Lecture 4: A Second or subsequent Bankruptcy/ Bankruptcy Order

4.1 A Second or subsequent Bankruptcy

 S. 49 IA 1967: allows for second bankruptcy. However, the two must be administered
separately.
 Any property acquired by the bankrupt after the Single Order Bankruptcy (previously
Adjudication Order) must be treated as an asset belonging to the 1st Bankruptcy.

Re Othman b Abu Bakar ex p Official Assignee [1954]

the asset cannot benefit the creditors in the 2nd. Bankruptcy until the creditors in the 1st.
have been paid in full.

Sama Credit and Leasing S/B v Pegawai Pemegang Harta Malaysia [1995]
Facts: The appellant creditor had obtained an RO and AO against the judgment debtor.
However unknown to the appellant the debtor had already been adjudicated a bankrupt 2
years earlier1st. bankruptcy. The respondent OA applied to the HC to set aside the 1st.
bankruptcy on the grounds that the RO & AO should not have been granted as the
debtor’s 1st. bankruptcy was still subsisting, the appellant’s debt should be proved in
that 1st. bankruptcy. The SAR refused the application. On appeal the HC J found that
since a RO was in force, no further action could be commenced against the debtor
without the leave of court under s.8(1) BA. And that a bankruptcy search had not been
made. On further appeal to the SC.

SC Held:- appeal allowed. RO and AO of 2nd. bankruptcy reinstated.

(i) s8(i) deals with the effect of RO as opposed to an AO and restrict the remedies
against the property or person in respect of any debt provable in bankruptcy.
(ii) s49 (1) and (2) permit subsequent RO and AO against an undischarged bankrupt.
(iii) The powers to rescind and annul a RO and AO are discretionary and an appellate
court would not disturb the finding of a HC unless there was a strong case to do so.
(iv) A failure to conduct a bankruptcy search per se is not fatal but a factor to be
considered
4.2 Single Order Bankruptcy

 The old law has some confusing reference to Adjudication Order (AO) and Receiving
Order (RO). This has now been simplified by a single order for bankruptcy whereby the
debtor will be adjudicated a bankrupt upon the granting of a bankruptcy order
 S. 4 IA 1967: The court may, on a bankruptcy petition being presented by a creditor
under section 6 or by a debtor under section 7, make a bankruptcy order.
 Previously, when a RO was made, the DGI became the receiver of the debtor’s property.
The RO protected the debtor’s property from being dissipated by did not have the effect
of making the debtor a bankrupt.
 The debtor was made a bankrupt only upon the issue of the AO.

Hong Leong Bank Bhd v Khairulnizam Jamaludin (2016) 7 CLJ 335 (FC)
When a receiving order is made by the court against a debtor, the official assignee
becomes the receiver of the property of the debtor. The receiving order does not have
the effect of making the debtor a bankrupt. The debtor is a bankrupt only if adjudged
so by the adjudication order pursuant to s. 24 of the Act. An adjudication order may be
made simultaneously with the making of the receiving order.

 Although the ROAO were usually made simultaneously, the making of an AO does not
necessarily follow the making of an RO. If the debtor satisfied the court that he was in a
position to offer a composition or make a scheme or arrangement acceptable to his
creditors then an AO would be made

Re: Tan Sri Kishu Tirathraj; ex parte Affin Bank Berhad [2007] 2 MLJ 53 (HC)
Upon a further scrutiny of s. 24 of the Act, it is evident that the making of an
adjudication order does not necessarily follow the receiving order so made. If the
debtor shows to the satisfaction of the court that he is in a position to offer a
composition or make a scheme of arrangement satisfactory to his creditor, then an
adjudication order will not be made, Having examined all that are relevant, there is
nothing in this case that the judgment debtor had proffered a scheme that is
satisfactory to his creditors that would have precluded the making of an adjudication
order.

However, today, when a Bankruptcy Order is made:

 No creditor can proceed with or commence any action or other legal proceeding unless
with the leave of the court
 Bankrupt’s property becomes divisible among his creditors and vests in the DGI. DGI
will be the receiver, manager, administrator and trustee of all properties of the bankrupt.
 An RO merely give a debtor times to settle his debt. It does not operate to divest a debtor
of rights over his property. It only makes DGI a caretaker of the debtor’s property.
 Note: an RO does not declare a debtor a bankrupt yet, only an AO does.
 S. 24: RO and AO may be made simultaneously. (in practice, it is normally done so)


s. 8(1) IA 1967 – On the making of a bankruptcy order –

(a) except as provided by this Act, no creditor to whom the bankrupt is indebted in respect
of any debt provable in bankruptcy shall have any remedy against the property or person of
the bankrupt in respect of the debt, or shall proceed with or commence any action or other
legal proceeding in respect of such debt unless with the leave of the court and on such
terms as the court may impose; and
(b) all the property of the bankrupt shall become divisible among his creditors and shall
vest in the Director General of Insolvency and the Director General of Insolvency shall be
the receiver, manager, administrator and trustee of all properties of the bankrupt.

