Bankruptcy (Part 1)

You’re working and earning a multi thousand ringgit salary. You’re on top of the world and feel that you can buy whatever you want. You have expensive taste, so you buy expensive cars, drink Starbucks every day, dress fancy, look fancy, take herbs, botox, the works! Then, recession hits! You lose your job. Those credit card bills become due, but you can’t pay! Soon you get letters of demand from the banks, the letters culminate on fine day into what is called a “Bankruptcy Notice”, and this notice seems so important its served on you personally. You read it and see an itemised account of what you owe with a demand that you pay up within 7 days, or else a “Bankrupcty Petition” would be pleaded against you in court. Those days pass. The very next day the bailiff comes and serves on you a “Bankruptcy Order” and then takes all your property, your home, and you are left, desperate and broke, with nothing.

This article attempts to set out the processed involved when bankruptcy is resorted to in the enforcement of judgments in Malaysia. Written with an emphasis on the debtor (who are, after all the majority of those involved in bankruptcy cases) the starting point in an execution involving bankruptcy up to the granting of a Bankruptcy Order will be laid and discussed. Reference will be made in particular to the provisions of the Bankruptcy Act 1967, being such an Act governing insolvency of the individual in Malaysia. Small scale references to the Debtors Act 1957 would also be made as well.

On with the discussion. The Bankruptcy Act 1967, or Act 360 of the Laws of Malaysia, came into force on 30 September 1967. The Act follows the approach of the repealed English Bankruptcy Act 1914 in the regulation of individual insolvency matters. The British rewrote that law in their own jurisdiction with the passage of the Insolvency Act in 1986, which simplified the whole process a great deal, much to the delight of their creditors. Here in Malaysia however, the old approach remains.

The whole process begins when a would be debtor commissions what is called an “Act of Bankruptcy”. This act takes the forms proscribed under section 3(1) of the Act. A cusory glance at these reveal that it is mostly common sense doings, such as attempting to transfer property to evade the payment of debt, the intentional delaying of creditors, the failure of the officer fails to find any property of his to seize in order to satisfy such debt, etc, but the most common relied upon could be none other then 3(1)(i), where a final judgment, together with a bankruptcy notice, is served upon the debtor, and the debtor fails to pay the quantified amount therein within 7 days (excluding the day of service of the notice vide Re Fadzil Bin Othman [1994] 2 MLJ 474). Should such days pass without the debtor doing anything, then he has committed an Act of Bankruptcy. He can avoid this by  filing a claim for a counterclaim, set-off or cross demand. A counterclaim and set-off is a claim against the creditor for something that could not be established during the trial which led to the final judgment (more on this later, defined by Order 15 rule 12 of the Rules of the High Court 1980) whereas the cross demand is of such a nature that it equals or exceeds the amount of the judgment debt (Re a Bankruptcy Notice (1934) Ch 431). For these to succeed it must be quantified first as held in Sovereign General Insurance Sdn Bhd v Koh Tian Bee [1988] 1 MLJ 304 and secondly as held in Re A Debtor [1983] 3 All ER 545 it must be put forward in good faith and have a reasonable probability of success.

Thereafter a creditor would present before the High Court what is known as a Bankruptcy Petition. This is a petition to ask the Court to ajudicate that the debtor has failed to pay his debts and should therefore be made a bankrupt. Upon receipt of such a petition, the court would grant what is called a Recieving Order (that is an order that all properties of the debtor be vested in the Director General of Insolvency) and an Ajudicating Order that deems the debtor to be a banktrupt. The two orders together are known as a Bankruptcy Order. To know more about these Orders and who the Director General of Insolvency is, stay tuned for the next part of this series on bankruptcy.

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4 Responses to Bankruptcy (Part 1)

  1. Pingback: Bankruptcy (Part 2) « Reading Law

  2. Raymond Chu says:

    The momentum initiated by way of a bankruptcy action is a time exhaustive procedure where the ulitmate purpose is that a debtor becomes adjudged a bankupt when finally, all means of recovery of debts becomes futile.

