Nature Of Bankruptcy Proceedings

Bankruptcy proceedings are commenced by the presentation of a bankruptcy petition to the court by the creditors. Prior to the presentation of the petition, the debtor must have committed an ‘act of bankruptcy’ as provided for by section 3(1) of the Bankruptcy Act 1967. Under the said section 3(1), the debtor commits an act of bankruptcy if :

(a) in Malaysia or elsewhere, he makes a conveyance or assignment of his property to a trustee or trustees for the benefit of his creditors generally;

(b) in Malaysia or elsewhere, he makes a fraudulent conveyance, gift, delivery or transfer of his property or of any part thereof;

(c) in Malaysia or elsewhere, he makes any conveyance or transfer of his property or of any part thereof, or creates any charge thereon which would under the Bankruptcy Act or any other written law be void as a fraudulent preference if he were adjudged bankrupt;

(d) with intent to defeat or delay his creditors he does any of the following things:

(aa) departs from, or remains out of, Malaysia, or

(bb) departs from, or absents himself from, his house or begins to keep house or closes his place of business, or

(cc) submits collusively or fraudulently to an adverse judgment or order for the payment of money;

(e) execution issued against him has been levied by seizure of his property under process in an action or in any civil proceeding in the High Court, Sessions Court or Magistrates Court where the judgment, including costs, is for an amount of one thousand ringgit or more;

(f) he files in the court a declaration of his inability to pay his debts or presents a bankruptcy petition against himself;

(g) he gives notice to any of his creditors that he has suspended or that he is about to suspend payment of his debts;

(h) he makes to any two or more of his creditor, not being partners, an offer of composition with his creditors or a proposal is not followed arrangement of his affairs, and such offer or proposal is not followed by the registration within fourteen days thereafter of a deed of arrangement with his creditors;

(i) a creditor has obtained a final judgment or final order against him for any amount and execution thereon not having been stayed has served on him in Malaysia, or by leave court elsewhere, a bankruptcy notice under this Act requiring him to pay the judgment debt or sum ordered to be paid in accordance with the terms of the judgment or order, or to secure or compound for it to the satisfaction of the creditor or the court; and he does not within seven days after service of the notice either comply with the requirements of the notice or satisfy the court that he has a counter-claim, set-off or cross demand which equals or exceeds the amount of the judgment debt or sum ordered to be paid and which he could not set up in the action in which the judgment was obtained or in the proceedings in which the order was obtained;

(j) the officer charged with the execution of a writ of attachment or other process makes a return that the debtor was possessed of no property liable to seizure.

Bankruptcy proceedings

Taking bankruptcy proceedings against the judgment debtor is one of the various means or ways to enforce or execute the judgment so that the debt can be recovered. Banks sometimes resort to taking such proceedings against the judgment debtor as a last resort and after considering various factor such as :
(i) the value of the debt must be at least RM10,000; and
(ii) the cost of legal proceedings has to be weighed up against the availability of assets for distribution;

Where there are other creditors who are likely or in the process of initiating bankruptcy proceedings, the bank may not need to initiate the proceedings but instead it can later on simply prove for its debts.

However, bankruptcy proceedings may be useful if the debtor has made a number of fraudulent conveyances to defeat his or her creditors. The Official Assignee may be able to re-claim these properties under the doctrine of ‘relation back’.

Objectives

The main objectives of the law of bankruptcy are to protect the public and to help the debtor. The public is protected because bankruptcy law provides for a just and equitable distribution of the debtor’s available property among his creditors, and the debtor shall be relieved of his debts and be able to make a fresh start after being discharged by the court.

Meaning in law

Bankruptcy is a legal definition of a debtor’s inability to meet his debts as and when they become due. It is governed by the Bankruptcy Act 1967 (Revised 1988). Basically, the Act deals with the entire process by which an insolvent individual is made bankrupt, the administration of the bankrupt’s estate, and the discharge of bankrupts. Besides individuals, sole-proprietorships and partnerships can be made bankrupt. Although a deceased person cannot be made bankrupt, section 122(2) of the Bankruptcy Act 1967 provides that a petition may be presented to the Court for the administration of the deceased debtor’s estate accordingly.