Bankruptcy (Part 2)

Exactly one year ago, on our last treatment of the subject, we discussed the processes one undergoes when becoming a banktrupt. In this article, we will examine the scope of the Recieving Order and the Ajudication Order (together known as a Bankruptcy Order) and the functions of the Director General of Insolvency (formerly known as the Official Assignee). We shall also take a look at how and by what process an undischarged bankrupt may get his bankruptcy annulled or discharged.

(More to come)


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 The Act follows the approach of the repealed English Bankruptcy Act 1914 in the regulation of individual insolvency matters.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.