Insolvency Law

1. TAG 2.3
FELICIA JOAN GOMES 1171100557
NATALIE LEE 1171101553
LAI HUI XUAN 1171101831
SHELDON PRASANTH 1181300493
AGITHA GUNASAGRAN 1171100603
NAVNEETAA KEERBANNTHAN 1171100536
Law of Insolvency
Tutorial 4 Question 1

2. QUESTION
James is the shareholder of a company, Gold Fingers Sdn. Bhd. which is in the business of selling gold.
James obtained a loan of RM8,000,000.00 from Kaya Bank. As security for the loan, James gave to
Kaya Bank a personal Guarantee for the same amount.
There is a robbery in the premises of Gold Fingers Sdn. Bhd. and all the gold was stolen. As a result of
the robbery, Gold Fingers Sdn. Bhd. had no more gold to sell and was unable to keep up with the
loan repayments to Kaya Bank.
Kaya Bank obtained Judgment against James and Gold Fingers Sdn. Bhd. and now comes to you to
seek advice in respect of further legal proceedings against each of them.
(a) Who can Kaya Bank go against in bankruptcy proceedings and what are the procedural steps
involved to obtain Receiving and Adjudicating Order? [Now known as Bankruptcy Order]

3. ISSUE 1: Whether James is a social guarantor or any other guarantor that Kaya Bank can
take bankruptcy proceedings against?
WHO CAN KAYA BANK GO AGAINST IN BANKRUPTCY PROCEEDINGS
LAW:
-Definition of Social Guarantor - S.2 OF IA 1967 – a person who gives guarantee not for
the purpose of making a profit, the following:
(a)A guarantee for loan, scholarship or grant for educational or research purposes;
(b)A guarantee for hire purchase transaction of a vehicle for personal or non-business
use;
(c)A guarantee for a housing loan transaction solely for personal dwelling.
-S.5(3) of IA 1967- A petitioning creditor shall not be entitled to commence any
bankruptcy action:
(a) against a social guarantor; and
(b) against a guarantor other than a social guarantor unless the petitioning creditor has
obtained leave from the court.

4. WHO CAN KAYA BANK GO AGAINST IN BANKRUPTCY PROCEEDINGS
LAW:
Hong Leong Bank Berhad v Ong Moon Huat [2018]
Held: A leave of court must be obtained if the creditor intends to commence
bankruptcy action against another guarantor and the court must be satisfied that the
creditor has exhausted all modes of execution & enforcement to recover debts from
debtor under S.5(6) of IA 1967.
After all modes of enforcement against the principal borrower has been exhausted,
then only can apply leave to proceed with bankruptcy against guarantor.

5. WHO CAN KAYA BANK GO AGAINST IN BANKRUPTCY PROCEEDINGS
APPLICATION:
-Applying S. 2 and S.5(3) of IA 1967, James is not qualified to be a social guarantor as
he is acting as a loan guarantor for Gold Finger’s Sdn Bhd which is for business
purposes and profitable interest.
-Nevertheless, a claim against James is possible, however based on S.5(6) of IA 1967,
Kaya Bank must exhaust all modes of recovering money from Gold Fingers first
following Hong Leong Berhad’s case, as Gold Fingers is the principal debtor and James
is only a non-social guarantor.

6. ISSUE 2: Whether a claim against Gold Fingers can be made as debtor?
WHO CAN KAYA BANK GO AGAINST IN BANKRUPTCY PROCEEDINGS
LAW:
S.3(3) of IA 1967- Debtor for bankruptcy is one who at the time when the act of
bankruptcy was done or suffered by him:
(a)Was personally present in Malaysia.
(b)Ordinarily resided or had a place of residence in Malaysia.
(c) Was carrying on business in Malaysia either personally or by an agent.
(d)Was a member of a firm or partnership which carried on business in Malaysia.
General Rule: Bankruptcy proceedings can only be taken against an individual and
cannot be taken against companies as they are not subjected to IA 1967, and instead are
subjected to winding up proceedings under the Companies Act 2016.

7. WHO CAN KAYA BANK GO AGAINST IN BANKRUPTCY PROCEEDINGS
APPLICATION:
Kaya Bank cannot commence bankruptcy proceedings against Gold Fingers Sdn Bhd
under the IA 1967 since it is an incorporated company and not an individual nor a
partnership. Alternatively, Gold Fingers Sdn Bhd can be subjected to winding up
proceedings under the Companies Act 2016. Kaya Bank will have to adhere to the
procedures under the Companies Act 2016 to wind up Gold Fingers Sdn Bhd, which
includes appointment of liquidators. Nevertheless, applying Hong Leong Bank Bhd’s
case, all other means to recover debt should be exhausted before this stage.

8. PROCEDURES IN OBTAINING A BANKRUPTCY ORDER
LAW:
-Section 4 of IA 1967: The Court can grant a bankruptcy order if a creditor’s petition
has been presented as per Section 6.
-Rule 121 of the Insolvency Rules 2017: the petition must be heard after 8 days from its
service unless good cause is shown to be heard earlier.
-Section 5 of IA 1967: a creditor can only file a petition under 4 circumstances-
- the debt owed by the debtor to the petitioning creditor, or if two or more creditors
join in the petition the aggregate amount of debts owing to the several petitioning
creditors, amounts to RM50,000;
- the date if the debt is a liquidated sum payable either immediately or at some
certain future time;
- the act of bankruptcy on which the petition is grounded has occurred within six
months before the presentation of the petition; and
- -the debtor is domiciled in Malaysia or has carried on business in Malaysia within a
year before petition was presented.

9. PROCEDURES IN OBTAINING A BANKRUPTCY ORDER
- Section 6(2) of IA 1967: Court will require proof of-
- the debt of the petitioning creditor;
- the act of bankruptcy or, if more than one act of bankruptcy is alleged in the
petition, some one of the alleged acts of bankruptcy; and
- if the debtor does not appear, the service of the petition.
Affin Bank Bhd v Tan Sri Kishu Tirathrai [2008]: At the hearing of the petition-
•it is not mandatory for the petitioning creditor to prove the debt again through cross
examination especially when the affidavit verifying the petition was never challenged.
•'personal attendance' of the petitioning creditor is not necessary as the attendance of
the counsel is sufficient.

10. Thank You