S. 8: effect of RO:
(1) DGI shall be the receiver of debtor’s property; creditor shall not take any action
against debtor unless with the leave of court.
(2) Secured creditor may realize/deal with his security in the manner he is entitled to
(within 6 months from the date of RO – s. 8(2A)) & shall not prejudice the right of a
person to receive any payment under Employment Act.
(3) Debtor shall, within 24 hours after serving of RO, file an affidavit containing the
correct statement of the names, residences, business, principal assets and liabilities.
Such statement = debtor’s statement.
(4) DGI shall take possession of all books of account/other documents relating to his
property… (refer Act)
Note: no creditor shall be entitled to interest on his debt after the issue of RO.
4.2.1 It does not affect the right of any secured creditor to deal with his security.

 S. 8 (2) – This section shall not affect the power of any secured creditor to realize or
otherwise deal with his security in the same manner as he would have been entitled to
realize or deal with it if this section had not been passed.
 S. 8 (2A) – Notwithstanding subsection (2), no secured creditor shall be entitled to
interest on his debt if he does not realize his security within 12 months from the date of
the bankruptcy order.
 S. 8 (3) – Debtor shall within 24 hours after the order is served. File an affidavit to the
office of the DGI, containing a true and correct statement of the name, residences of all
the partners, and his business and his principal assets and liabilities.
 Tanavus S/B v Simon Jungking Pigguan [1995] 2 MLJ 564 (HC)
Held:
(i) S. 8(1) BA 1967 – after the making of a receiving order (RO) against the
defendant, no creditor could commence any legal proceeding against the
defendant in respect of such debt, unless leave of the court have been first
obtained.
(ii) S. 40(1) BA 1967 – meaning of a ‘debt provable in bankruptcy’ – in effect
provides that a demand in the nature of unliquidated damages arising by
reason of a contract and not otherwise, would constitute a ‘debt provable in
bankruptcy’ – therefore leave of court is necessary before commencement of
any action against the debtor.

In this case, the claim of the plaintiff for the RO arose out of the agreement and not
otherwise. Also, the loss and damages claimed were within the meaning of
‘unliquidated damages’ under s. 40(1). Hence, the present claim came within the ambit
of s40(1) as a debt provable in bankruptcy and leave of the court was required under
s8(1) before commencement of the action.

 RO may be rescinded on the grounds:

(1) It ought not to have been made – s. 105(1)
(2) Debts are paid in full + report from DGI confirming the same – s. 105(1)
(3) On approval of a composition scheme of arrangement – s. 26(2)
(4) Majority of creditors are residing outside the jurisdiction where RO will not have
any effect on the property of debtor.
Note: the court has discretion to refuse such rescission on the ground of public interest.

 S. 50(1): creditor shall not retain any benefit of the execution/attachment unless he has
completed and realized the proceeds of attachment before RO was made.
 Syed Ahmad(refer the case at note 4.5) – where an RO has been made and the creditor has
not completed the execution within 6 months from the date of RO, the creditor cannot
retain the benefit and he has to hand over to DGI.

What to Do after RO is granted

 Upon making of RO, a creditor has to prove the debt owning to him by delivering to DGI
an affidavit. (proof of debt):
o S. 42: the rules in Schedule C shall be observed in proving debts.
o S. 40(1): unprovable debt – unliquidated damages
o S. 40(3): provable debt – all present, future contingent debts
 S. 16: The debtor is also required to file a statement of affairs with DGI in Form 37
verifying by affidavit:
o if debtor’s petition: within 7 days from the date of RO
o if creditor’s petition: within 21 days from the date of RO
 Rule 255: once DGI receives notice of RO, he shall furnish debtor with a copy of
instruction for preparation of his statement of affairs.
 S. 15: upon statement of affairs being filed, a 1st creditor’s meeting shall be held and to
consider/propose a composition (accept a smaller sum in satisfaction of a larger sum)/
scheme of arrangement (to pay by installments).
o The proposal must be passed by at least ¾ of creditors.
o S. 18(2): the proposal must be passed by at least ¾ creditors + approved by court.
o S. 3(1)(h): the proposal must be made by Deed of Arrangement and registered
within 14 days.
 S. 17: after 1st creditor’s meeting, DGI may apply to court for a public examination of
debtor. Proviso: debtor who is a lunatic/suffers from mental/ physical disability may be
excluded.
 Rule 145: where the court finds that bankruptcy was brought about by adverse factors
(eg: fraud), the court may adjourn the bankruptcy proceeding.
4.2.2 Cause of action vested in the DGI

 S. 38(1)(a): a bankrupt shall not bring an action other than an action for damages for
personal injury without the prior approval of the DGI

Ho Ken Seng v Progressive Insurance Sdn Bhd [2012] 1 MLJ 297

That judicial definition of ‘action’ was refined, where Richard Malanjum CJ delivering
the judgment of the court, said that the word ‘action’ does not apply to the action upon
which the bankruptcy was secured.

Chin Kon Nam & Anor v Chai Yun Phin Development S/B [1996] 4 MLJ 271
Abdul Kadir Sulaiman J:
The cause of action here was based upon a breach of contract by the D that occurred
before the P’s bankruptcy. s39(1)(a) BA 1967 applied and a prior sanction of the DGI
was necessary. Without that the P was not even competent to engage an Advocate &
Solicitor.

