Tutorial 6

Question 1

Process of administering the bankruptcy consequent upon a Bankruptcy Order

 Filing and submission of bankrupt’s statement of affairs

S. 8(3) of IA 1967, once a bankruptcy order is made against Cindy and Mindy, they
shall within 24 hours after service of such order, file an affidavit in the office of
Director General of Insolvency (DGI).

Such affidavit must contain a true and correct statement of the names and residences
of Cindy and Mindy who are the partners of Yummy Bakers, their principal assets and
liabilities.

S.16(1) of IA 1967, submit a statement of affairs in Form 77, verified by affidavit,

showing the particulars of the their assets, debts and liabilities, the names, residences
and occupations of their creditors, the securities held by the respective creditors and
other information as is prescribed or as the DGI requires.

s.16(2)(a) of IA 1967 requires Cindy and Mindy to submit statement of affairs within
21 days from the date of bankruptcy order.
If Cindy and Mindy failed to do so without any reasonable excuse and proof, they
would be liable for contempt of court pursuant to s.16(3) of IA 1967.

Rule 219 of Insolvency Rule 2017 (hereinafter IR 2017) requires Cindy and Mindy to
submit a statement of their partnership affairs and each of them need to submit a
statement of their separate affairs

 Lodging proof of debts by the creditors.

Sec 32 of IA 1967, DGI shall prepare and file in court a list of creditors and the
amount owing to each.

Para 2 of Schedule C of IA 1967 and r. 167 and 170 IR 2017, the employees can
lodge their proof of debts with DGI by delivering or sending through the prepaid post
and affidavit in Form 79 at least 24 hours before the first creditors’ meeting.

R. 174 of IR 2017 states where the employees’ proof of debt has been admitted, the
DGI will issue notice of dividend to them respectively.

S. 15(IA) and S. 17(4) of IA 1967 allows the employees and other creditors who has
lodged his proof of debt to question Cindy and Mindy concerning his affairs and the
causes of his failure in the creditors’ meeting and public examination.
R. 172 and 173 of IR 2017 requires the DGI within 14 days after receiving notice
from a creditor of his intention to appeal against his decision, file such proof of debt
with the Registrar with a memorandum to explain why such proof shall be rejected.

S. 172 of IR 2017 provides after the appeal has been heard by the court, unless the
proof of debt is wholly disallowed, it will be returned to the DGI for its further action.

 Creditors’ meeting.

S.15(1) of IA 1967 indicates that in the 1st creditors’ meeting, Cindy and Mindy can
negotiate any settlement of debts with their creditors by proposing a composition or
scheme of arrangement to the creditors.

R. 150(1) of IR 2017 states requires the terms of the composition or scheme to be

settled at the first meeting or adjournment of the first meeting.

Para 1 of Schedule A of IA 1967 provides the first creditors’ meeting shall be

summoned for a day not later than 3 months in the case of a creditor's petition, after
the date of the bankruptcy order.

S. 208 of IR 2017 requires the DGI to give notice of creditors’ meeting to the
employees and other creditors and gazette and publish such notice in a local paper.

R. 150(2) of IR 2017 stipulates that the subsequent meeting shall be held for the
purpose of confirming or rejecting the composition or scheme.

Para 8 of Schedule A of IA 1967 only allows the creditor who has lodged proof of
debt is entitled to vote as a creditor at creditors’ meeting.

 Hearing of application to approve composition of scheme of arrangement.

A scheme of arrangement involves a plan or proposal to settle the debts on certain

terms within a certain period.

S. 18(2) and S. 2 of IA 1967 provides the composition or scheme of arrangement will

only be binding on the creditors after it is confirmed at a subsequent meeting of the
creditors by a special resolution and is approved by the court.

R.151 of IR provides every resolution for a composition must specify the terms in
manner which the payment of the composition is to be secured.

S.18(6) of IA 1967 and r. 152(1) of IR 2017 states that once the composition or
scheme is accepted by the creditors, DGI or Cindy and Mindy may within 30 days
after such resolution, apply to the court for the approval of such composition or
scheme.