    The targetted person is the debtor, not the guarantor. However, in most financial secured loans whether long term or otherwise, the reflected targetted is aimed at the guarantor rather than the debtor alone.

    When this happens, the guarantor indefinitely stands out as the easy prey since the law presumed the guarantor as willingly undertaking the responsibilities filling in the shoes of the debtor whether knowingly or not, of the consequences.

    This explains the inclusion of the provision for social guarantors who are not presupposed to stand in indefinitely and immediately without cause nor reason at the occurence of overwhelming unpaid loans etc.

    Will the financial institutions see this as a solution or a problem in recovery of bad debts and loans which probably extenuate the non-performance loan profile in uncertain times.

    This can be the real issue which this area of practice is battling with everyday.

    To quit this area, is like, asking for the law on rules be turned loose. Yet, can self-evaluation portfolio be put to use first before creating a background check at the commencement of this mode of enforcement ?
    If the answer is in the affirmative, then, a lot more can be said about the matters and events turning about later as the procedures runs its course.

  3. 4dgovernment says:

    please forgive me for my intrusion but though this is not relevant to your line of presentation
    what i am going to state is connected with bankruptcy. my innocent wife is a victim of bankruptcy. whatever legal forum that i could get in i will gate crush in order to ventilate questions and solicit honest legal answers that we cannot obtain from the relevant authorities.The answers we got
    came in so many forms – deviation, misrepresentation, avoidance,cowardice – that would always
    lead to cover-up.

    These are my questions:
    1. If u have “surat akuan” from a bank officer stating that the account that was open in the bank under your wife( opened without the knowledge and consent of your wife) was operating by a third person from the beginning to end. and that your wife was not even seen at anytime inside that bank from the beginning or the end of the bank account existence. that all instruction this bank officer were receiving was from this third person. Will this bank account be considered legal?

    2. When u requested the complete bank statement of the bank acount named under the name of your wife without her knowledge and consent u found out there were several huge transactions done – every time huge deposits were made withdrawals were done within a week time. Can you call it money laundering? your wife was a mere restaurant worker and she cannot afford such amount that was more than a million ringit.

    3. several cheques were issued and one of those cheques was the cause of my wife bankruptcy.
    That cheque was issued on the first day of the month to buy stocks through a trading stock company. The buying transaction of stocks started on the fourth day of the month until the fifth day stock transaction were completed . However on the fifth day there was a stop order made on the cheque. There was a contra loss of 3hundred thousand and the stock broker company charged it to my innocent wife. ( a stock trading account was also opened under my wifes name without her knowledge and consent- a day before the bank account was opened).

    was the transaction legal in every sense?

    further-

    when we checked the balance of the bank account from the bank statement we found out that before and after the stock transaction was completed the balance of the bank account supporting the cheque in transaction was with negative balance was this transaction allowable?

    we also cheque the application form to open a trading account we found out several defects:
    1. application form were with false signitures of my wife.
    2. the bank account declared in the application form (financial capacity)was the bank account of a third person but not of my wife.
    3. misleading information.
    4.name and ic number declared as representative of the account holder were false. this false name and ic number was also declared in the false letter of authority which the stock trading company has accepted as legal.
    5. incomplete
    6.officers of the stock company were in unison in the aproval of the application form. no client verification conducted or else we came to know about the existence of the trading account named under my wife without her consent and knowledge..

    We reported this matter to the relevant government agencies but they have their own explanation to make all the misdoings appeared legal despite of the concrete evidences we
    presented to them.

    Two lawyers we hired but they end up siding the other sides.

    now can you tell me if those that i mentioned were legal…or the legal system is with some
    problems needed to be reinforced so the system can serve the rakyat effectively.. Now we asked the insolvency to investigate this will they do it?

  4. Wow, fantastic weblog structure! How long have you been running a blog for?

    you made blogging glance easy. The overall look of your site
    is excellent, as well as the content!

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