Gan Hong Hoe v Gan Kim Hee [1939] 1 MLJ 295

There is nothing in the Bankruptcy Enactment (Cap. 55) which would preclude a
creditor from maintaining an action on a contract entered into by him with the debtor
after the debtor has been adjudged bankrupt.

Akira Sales & Services (M) Sdn Bhd v Nadiah Zee Binti Abdullah [2018] MLJU 50
(FC)
 Where the cause of action (COA) for breach of contract arose before bankruptcy,
and Abdul Kadir Sulaiman J, as he then was, held that the COA vested in the
Official Assignee and that s38(1)(a) applied to the plaintiff.
 But that distinction is not relevant, or no longer relevant, in employment related
actions. A proceeding under s20(3) of the IRA, a personal claim (see Thein Tham
Seng v United States Army Medical Research Unit & Anor [1983] 1 CLJ 240)
does not require the previous sanction of the DGI. We prospectively overrule all
cases that held to the contrary and all cases that followed them.
 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
judge, Court of Appeal (CA) or even, with leave, to this court, without the
previous sanction of the DGI. This is because such appeal is a continuation of the
challenge to the order in bankruptcy.
 A proceeding under s20(3) of the IRA does not require sanction. Since judicial
review of an award under s20(3) of the IRA and consequential appeals are also in
 continuation of the challenger to the award, they should also not require the
previous sanction of the DGI. The Respondents were competent to lodge their
appeals at the CA.
Ho Ken Seng v Progressive Insurance Sdn. Bhd. (CA) [2012] 1 MLJ 297; [2012] 2
AMR 1
FC: Q: ‘whether an undischarged bankrupt when exercising his rights under s92 BA
1967 to review, rescind or vary any order made by the Court under its bankruptcy
jurisdiction is required to obtain the previous sanction of the Director General of
Insolvency pursuant to Section 38(1)(a) of the Act.’

HELD: Section 38(1)(a) Bankruptcy Act not relevant when a bankrupt invokes s92(2)
or s105(2) for a review. a bankrupt is no longer required to obtain sanction from the
DGI to challenge or appeal against bankruptcy orders made by the Bankruptcy Court.

Richard Trade & Development S/B v UMBC Bhd. [1996] 4 MLJ 233
A debtor who has any pending civil actions does not have to withdraw such actions but
merely obtain the consent of the Director General of Insolvency (OA).

Perwira Affin Bank v Sardar Md. Roshan Khan & Anor. CA [2009] FC [2010] 2
CLJ 661
The Respondent was the sole proprietor of Omar Khayam Enterprise. The bank had
granted banking facilities to him. On 4 March 1999, by way of a writ the Respondent
sought to recover a sum of RM233,155 with interest, on the basis of the bank's
negligence and/or breach of contract. However the Respondent was adjudicated a
bankrupt on 27 March 2002. His bankruptcy was annulled on 19 October 2006.
However, he did not inform the OA or the trial Court of his bankruptcy during the
period from 27 March 2002 to 19 October 2006 ("the Respondent’s bankruptcy
period"). Instead, he proceeded to actively prosecute the trial in the High Court. The
trial took place between 28 October 2004 and 13 July 2006, within the bankruptcy
period. On 29 November 2004, a month after the trial started, the Respondent filed his
statement of affairs with the OA /Director General of Insolvency. On 13 October 2006,
the Respondent applied for an order of annulment of his bankruptcy on the ground that
he had settled all outstanding sums due and owing to his creditors. Order for
annulment was granted on 19 October 2006 ("the annulment order"). On 27 July 2007,
the HC gave judgment for the Respondent.

CA:- Q. for determination is:

 "Upon a true construction of s.38(1)(a), during the Respondent’s bankruptcy
period, was the Respondent competent to maintain an action based on the bank's
negligence and/or breach of contract and to actively and vigorously prosecute the
 trial thereof without the previous sanction of the OA?".
Held:
(i) The steps taken by a bankrupt in civil action or proceedings without the
previous consent of the OA in contravention of s. 38(1) (a) are null and void
(ii) s.38(2) BA 1967 A bankrupt who makes default in performing or observing
this section [or a condition imposed pursuant to subsection (1A)] shall be
deemed guilty of contempt of court, and shall be punished accordingly on the
application of the Director General of Insolvency".
(iii) An annulment of the bankruptcy does not take effect retrospectively but from
such date as the order is made.
(iv) The civil proceedings taken by the Respondent during the period of his
bankruptcy are therefore null and void.
(v) Appellant’s appeal allowed.

On Appeal to FC: [2010] 2 CLJ 661

FC: Reversed decision of CA - annulment order was to operate retrospectively.
 ‘remitted to the Court of Appeal for the same corum to hear and decide on the
substantive issues of this appeal based on the principles as determined that the
annulment of the appellant's bankruptcy acts retrospectively’.

4.2.2.1 Competency of a bankrupt as a witness

Tong Soon Tiong & Ors v FA Securities Sdn Bhd Civil Appeal No 02-26- 2012(T)
(FC)
FC: Q: competency of a bankrupt as a witness. "Is the evidence of a bankrupt, apart
from his capacity as one of the plaintiffs in an action, inadmissible, even though the
type and cause of action of the other plaintiffs are similar as against the respondent
(defendant)?"

