Bankrupt’s Right to Appeal against Bankruptcy Orders Curtailed

A commentary on Ho Ken Seng v Progressive Insurance Sdn Bhd by Loo Peh Fern

The Court of Appeal in Ho Ken Seng v Progressive Insurance Sdn Bhd [2012] 1 MLJ 297 held that a bankrupt is required to obtain the prior sanction of the Director General of Insolvency (“DGI”) before he is competent to pursue an appeal against an Adjudication Order and Receiving Order (“AORO”) issued against him.

This case has a significant impact on a bankrupt’s right to appeal against an AORO.

 

BRIEF FACTS

The Respondent filed a Bankruptcy Notice for RM2,835,179.38 being the unpaid amount of a judgment obtained against the Appellant on 20 March 1990.

As the Appellant failed to comply with the Bankruptcy Notice, the Respondent filed a Creditor’s Petition against him. The Creditor’s Petition was served on the Appellant on 28 September 2004.

On 27 February 2005, the Appellant filed an application to strike out or set aside the Bankruptcy Notice, the service thereof and the Creditor’s Petition.

On 8 January 2007, the Registrar dismissed the Appellant’s application with costs. The Appellant, dissatisfied with the Registrar’s decision, filed an appeal to Judge in Chambers on 12 January 2007.

On 16 August 2007, the Registrar granted an AORO against the Appellant. The Appellant, dissatisfied with the Registrar’s decision, filed an appeal against the AORO to the Judge in Chambers on 22 August 2007.

On 11 March 2010, the learned High Court Judge dismissed both the appeals. The Appellant, dissatisfied with the Judge’s decision, then appealed to the Court of Appeal.

 

RESPONDENT’S PRELIMINARY OBJECTION

The Respondent filed a motion to strike out the Appellant’s notices of appeal. The Respondent raised a preliminary objection that the Appellant has not obtained the sanction of the DGI pursuant to section 38(1)(a) of the Bankruptcy Act 1967 (“Act”), and therefore the Appellant had no locus standi to pursue the appeals.

Section 38(1)(a) of the Act inter alia provides that a bankrupt shall be incompetent to maintain any action (other than an action for damages in respect of an injury to his person) without the prior sanction of the DGI if he has not obtained his discharge.

 

APPELLANT’S CONTENTION

The Appellant submitted that the appeal was lodged pursuant to section 92 of the Act, the relevant parts of which provide as follows:

"(1) The court may review, rescind or vary any order made by it under its bankruptcy jurisdiction.

(2) Orders in bankruptcy matters shall, at the instance of any person aggrieved, be subject to appeal in the same way as orders of the High Court in other matters are for the time being appealable."

The Appellant further submitted that the appeal was not an action that involved third parties and hence the sanction of the DGI was not required.

 

DECISION OF THE COURT OF APPEAL

The Court of Appeal, by a majority decision, struck out both appeals.

 

Majority Decision

Low Hop Bing JCA, in delivering the majority judgment of the Court of Appeal (with A Samah Nordin JCA concurring), held that the question for determination was as follows:

“On the basis of the above factual background, and upon a true construction of s 38(1)(a), is the bankrupt who has not obtained the prior sanction of the DGI competent to maintain these two appeals?”

Low Hop Bing JCA held that section 92 is a general provision while section 38(1)(a) is a specific provision and that in the event of inconsistency between those provisions, the specific provisions of section 38(1)(a) would prevail. His Lordship then held that if a bankrupt is invoking section 92, section 38(1)(a) must apply i.e. prior sanction of the DGI must be obtained.

Low Hop Bing JCA considered the case of Re Khoo Kim Hock [1974] 2 MLJ 29 where the High Court held that section 38(1)(a) did not apply to an application under section 92(1) and section 105(1) of the Act where a bankrupt applied to review, rescind or vary a bankruptcy order.

His Lordship also referred to his own judgment in the High Court in Re Low Kok Tuan Ex p Arab-Malaysian Merchant Bank Ltd [1997] 4 CLJ 185 where he declined to follow Re Khoo Kim Hock and held that prior sanction of the DGI was required as that case concerned an application for stay of bankruptcy order and not for an annulment of a bankruptcy order.

Further, Low Hop Bing JCA referred to the High Court case of Bathamani A/p Suppiah v Southern Finance Co Bhd [2000] 6 MLJ 427 where PS Gill J (as he then was) followed Re Low Kok Tuan and held that sanction of the DGI was required to maintain an appeal against a bankruptcy order. It was held in that case that the decision in Re Khoo Kim Hock merely stated that sanction of the DGI is not required for an application to review, rescind or vary a bankruptcy order under section 92(1) or section 105(1) and was silent on the bankrupt’s capacity to appeal. As such, sanction of the DGI must be obtained in order to appeal against a bankruptcy order.

