grounds:

(i) that the bankrupt has committed an offence under the Insolvency Act 1967 or specific provisions under the Penal Code pertaining to fraudulent deeds and dispositions of property;
(ii) the discharge would prejudice the administration of the bankrupt’s estate; or
(iii) the bankrupt has failed to co-operate in the administration of estate.
- On hearing of the application for objection, the court may order the following:
(i) dismiss the application;
(ii) approve the application; or
(iii) suspend the discharge for a period of 2 years.
- In the event the court made an order to suspend the discharge, the bankrupt shall continue to fulfill his obligations under the Insolvency Act 1967 and be discharged automatically at the expiry of the 2 years’ period.
- In view of the limitations / restrictions imposed on an adjudged bankrupt, it is recommended for bankrupt individuals to seek proper legal opinion from legal practitioner to discharge themselves from their bankruptcy status.

Question 19

AUTOMATIC DISCHARGE

Application - conditions for automatic discharge

HC, 2020

Answer 19

Ting Pek Khiing v Ketua Pengarah Insolvensi:

• the said section 33C is expressly subject to the condition in subsection (a) & (b);
• a plain reading of the said section 33C necessitates that the bankrupt must satisfy the conditions mentioned in the provisos thereto;
• failure to do so would imply that the Bankrupt cannot be discharged under this section 33C.

Question 20

AUTOMATIC DISCHARGE

Application - deceased bankrupt

HC, 2020

Answer 20

TA Securities Sdn Bhd & Anor v Ketua Pengarah Insolvensi & Ors:

• the mere fact that a bankrupt is deceased does not allow for an automatic discharge under s. 33A read together with s. 33B(2A)(e) of the Act because such position is not provided for under s. 33C of the Act which sets out the positions on automatic discharge.

Question 21

ANNULMENT OF BO

Overview

Answer 21

1) The law
2) Application
3) Main issue

Question 22

ANNULMENT OF BO

The law

Answer 22

S.105:

• An adjudged bankrupt may consider applying to the court for an order to annul the bankruptcy if the bankrupt is able to prove that he/she ought not to have been adjudged bankrupt; or
• the debts have been paid in full to the creditors.
• Once an annulment order is granted, the effect is as if a bankruptcy order has never been made against the individual.

Question 23

ANNULMENT OF BO

Application

• whether BO ought not to have been made, when are affairs being assessed?

FC, 1995

Answer 23

Sama Credit Leasing Sdn Bhd v Pegawai Pemegang Harta, Malaysia (FC, 1995):

• in considering whether a receiving order ought to have been made, the appellate court would consider the actual state of affairs at the date of the order and would, generally speaking, not take into account matters that had occurred after that date.
• i.e. actual state of affairs ON THE DATE OF THE ORDERS, NOT AFTER.

Question 24

ANNULMENT OF BO

Application - grounds for BO ought to not have been made, what are those?

Application - whether BO ought to not have been made, when assessed?

FC, 2005

Answer 24

Bangsar Hill Holdings Sdn Bhd v Dr. Amir Farid (FC, 2005):

WHAT:

• The words “ where in the opinion of the court a debtor ought not to have been adjudged bankrupt “ in s. 105(1) of the Act does not cover only technical defects like defective service of the BN or CP but is wider and covers other “ legal grounds “ like an abuse of the process of the court.
• However, it should not be stretched too far to cover extraneous “ moral “ or “ equitable “ grounds.
• It has to be a legal ground as the court is only concerned with the law.

WHEN:

• The material date for consideration whether the RO and AO ought or ought not to have been made is the date of adjudication.
• This is because in the first limb of s. 105(1) of the Act the words “ ought not to have been adjudged bankrupt “ denotes the past tense.
• On the other hand, in the second limb of the said provision the words “ the debts of the bankrupt are paid in full “ denotes the present tense.
• Similarly, in the third limb of the said provision the present tense “ are pending “ is used.
• This clearly indicates that the material date for consideration in the case of the first limb is a date in the past that logically should be the date of adjudication.

Question 25

ANNULMENT OF BO

Recent application

• debtor’s ability to pay debts, when assessed?

FC, 2020

Answer 25

Affin Bank Bhd v Abu Bakar Ismail:

1) Where the court had already found that the adjudication and receiving orders had been rightly made, whether the court may subsequently annul the adjudication and receiving orders under s. 105(1) of the BA 1967, on the basis that such orders “ought not to have been made”, based on new arguments regarding the debtor’s ability to pay his debts or subsequent change of circumstances?:

• NO, court may not annul BO on this basis.
• No consideration can be given to his ability to pay the debts subsequently, whether based on a change of circumstance, or his new-found solvency and ability to repay same.

2) Whether the solvency of a debtor, under s. 6(3) read with s. 105(1) of the BA 1967, must necessarily relate to his ability to pay his debts as they become due, as at the time of the hearing of the creditor’s petition, and not relate to his ability subsequent to the receiving and adjudication orders made.

• YES, the debtor’s ability to pay debt under S.6(3) + s. 105(1) must neccessarily relate to the debtor’s ability to pay his debts as they become due, namely at the time of the hearing of the creditor’s petition and not otherwise;
• No consideration can be given to his ability to pay the debts subsequently, whether based on a change of circumstance, or his new-found solvency and ability to repay same.
• cf. Dr. Amir Farid: debtor was absent at the date of hearing.

Question 26

ANNULMENT OF BO

Main issue

Answer 26

“A debtor ought to not have been adjudged bankrupt” - when assessed?

1) Sama Credit Leasing Sdn Bhd v Pegawai Pemegang Harta, Malaysia (FC, 1995):
- at the date order was made, NOT after.
2) Bungsar Hill Holdings Sdn Bhd (FC, 2005):
- at the date order was made, NOT on the hearing date.
3) Affin Bank Bhd v Abu Bakar Ismail (FC, 2020):

• the debtor’s ability to pay debt under S.6(3) + S.105(1) must neccessarily relate to the debtor’s ability to pay his debts as they become due;
• i.e. at the time of the hearing of the creditor’s petition and not after making BO.
• solvency does not relate to the debtor’s ability to pay his debts subsequent to the making of the AORO.