 Upon being adjudged a bankrupt he is subject to some 10 restrictions:

(see the Law and Practice of Bankruptcy in Malaysia by Khoo Kay Ping)
1. disqualified from holding the office of a Member of Parliament (Article 48
(1) of the Federal Constitution);
2. holding public office e.g. being appointed or acting as a Sessions Court
Judge, Magistrate or being nominated or elected to or holding or exercising
the office of Councilor of a local authority (s.37 IA 1967);
3. disqualified from being appointed or remaining as a Chairman or director in
statutory offices (Rule 2 (6) (b) of the First Schedule of Bank Kerjasama
Rakyat Malaysia Berhad (Special Provisions) Act 1978 (Act 202);
4. practising in certain professions (s. 11 (b)(ii) of the Legal Profession Act
 1976);
5. carrying on business or in partnership or by way of a company (s.35 (1) of
the Partnership Act 1961)
6. working in the business of a relative (s.38 (1) (e) (i) of IA 1967);
7. maintaining any action without the previous sanction of the DGI other than
an action for damages in respect of an injury to his person (s.38 (1) (a) of
IA 1967);
8. leaving Malaysia without the previous permission of the DGI or of the
court (s.38 (1) (c) and s.38 A (1) of IA 1967);
9. receiving pension or other gratuity (s.22 of the Statutory and Local
Authorities Superannuation Fund Act 1977); and
10. enforcing his rights under certain legislations (see s. 111(4) and (6) of the
Income Tax Act 1967).

 Apart from the above he is free to contract, he may witness a signature, affirm
affidavits on condition he discloses his bankrupt status and many others.
 A debtor therefore is thus not totally debilitated by his bankrupt status. If a
bankrupt were to be construed as an incompetent witness, it would undo statutory
provisions that require a bankrupt to file an affidavit giving a true picture of his
assets at the DGI’s office, public examination of the bankrupt etc. S.118 EA refers
to categories of witnesses who may be disqualified from giving evidence by reason
of tender age, extreme old age, incapacitated by diseases whether of body or mind,
or any other cause of the same kind. Therefore, under the Evidence Act 1950 a
debtor’s status as a bankrupt is not a disability that will dilute his competency to
testify, especially if all the rules of evidence have been complied with.
 FC Held: Debtor’s (6th. Plaintiff) evidence admissible despite being a bankrupt

 Apart from the above he is free to contract, he may witness a signature, affirm affidavits
on condition he discloses his bankrupt status and many others.
 Gan Hong Hoe v Gan Kim Hee [1939] 1 MLJ 295
 Kwan Chew Shen v Citibank N.A. [1987] 1 CLJ 314
 Lim Wah Siang v Perwira Affin Bank Bhd [1997] 1 MLJ 374

4.2.2.2 Purchaser-Bankrupt ability to contract and pass a good title

S. 349 (1) NLC – DGI where the DGI claims any land or interest in land relating to
bankruptcy, he may apply to the Registrar for registration to the DGI. Registrar shall endorse
a memorial of the transmission on the register document of title of the subject land.
S. 349 (3) NLC – no land shall vest in the DGI under adjudication of bankruptcy until it is
registered as per S. 349(1).
Re Chua Tin Hong ex p Castrol (M) S/B [1997] 2 AMR 1253
RO and AO been made against one Chua Tin Hong ('the bankrupt') on 22 March 1991
upon the petition of Castrol (M) Sdn. Bhd. ('Castrol'). On 4 September 1991, the
bankrupt transferred a piece of land ('the land') of which he was the registered
proprietor to his nephew ('the 1st respondent') without consideration. On 4 October
1994, the 1st respondent transferred the land to the 2nd respondent for a consideration
of RM79,964/-. On 28 February 1996, the OA ('the applicant') applied to the SAR and
obtained a declaration that the transfer of the land, from the bankrupt to the 1st
respondent and from the 1st respondent to the 2nd respondent, was a voluntary
settlement under s. 52 BA 1967 and was void against the applicant.

HC Held:
(i) The plain meaning of the word "action" in s38(1)(a) BA is civil action. Thus,
the word "action" in s38(1)(a) is confined in its operation to civil proceedings
in court and not to a conveyance of property
(ii) s52 is restricted in its application to settlements made prior to a settlor being
adjudged a bankrupt. In the present case, the land was transferred after the act
of bankruptcy of the bankrupt. Therefore, reliance on s52 BA could not be
sustained.
(iii) The fact that the 2nd respondent had given valuable consideration for the
purchase of the land and had acted in good faith brought him within the
protection contemplated by s53(B)(3).
(iv) s24(4) must be interpreted as being qualified by s349 NLC in so far as land is
concerned. The registered title of a bankrupt does not vest in the Official
Assignee until a transmission is registered in the official capacity of the latter;
if a bankrupt transfers his interest in land to a person who registers the transfer
before any transmission is registered by the Official Assignee, then the
bankrupt's interest will, notwithstanding his bankruptcy, pass to that person.
(v) The applicant would be entitled to proceed under s340(2) NLC if he could
bring himself within the requirements of that section.
(vi) In order to ensure that a registered proprietor of land who has been adjudged a
bankrupt does not deal with the land before it is vested in the Official Assignee,
the Official Assignee ought to caveat the land under s323 NLC.
(vii) 2nd. Respondent’s (bona fide purchaser for value) appeal allowed.