Low Hop Bing JCA observed that the aforesaid High Court cases diverged in interpreting section 38(1)(a). His Lordship held that the High Court judgments must now be read in the light of the Court of Appeal's judgment in Perwira Affin Bank Bhd v Sardar Mohd Roshan Khan [2009] 4 MLJ 201, where it was held that a bankrupt is incompetent to maintain an action without prior sanction of the DGI and an annulment order did not operate retrospectively.

The above-referred case was appealed to the Federal Court (see Sardar Mohd Roshan Khan (the sole owner trading under the name and style of Omar Khayam Enterprise) v Perwira Affin Bank Bhd (formerly known as Perwira Habib Bank Malaysia Bhd) and another appeal [2010] 4 MLJ 285). The Federal Court reversed the Court of Appeal’s decision and held that an annulment order operated retrospectively but did not deal with the issue of the competence, or otherwise, of a bankrupt to maintain an action. Therefore, Low Hop Bing JCA held that the principle laid down by the Court of Appeal on the issue of locus standi remained intact.

Relying on the cases above, Low Hop Bing JCA (with A Samah Nordin JCA concurring) upheld the Respondent’s preliminary objection that the Appellant had no locus standi to maintain the appeals as he had failed to obtain the prior sanction of the DGI. In the premises, both appeals were struck out.

 

Dissenting Judgment

Anantham Kasinather JCA in delivering his dissenting judgment held that the outcome of the Respondent’s application should be decided by applying the test laid down by Azmi J (as he then was) in Re Khoo Kim Hock.

According to Azmi J in Khoo Kim Hock, the test as to whether the sanction of the DGI is required should be determined by considering whether the application involved ‘property’, including money, real or personal property and choses in action, which are capable of being turned into assets for the estate of the bankrupt.

In His Lordship's opinion, the test propounded by Azmi J when properly applied enables a bankrupt to challenge all orders made by a bankruptcy court in the exercise of its bankruptcy jurisdiction including appeals as in this case and even applications to set aside a judgment forming the subject matter of the bankruptcy proceedings without the need to obtain the sanction of the DGI.

As the Appellant's application did not involve 'property' of the bankrupt, His Lordship was of the view that it was not necessary to obtain the prior sanction of the DGI.

Anantham JCA disagreed with the majority judgment which held that Re Khoo Kim Hock only applies to applications under section 92(1) and section 105(1) of the Act. His Lordship further observed that if the test propounded in Re Khoo Kim Hock was applied in Re Low Kok Tuan, the decision would be different.

 

RE KHOO KIM HOCK

It is to be noted that the decision in Re Khoo Kim Hock was not overruled by the Court of Appeal. As such, the test propounded by Azmi J (as he then was) in Re Khoo Kim Hock is still relevant but is now confined to applications made by a bankrupt under section 92(1) and section 105(1) of the Act. Therefore, prior sanction of the DGI is not required when a bankrupt is making an application to review, rescind, vary or annul an AORO.

 

RE LIM TAI NIAN

It is interesting to note that the majority judgment in Ho Ken Seng cited Re Lim Tai Nian [2001] 4 MLJ 78,but did not analyse the case in detail.

In Re Lim Tai Nian, Ian Chin J followed the decision in Re Khoo Kim Hock and expressed the view that he was unable to agree with the decisions in Re Low Kok Tuan and Bathamani A/p Suppiah. In that case, Ian Chin J held that sanction of the DGI was not required when the bankrupt wishes to appeal against an AORO. The Court of Appeal in delivering the majority judgment could have distinguished Re Lim Tai Nian or expressed their views on this case.

 

CONCLUSION

The decision of the Court of Appeal in Ho Ken Seng affects the right of a bankrupt to pursue an appeal against an AORO made against him. He must obtain the prior sanction of the DGI before filing an appeal against an AORO. Without such prior sanction, a bankrupt has no legal capacity to pursue an appeal against an AORO.

The Appellant has filed a Notice of Motion for leave to appeal to the Federal Court against the decision of the Court of Appeal.

 

Writer’s e-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 

 
ACCOLADES & AWARDS

Skrine Retains Who’s Who Legal Accolade for Malaysia

On 15th May 2017, the Who’s Who Global Awards was held in London, United Kingdom and Skrine was conferred the Award:

Malaysia Law Firm of the Year 2017

Skrine previously received this Award in 2013, 2014, 2015 and 2016.

>> READ MORE

SKRINE Clinches Top Honours at ALB Malaysia Law Awards 2017

On 6th April 2017, the Asian Legal Business Malaysia Law Awards was held and SKRINE was named

Malaysia Law Firm of the Year 2017

SKRINE also bagged 5 other awards

>> READ MORE

Asialaw Profiles 2017

The Asialaw Profiles has ranked Skrine as Outstanding Firm and particularly highlighting the following practice areas:

Outstanding Firm

  • Competition & Antitrust
  • Corporate/M&A
  • Dispute Resolution
  • Energy & Natural Resources
  • Intellectual Property
  • IT, Telco & Media
  • Project & Infrastructure

>> READ MORE

PDPA NOTICE

English | Bahasa Malaysia