Chapter 8 - Bankruptcy Order Flashcards
BANKRUPTCY ORDER
Overview
1) General effect of BO
2) Effect on creditor
3) Effect on secured creditor
4) Effect on cause of action
5) Effect on property that do not pass to Official Assignee
6) Protection of bona fide transaction
7) Voluntary settlement
GENERAL EFFECT OF BO
The law
S.8 IA:
- effect of BO on parties such as creditors etc.
S.38 IA:
- effect of BO on the bankrupt.
S.47 & S.52-54:
- effect of BO on property.
EFFECT ON CREDITOR
The law
S.8(1)(a)
EFFECT ON CREDITOR
Recent application
HC, 2015
Foo Kum Cheum; ex parte United Overseas (M) Bank Berhad
- JD telah menjadi bankrap sejak 6 Ogos 2002 sehinggalah AORO tersebut dibatalkan pada 26 September 2011 dan ini menunjukkan adanya AORO yang tergantung di atas kepala JD sepanjang tempoh tersebut.
- Pembatalan AORO pada tahun 2011 tidak boleh dianggap mengesahkan ketidakpatuhan kepada peruntukan undang-undang.
- Oleh itu, semasa JC mengambil tindakan terhadap JD, JD sememangnya seorang bankrap dan sememangnya tidak ada locus untuk dimulakan apa-apa tindakan terhadapnya.
- Penghakiman ingkar yang diperintahkan terhadap JD adalah batal dan tidak boleh dikuatkuasakan kerana kebenaran daripada mahkamah hendaklah diperoleh terlebih dahulu selaras dengan kehendak s. 8(1) Akta.
- i.e. JID entered against the JD is null & void since JD as a bankrupt has no locus & JC needs to obtain leave from court by virtue of S.8(1)(a).
EFFECT ON SECURED CREDITOR
The law
S.8(2A)
EFFECT ON SECURED CREDITOR
Recent application
CA, 2014
Ambank (M) Bhd v Abdul Rahim Osman
- What S.8(2A) means is a secured creditor may realise his security against a bankrupt but that he should do so within six months of the receiving order being made in order to be entitled to any interest in respect of the debt owed by the bankrupt.
- The rationale for this as explained in Pilecon Realty Sdn Bhd v. Public Bank Bhd & Ors and Other Appeals [2013] 2 CLJ 893 is to prevent secured creditors from taking an inordinately long time to realise the property resulting in the debtor having to bear interest until the sale is completed.
- OTF, since the plaintiff in the instant action has failed to realise their security within six months, they cannot be entitled to any interest after the receiving order was made.
- It can hardly be disputed that the plaintiff here is claiming all the interest from the day the receiving order was made on 14 April 1994 until the day the order for sale is to be made.
- This is a clear violation of s. 8(2A) of the Bankruptcy Act 1967.
EFFECT ON CAUSE OF ACTION
The law
1) The law - S.38(1)(a) IA:
- bankrupt shall be incompetent to maintain an action w/o previous sanction from DGI.
2) Scope - Tong Soon Tiong & Ors v FA Securities Sdn Bhd:
- S.38 provided for restriction in a bankrupt’s rights to maintain an action without the previous sanction of the DGI.
- it will be up to DGI to decide whether to adopt an action or disclaim it, or give free rein to the bankrupt to continue with the action by sanctioning it.
EFFECT ON CAUSE OF ACTION
Failure to obtain sanction
FC, 2013
Tong Soon Tiong & Ors v FA Securities Sdn Bhd:
- The action will be incompetent unless the action falls under the exception “for damages in respect of an injury to his person”.
- The requirement for sanction is mandatory as the proprietary interest of the bankrupt passes to the DGI.
EFFECT ON CAUSE OF ACTION
Rationale of the law
FC, 2020
Lai Kung Lung & Anor v Merais Sdn Bhd:
- This rule restricting the conduct of an undischarged bankrupt is meant for the protection of his creditor’s interest and those dealing with him so as to maintain the commercial morality of his dealings.
EFFECT ON CAUSE OF ACTION
Effect on existing action
Richland Trade & Development Sdn Bhd v UMBC Bhd:
- For existing action where P is made bankrupt after service of summons, there is no need to withdraw the action;
- Parties only need to obtain the sanction of the Official Assignee.
EFFECT ON CAUSE OF ACTION
Recent application
FC, 2018
Akira Sales & Service Sdn Bhd v Nadiah Zee Abdullah:
- A proceeding under s. 20(3) of the Industrial Relations Act 1967 (‘IRA’), a personal claim, does not require the previous sanction of the Director General of Insolvency (‘DGI’.)
- A challenge of an order in bankruptcy does not require the previous sanction of the DGI.
- An undischarged bankrupt could appeal against an order in bankruptcy to a judge, Court of Appeal or even, with leave, to this court, without the previous sanction of the DGI because such appeal is a continuation of the challenge to the order in bankruptcy.
- A proceeding under s. 20(3) of the IRA does not require sanction.
- Since judicial review of an award under s. 20(3) of the IRA and consequential appeals are also in continuation of the challenge to the award, they should also not require the previous sanction of the DGI.
- The respondents were competent to lodge their appeals at the Court of Appeal.
EFFECT OF PROPERTY THAT DO NOT PASS TO OFFICIAL ASSIGNEE
The law
S.47(1)
- doctrine of relation back
EFFECT OF PROPERTY THAT DO NOT PASS TO OFFICIAL ASSIGNEE
Application - property passed to wife.
Re Khow Bak Kee:
- act of conveyance of the property to his wife 4 months before being adjudicated bankrupt is held to be void.
- the property reverts back to the DGI under doctrine of relation back.
EFFECT OF PROPERTY THAT DO NOT PASS TO OFFICIAL ASSIGNEE
Application - property passed to son.
Koh Thong Chuan v The Official Assignee of Property of Koh Liang Hee:
- act of conveyance of the property to his son after committing act of bankruptcy was held to be fraudulent & void.
- the property reverts back to DGI under doctrine of relation back.
EFFECT OF PROPERTY THAT DO NOT PASS TO OFFICIAL ASSIGNEE
Application - act of freezing account.
Abu Bakar bin Jaafar & Anor v Malayan Banking Bhd:
- D bank knew that BN is issued by another bank to P;
- D froze P’s account;
- It is held that D can freeze the account for its own claim under doctrine of relation back.
- The defendant was justified in its action in freezing the plaintiffs’ accounts because it has knowledge of the issuance of bankruptcy notice against the plaintiffs.
- Followed recently by HC in Ab Aziz Ab Bakar v Malayan Banking Bhd (2018): “Mahkamah berpendapat tidak ada kesalahan apabila akaun bank Plaintif dibekukan menurut seksyen 47(1) Akta Kebankrapan 1967.”