Re: Kwan Chiew Shen v Syarikat Kaaf [1981] 1 CLJ 314

A bankrupt does not lose his capacity to contract if it has not been transmitted to the
DGI under the NLC. He can pass a good title to purchaser or charge.
 Remitted to CA comprising a different panel to hear the merits of the case.

Ng Yen Kok v AmFinance Berhad (formerly known as MBf Finance Berhad Civil
Appeal No M-03- 247-2009 (CA) [2012] 1 MLJ 297; [2012] 2 AMR 1
Receiving order and adjudication order granted on the basis of an invalid creditor’s
petition were invalid, and therefore set aside. JD obtained and BNotice was served by
way substituted service. However, Appeal Record did not contain the order for
substituted service. RO & AO set aside.
4.3 Annulment of Bankruptcy Order

s105 (1) IA 1967 – the bankruptcy order may be annulled where:

(a) it ought not to have been made at all – defective Notice, service, non existence of
debt; or
(b) Debts of bankrupt are paid in full: or
(c) there are proceedings pending in Singapore
s105 (2) IA 1967– when bankruptcy order is annulled, all sales and disposition of property
and payments and acts done by DGI or other person acting under this authority shall be valid
but property shall vest in such person as the court appoints or to the debtor.
s105(3) IA 1967 – Notice of annulling a bankruptcy order shall be gazetted and published in
at least one local newspaper.

Effect of an annulment

 Terminates bankruptcy.
 Debtor reinstated to the original position.
 All property will re-vest except those that have been disposed.

4.4 Possession of property

1) s55 IA 1967 – the DGI shall take possession of the deeds, books and documents of the
bankrupt and all other parts of his property capable of manual delivery.

Hasnah Che Hasan v Hongkong Bank Malaysia Bhd.[2010] 7 CLJ190

Appeal by JD against the Deputy Registrar's decision dismissing her application to
rescind and annul the RO & AO made against her on the following grounds –
(1) that the bankruptcy notice (BN) and the creditor's petition (CP) were not served at
the JD's correct address;
(2) the documents filed in court were tampered with;
(3) the calculation of interest in the BN was inaccurate; and
(4) the person purportedly authorised to act on behalf of the JC had no authority.

The JC raised an objection that the JD had no locus standi to set aside the RO and AO
(that were apparently given in the JD's absence in the bankruptcy proceedings) without
the previous sanction of the Official Assignee under s. 38(1)(a) B A 1967
Held (allowing JD's appeal):
(1) Under s. 105(1)BA the jurisdiction to annul and rescind the RO and AO were
discretionary and the actual state of affairs at the date of the orders had to be
considered.
(2) The sanction in s. 38(1)(a)BA did not apply to a bankrupt who sought the
court's discretion to set aside the RO and AO or any other orders against him in
the bankruptcy proceedings.
(3) The facts showed that the BN and CP were not posted on the correct premises
of the JD and that the CP was not served by way of substituted service. There
was also no evidence to show that the JD was informed of any adjournment or
of the actual date of hearing of the CP when the RO and AO were made against
her.
(4) The affidavit of service did not state who had directed him to serve the BN and
in what capacity he had served it. Further, r. 109 provided that the CP shall be
served by specified persons. The JC also did not comply with rr. 110 and
111(1) BR on substituted service.
(5) The RO and AO stated that the JD was present in court when the CP was called
for hearing whilst the handwritten copy of the notes recorded by the Deputy
Registrar stated that the JD was absent. The JC blamed its previous solicitors to
have inadvertently stated that the JD was present. The presence of the JD had a
strong bearing on the determination of whether the BN was in fact posted at the
JD's correct premises and on the subsequent creditor's petition purported to
have been posted by way of substituted service.
(6) The JC did not show any rebuttable evidence that the alterations in the BN and
affidavit thereto were done before the filing thereof. The alterations were also
not initialled by the deponent or the Commissioner of Oaths. The reasonable
inference was that the alterations were done after the affidavit was affirmed and
the BN signed by the Deputy Registrar. Such alterations or tampering of
evidence was inadmissible and rendered the BN bad in law.
(7) There was no evidence to show that the deponent of the relevant affidavit had
the legal authority to commence the bankruptcy proceedings on behalf of the
JC. No explanation or rebuttable evidence was given nor was there a copy of
the power of attorney to show such authority.
(8) As there was no explanation or rebuttable evidence on the difference in the
calculation of the interest, the JC was deemed to have accepted the JD's
contention of a miscalculation. The BN was therefore a nullity.
(9) The period of delay had to be considered or assessed from the date the JD knew
or ought to have known of the RO and AO made against her. The JD only came
to know of the orders when she was informed by a financial institution that she
was not qualified to obtain a loan to purchase a vehicle. She then appointed
solicitors to obtain the details of the bankruptcy proceedings and thereafter
 managed to obtain all the relevant documents from the insolvency department.
(10)It was not fair and equitable that the JD should have been adjudged a bankrupt
based on the cumulative effect of the defects found. The JD advanced sufficient
reasons in support of her application to rescind and annul the RO and AO under
s. 105 of the Act.

