Introduction
In the recent Federal Court case of Abdul Rashid bin Mohamad Isa v PTT International Trading Pte Ltd [2024] MLJU 1518, the core issue that arose in the appeal was whether the withdrawal of the Creditor’s Petition constituted a termination of the entire bankruptcy proceedings including the Bankruptcy Notice served on the Judgment Debtor.
Background Facts of the Case
On 17 December 2018, the Judgment Creditor (“JC”) served a Bankruptcy Notice (“BN”) on the Judgment Debtor (“JD”) for a sum of RM59,567,505.93. Under Section 3(1)(i) of the Insolvency Act 1967 (“IA”), the JD has 7 days from the date of service to comply with the requirement of the BN by making payment, or satisfy the court that he has a counterclaim, set off or cross demand which equals or exceeds the amount of the judgment debt or sum ordered to be paid. The JD applied to set aside the BN by filing a Summons in Chambers but failed to file any affidavit pursuant to Rule 93(1) of the Insolvency Rules 2017 (“IR”). Despite not hearing and determining the setting aside application on its merits, the learned registrar found that the JD had committed an act of bankruptcy on 25 December 2018 due to the failure to file any affidavit and the failure to repay the debt as stated in the BN.
The JD appealed to the Judge in Chambers while the JC filed a Creditor’s Petition (“CP”) premised on the learned Registrar’s decision that the JD had committed an act of bankruptcy. In determining the JD’s appeal, the learned High Court Judge (“HCJ”) found that no act of bankruptcy had been committed as the JD had applied to set aside the BN and said setting aside application has yet to be heard and disposed of. The HCJ’s decision is consistent with Rule 93(2) of the IR, which stipulates that no act of
bankruptcy is deemed to have been committed until the application to set aside a bankruptcy notice is heard and determined.
When the proceedings reverted before the learned registrar some 3 years later in December 2021, the JD applied to strike out the CP premised on the HCJ’s decision and the JC subsequently sought to withdraw the CP. The learned registrar allowed the CP to
be withdrawn with liberty to file afresh, but simultaneously ruled that the bankruptcy proceedings against the JD has been terminated. Despite the HCJ’s decision that no act of bankruptcy had been committed, the learned registrar further held that the JC is out of time to file the CP since any CP, if filed, would be beyond the 6 months statutory time limit prescribed in Section 5(1)(c) of the IA from the date of the act of bankruptcy.
Dissatisfied with the learned registrar’s decision, the JC appealed to the HCJ while the JD applied to set aside the JC’s appeal. The HCJ allowed the JC’s appeal and dismissed the JD’s application to set aside the JC’s appeal. The JD persisted in challenging the HCJ’s decision and appealed to the Court of Appeal. The Court of Appeal upheld the decision of the HCJ, prompting the JD to file a further appeal to the Federal Court.
Questions to be decided and the Federal Court’s Decision
The Federal Court found that two questions arose for determination, namely:
On the first question, the Federal Court affirmed the decision of the High Court and Court of Appeal that there was no act of bankruptcy to form the basis of the CP as the application to set aside the BN was not yet heard and pending disposal.
On the second question, learned counsel for the JD relied on the case of Re Subramaniam a/l Paidathally, Re; ex parte G Ragumaren & Co [2011] MLJU 1216 in support of the argument that the withdrawal of the CP amounted to a termination of the
bankruptcy proceedings. It is relevant to consider the facts and decision in Re Subramaniam.
Re Subramaniam
In Re Subramaniam, the BN was served on the JD and the JD applied to set aside the BN on several grounds. The application to set aside the BN was heard and dismissed by the learned registrar. Upon dismissing the setting aside application, the learned registrar held that an act of bankruptcy was therefore deemed to have been committed.
The JD applied to strike out the CP on various grounds including an error in the date of the act of bankruptcy. The learned registrar allowed the striking out on the ground that the date of the act of bankruptcy was wrongly stated in the CP. The JC did not appeal against this decision but instead filed a second CP based on the same act of bankruptcy.
The question which arose for determination by the High Court was whether the second CP can be filed after an earlier CP has been struck out or dismissed based on the same act of bankruptcy, and if so, whether it is subject to leave of the Court. The learned High Court Judge acknowledged that the case concerned a striking out not touching on the merits. The learned High Court Judge further observed that where a CP is dismissed on the merits, it will not be possible to file a second petition on the same act of bankruptcy and the JC would have to start the bankruptcy proceedings afresh. The High Court was however persuaded by an unreported decision of the High Court, Re Ng Kai Tee, Ex Parte CIMB Bank Berhad, where it was held that the discontinuance of the CP would lead to the ending of the CP and the BN. The learned High Court Judge further held that as a withdrawal will result in an order to strike out, in principle when a CP is struck out, the effect is the entire bankruptcy proceedings comes to an end.
The Federal Court considered both Re Ng Kai Tee and Re Subramaniam and held that both cases are distinguishable from the present case. The Federal Court expressed reservations about the High Court’s decision in Re Subramaniam that a withdrawal of the CP amounted to a termination of the entire bankruptcy proceedings. The Federal Court further held that mere typographical error or inadvertent error should not automatically result in the striking out of the CP and the subsequent termination of the bankruptcy proceedings. The Federal Court emphasized the far-reaching and adverse consequences of such a decision and highlighted that the purpose and intent of the IA and IR is to preserve the JD’s assets in the interest of the creditors as a whole. To require the JC to file afresh the bankruptcy proceedings by reason of typographical error or inadvertent error does not serve the purpose and intent of the IA and IR but instead lead to significant delays, increased cost and risk of asset dissipation. As such, the second question was answered in the affirmative. The Federal Court further elaborated that if the matter is heard and disposed of on its merits, the termination of the CP would most likely lead to the termination of the entire bankruptcy proceedings.
Key Takeaways
The Federal Court's decision affirms the principle established in Rule 93(2) of the IR, namely that no act of bankruptcy shall be deemed to have been committed until the JD’s application to set aside the BN has been heard and determined.
Whether or not the JC is able to withdraw the CP with liberty to file afresh depends on whether the application to set aside the BN was determined on its merits. If the setting aside application was not heard and determined on its merits, and the court erroneously concluded that an act of bankruptcy had been committed, leading to the filing of the CP, it would be unfair to deny the JC the opportunity to withdraw the CP with liberty to file afresh.
Conversely, where a CP is predicated on the Court’s finding on the merits that an act of bankruptcy had been committed and that finding is subsequently reversed on appeal, the JC would have to withdraw the CP as there is no act of bankruptcy to form the basis of the CP. In this scenario, the withdrawal of the CP will terminate the entire bankruptcy proceedings.