R. 152(2) of IR 2017 requires the application to be filed with the leave of the court If
such application is filed exceeding 30 days.
R.18(8) of IA 1967 requires the court before approving a composition or scheme,
shall hear a report of the DGI and shall hear any objections of the creditor.

S.18(9) of IA 1967 provides the court shall refuse to approve a composition or

scheme if: it deems such terms of the composition or scheme are not reasonable or are
not calculated to benefit the general body of creditors and the court is required under
the Act to refuse the bankrupt a discharge; or if any such facts are proved to justify
the court in refusing, qualifying or suspending the discharge.

S. 18(18) of IA 1967 prohibits the court will not approve any composition or scheme
that does not provide for the payment of all debts of priority.

S.18(10A) of IA 1967 provides if the court approves the composition or scheme, the
court may make an order in Form 71 to annul the bankruptcy order and vest the
property of the Cindy and Mindy in them.

R. 155(2) of IR 2017 requires the Registrar to publish such order in the Gazette.

S. 18(11) of IA 1967 provides a composition or scheme accepted and approved shall

be binding on all the creditors.

Priority of debts

Law

Sec 43(1) of IA 1967 sets out priority of debts in the distribution of the bankrupt’s
property:(a) all local rates and land tax due and payable within 12 months next before
the bankruptcy order;; (b) income tax and other assessed taxes due from the bankrupt
up to the 31 of December next before the date of the bankruptcy order and not
exceeding one year's assessment; (c) all wages or salary of any clerk, servant, labourer
or workman not exceeding Rm1,000.00 for each whether payable for time or piece
work or whether or not payable wholly or in part by way of commission for a period
of 5 months next before the date of the bankruptcy order or where due following the
termination occurs within 12 months of and precedes the date of the bankruptcy order;
(d) all contributions payable during the 12 months before the date of the bankruptcy
order by the bankrupt as the employer of any person under any law relating to
provident funds; and (e) all workmen's compensation accrued before the date of the
bankruptcy order.

Sec 43 (2) of IA 1967 the foregoing debts shall 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 abate in equal proportions between themselves.

Sec 43(3) of IA 1967 provides where partnership is involved, the joint estate shall be
applicable for their joint debts, and the separate estate of each partner shall be
applicable for their separate debts.

Sec 44 of IA 1967 provides the preferential claim in case of apprenticeship.

Re Ws Bee And Company; Ex Parte Official Assignee, the court held a creditor of a
bankrupt who had sued the debtor prior to bankruptcy and obtained judgment sum
which included a claim for salary would not prevent him claiming a preferential
payment of part of the whole debt. The creditor is entitled to priority of payment to
the whole or a part of his judgment debt emerges when he proves, he is entitled to the
priority given him by statute.

Sec 8(2A) of IA 1967 limits the right of a secured creditor who may continue to
realise or deal with the secured asset for up to 12 months from the date of bankruptcy
order

Application

According to S. 8(2A) of the IA 1967 and S. 43(3) of IA 1967 ,since Cindy and
Mindy are partners who ran a bakery business called “Yummy Bakers”, their joint
estate shall be liable for all the joint debts and her house as security for the business
loan from Bank SME Bhd shall be liable for that sum of debt as well.

Pursuant to 43(1)(c) and (d) of IA 1967 as well as Re WS Bee and Company’s case,
the 4 full time staffs and 3 part-time staffs are entitled to priority of payment of
unpaid salaries and wages based on times rate as well as the EPF contributions from
Cindy and Mindy when they prove their debts.

According to S. 44 of IA 1967, industrial training student is also entitled to the

preferential payment from CIndy and Mindy as he is considered under apprenticeship.

As per stipulated under S. 43(1)(a) and (b) and 43(2) of IA 1967, other debts such as
Cindy and Mindy’s personal rates and taxes are ranked equally as the wages and
salaries among the priority of debts.