2) Properties that do not pass to DGI – s48(1)(a) IA 1967

(i) property held on trust
(ii) tools of the trade, necessaries to a value not exceeding RM5,000/

 S68(2) IA 1967 - DGI may give the bankrupt an allowance but court may reduce any
such allowances and limit the time for which it may be made.
 S68 (3) IA 1967 - Even if the bankrupt dies, the DGI may make allowances to his
family.
 S68(4) IA 1967 – The DGI may also make an allowance towards the funeral expenses
of a bankrupt

Merchantile Bank Ltd. v OA of the Property of How Han The [1969]

DGI has to honour all charges, liens, caveats.

 Goods on hire purchase unless all installments have been paid.

3) Property that can pass to the DGI:- s48(1)(b)(i)

 all property that is vested in or acquired or devolves to him upon commencement of
bankruptcy and before his discharge.
 Property over which bankrupt can exercise rights
 Property under reputed ownership i.e. possession with the consent of the owner at time
of bankruptcy or acquired before discharge – to protect creditors who may have given
credit for goods to the bankrupt unknowingly – s.48(b)(iii) “order and disposition
clause”
 Foreign property – DGI may seek a conveyance or PA to take possession of the
property – s27 IA 1967 on a failure to comply - a bankrupt may be cited for contempt.
 Shares / shareholdings
4.5 Doctrine of Relation Back -s47 IA 1967

 This has far reaching effects on the bankrupt’s dealings, property and actions from the
time the act of bankruptcy is committed. Its objective is to protect creditors against
fraudulent conveyances and also to bar third party dealings with the debtor.

 Certain transfer or conveyances of property made prior to the debtor being adjudged a
bankrupt may be void or voidable against the DGI unless the transferee or other party is
able to prove that it was a bona fide transaction for value.

 The objective is to maximise the assets available to the DGI.

 In the IA 1967, there are three different time periods under these which will be discussed
below:

Section 47(1)- 6 months preceding the presentation of the bankruptcy petition i.e. from the
first act of bankruptcy;
Section 53(1)- if a debtor becomes a bankrupt within 6 months of paying a creditor in
preference of other creditors;
Section 52- if a settlor becomes bankrupt within 2 years after the date of the settlement to his
wife or children; or If the settlor becomes bankrupt within 5 years after the
settlement unless it can be proved that he was able to pay all his debts at the
material time.

Koh Lian Hee (a bankrupt) v Koh Thong Chuan & Anor. [1997] 5 MLJ 186; [2003] 1
MLJ 113
A father, three sons and brothers who controlled four private limited companies, acted
as guarantors to these companies. 22 Sept. 1990 father conveyed property worth RM1m
to his youngest son (D1) vide a SPA. D1 paid off the redemption sum and the said
property was registered in his name on 26 March 1991. Meanwhile on 15 Aug. 1991 a
creditor’s petition was presented against the father and on 3 July 1992 he was adjudged
a bankrupt. In Sept. 1993 D1 charged the said property to D2. The OA claimed that the
transfer was void under ss 47 and 52

HC Held:- effective date of conveyance of said property was 26 March 1991 which was
within the 6 months of creditor’s petition on 15 Aug. 1991. Therefore alleged to be a
fraudulent conveyance and caught under s.47 – relation back
 D1 and D2 in the above action appealed separately to the CA against the decision of
the HC.

Koh Thong Chuan v The OA of the property of Koh Lian Hee, Bankrupt [2003] 1 MLJ
113
CA Held:-
(i) s.349NLC landed property would only be vested in the plaintiff by way of
registration. Until then, the plaintiff only has an equitable interest in the said
property. Accordingly, the legal interest in the charges acquired by the second
defendant, as a bona fide purchaser for value and without notice, would
overreach the plaintiff's equitable interest. This also rendered the second
defendant's interest, as the registered chargees, indefeasible.
(ii) Though there was a finding of fraudulent transfer of the said property the title of
the said property had yet to be vested in the plaintiff pursuant to s. 349 NLC.
Therefore, the plaintiff only has an equitable interest in the property.
(iii) Whilst s. 53B(1) generally allows the OA to recover property from one who
acquires it from a bankrupt, s. 53B(3) provides an exception in respect of one
who has given valuable consideration and acted in good faith. Consequently
remedy is only against persons who entered into the transaction with the
bankrupt, i.e. the first defendant.
(iv) First defendant's appeal dismissed with costs; second defendant's appeal allowed
with costs.

Abu Bakar b Jaafar & Anor. v MBB [1991] [1991]1CLJ 492

The Ps who was a partner in Pen Trading & Co.(Pen) , was a customer of the D bank
and maintained current and deposit accounts. MBB sued Pen and summons was served
on the Ps by way of substituted service – newspaper advertisement. JID was obtained
against the Ps and MBB proceeded with bankruptcy proceedings. The Notice was also
served by way of substituted service – newspaper advertisement. The Ds on becoming
aware of the bankruptcy proceedings informed the Ps that the account was being frozen
as per s.47(2). The Ps sued the D Bank.

Held:- Ds right in freezing the accounts under s.47(2) – relation back. Once the Ds had
knowledge vide the newspaper advertisements s.54(1)(b) protection for bona fide
transactions did not apply.
4.6 Where creditor has issued execution – s50 IA 1967

1. Creditor cannot retain the benefit of the execution or attachment unless he has completed
and realized the proceeds of the attachment before the bankruptcy order was made. For
this purpose execution is completed when:
 Attachment of Goods or land – seizure and sale
 Attachment of Debt – receipt of the debt.(payment)
 Attachment of property – sale of property

Re Syed Ahmand & Co exp the OA [1958] 1 MLJ 205

Where an RO has been made and the creditor has not completed the execution within 6
months of the RO, the creditor cannot retain the benefit. Has to be handed over to DGI.

2. Application of s50(1) BA 1967 is seen:

Re Low Nai Bros & Co (1969)

The creditor took garnishee proceedings after the RO was made. Held: he was not
entitled.

OA of property of Lim Chiak Kim v United Bank Ltd (1988)

Bank had notice of the act of bankruptcy and the petition before execution.
Held: not entitled.
4.7 Avoidances of voluntary settlement – s52 IA 1967

1. Voluntary settlement i.e. one without valuable consideration though generally valid may
be void against DGI i.e. property will be ‘over-reached’ by DGI.

2. 1st limb: Any settlement of property by a settler who becomes bankrupt within 2 years
after the date of settlement will be void against the DGI unless parties can prove:
(i) settlements made before and in consideration of marriage
(ii) settlements made in favour of purchaser or encumbrances in good faith or for
valuable consideration
(iii) settlements made on or for the wife, children of the settlers, of property which has
accrued to him after marriage in right of his wife.

3. 2nd limb: If a settler becomes bankrupt within 5 years after the date of settlement, the
settlement is void unless the parties under the settlement can prove that the settler :
(i) the settler was solvent at the time of the settlement
(ii) the whole interest of the settler in such property passed on the execution to the
Trustee of such settlement

ChinYau King v Liew Chi Shing @ Liaw Chi Shing & Anor
P vide a Loan Agreement dated 5 Jan.2000 with the D1 lent D2 RM 155,000/-. On 17
Jan.2000 D1 ( 12 days later) conveyed land by way of gift to his son D2. P
commenced action for recovery of loan on 21 March 2000. RO and AO were made on
13 Nov. 2003

Issues to be tried were

 Whether the transfer of the land by the D1to the D2 was a gift for love and
affection as wedding present to the 2nd defendant.
 Whether the transfer was done with the intention of the 1st defendant to defraud
the plaintiff.
 Whether the 1st defendant, at the material time of the transfer, had sufficient assets
to cover the loan of RM155,000.00 provided to him by the plaintiff."

HC Held : In this case the D1was already made a bankrupt and the DGI is not made a
party, as such P’s claim dismissed. Though transactions came within scope of s. 52 the
DGI was not made a party and so P’s claim dismissed.

Ooi Siew Chin v Jemari Bhd. & 3 Ors. [2009] 1LNS 1355
Contracts entered into by an undischarged bankrupt without knowledge of DGI – void.
Senator Ibrahim b Hj Yaakob,(bankrupt) v Siti Ramlah b Bajau [1991] 2 MLJ 479
Here property of the bankrupt held jointly with his wife included half share under
‘harta perncarian’
Held: Upon death of bankrupt, wife entitled to her half share of joint property under
‘harta pencarian’.

Silver Corridor Sdn Bhd v Gallant Acres Sdn Bhd & Anor. [2015] 9 CLJ 919, CA -
Grounds of Judgment dated 01.09.2015
For a company under liquidation, section 293 of the Companies Act 1965 had to be
read either with section 52 or section 53 of the Bankruptcy Act 1967 to determine
whether certain transactions, disposals or payments involving the assets of the
company were void or voidable for the reason that it constituted an ‘undue preference’
as against the assets or creditors of the company concerned.

Section 52 is the applicable provision when the challenge was that the disputed
transaction was not entered bona fide and/or for favourable consideration whereas
section 53 would only be relevant in a situation where the company is already
insolvent and the challenge is to invalidate certain disposals or payments effected to
some creditors or beneficiaries, in preference to others or the general body of creditors.
4.8 Avoidance of Preferences

1. Where a debtor makes a fraudulent preference and is subsequently adjudged a bankrupt

on a petition presented within 6 months of the fraudulent preference, the transaction will
be void against the DGI.

2. The DGI may recover from the ‘preferred creditor’ any money paid or property
transferred to him even if the creditor did not know that he was being ‘preferred’.

However any person who has taken in good faith for value without notice is protected.
s.53A –avoidance of assignment - bad debts
s.53B – Property or proceeds acquired by anyone under a void or voidable transaction shall
be deemed to belong to the DGI. DGI has a right to recover it unless such person has
acquired it for valuable consideration and in good faith.
s.54 – protection of bona fide transactions for value without notice – includes – attachments,
executions, settlements, preferences shall not be invalidated:
(a) any payment by the bankrupt to any of his creditors;
(b) any payment or delivery to the bankrupt;
(c) any conveyance or assignment by the bankrupt for valuable consideration;
(d) any contract, dealing or transaction by or with the bankrupt for valuable
consideration: if –
(i) it takes place before the date of the RO; and
(ii) the person took without notice of the bankruptcy
4.9 Disqualification of a Bankrupt – s36 IA 1967

1. s36(1) IA 1967- A bankrupt cannot be:

o appointed as a Sessions Court Judge or Magistrate
 nominated or elected for office of councillor of a local authority

2. Art 48(1) Federal Constitution (FC): An undischarged bankrupt cannot be a Member of

Parliament.

3. Bankrupt also cannot:

(a) hold positions in statutory bodies or societies
(b) Practicing certain professions – eg. advocate & solicitor, engineer, architect, company
secretary
(c) Working in the business of a relative,
(d) Maintaining any civil action without the prior sanction of the DGI,
(e) Be receiving pension or gratuity,
(f) A trustee under any written law,
(g) A director of a limited company or corporation

4. s36(2)(a)- The disqualification will cease once the bankruptcy order is cancelled/
annulled.
4.10 Disabilities of a bankrupt – s38 IA 1967
s38 (1) IA 1967 – Where a bankrupt has not obtained his discharge –
(a) Cannot maintain any civil action other than for personal injuries without the sanction of
the DGI
(b) Every 6 months bankrupt has to tender accounts to the DGI
(ba) to report any monies / properties in any form received exceeding RM500/-
(bb) inform DGI of any change of address
(c) Cannot leave the country without the prior sanction of the DGI
(d) Cannot carry on any business directly; or
(e) Participate / manage any family business without prior consent of DGI

s38 (1A) IA 1967 – discretion of the DGI to grant any permission & the court may also
impose such conditions as it considers fit

s38 (2) IA 1967 – breach of any of the above conditions – deemed to be contempt of Court

Foo Fatt Chuen v Jacobson Cheong Weng Hin & Ors (Mohamad Ariff Yusof J) [2012]
3 CLJ 632 [HC]
 Based on the accepted principles of illegality, it is plain that the legislative intent of
s38(1)(d) of the BA is not to condone ant act of the undischarged bankrupt in
relation to the entry into or the carrying on of a business, or a company, unless he
has the prior permission of the DGI. To protect his creditors and sections of the
public at large who may be persuaded unsuspectingly to have business dealings
with him, it must surely be right for the law to regard his contracts for ant of these
purposes to be held void.
 A similar reasoning should apply in relation to the effects of the prohibition in
s38(1)(e) of BA. The existence of s38(2) of BA cannot be a sufficient reason to
displace the argument that the contracts are to be held void.
 There has been a breach of s38(1)(d) of BA and s209(1)(m)(i) of BA. Although the
court was not sitting as a Bankruptcy Court and there has been no application by
the DGI n reference to these provisions, this court cannot ignore the legal effects of
illegality if the concerned agreements between the parties pursuant to s24(a)(b) and
(e), read in conjunction of with s66 f the Contracts Act 1950.

1.
4.11 Proceedings consequent upon Adjudication
Proof of debt by creditors: s40 IA 1967

 Formal claim made by creditor – affidavit and delivered to OA.

 Provable debts s 40(1), (2) and (3) – all present, future, contingent debts.
 Unprovable debts – s.40(1) – unliquidated damages.

Statement of affairs by bankrupt: s16 IA 1967

 Debtor has to provide a Statement of Affairs verified by Affidavit within 21 days of

service of bankruptcy order on him under a CP or if under a Debtor’s petition – 7
days..
Creditors meeting: s15 IA 1967

 Sch. A– DGI to call for a 1st creditors meeting upon the Statement of Affairs being
filed. Any creditor who has filed his proof of debt may question the debtor. DGI may
consider /propose a scheme of arrangement or composition.

Public Examination of debtor: s17 IA 1967

 After the 1st. creditor’s meeting, the DGI may apply to court for a Public Examination
of the debtor. Creditors will be notified by the DGI of the date which should also be
advertised in a local newspaper and gazetted. Should the debtor fail to attend a
warrant for his arrest may be issued by the court (s28 IA 1967)

r.145 Where the court finds the bankruptcy was brought about by adverse factors eg. fraud,
cheating,etc. the court may adjourn the bankruptcy proceedings sine die.

r.149 the public examination of a debtor may be dispensed with if he is under some mental or
physical disability.
4.12 Disclaimer of Property by DGI

 S. 59(1): DGI may disclaim onerous, unprofitable/unsalable property by notice in writing.

 Rule 252: DGI may disclaim a lease if: … (refer Act)

4.13 Duties and Responsibilities of DGI

 S. 71(1): 2 fold: conduct of debtor & administration of debtor’s estate.

 S. 72: duties of DGI as to debtor’s conduct. (refer Act)
 S. 73: duties of DGI as to debtor’s estate. (refer Act)
 Rule 254: upon the removal/death/ resignation of DGI, his rights and powers shall vest in
his successor in office.
 Rule 255: once DGI receives notice of RO, he shall furnish debtor with a copy of
instruction for preparation of his statement of affairs.