Irreconcilable Differences?

Anushka Chandra discusses two cases where the Courts arrived at diametrically opposite decisions despite the substantial similarity of facts

 

 

Two recent and conflicting decisions from the High Court of Malaya in Kuala Lumpur have implications for the prevailing standard of proof applicable when the High Court hears bankruptcy petitions.  The first case is Re Tan Sri Kishu Tirathrai Ex Parte Affin Bank Bhd [2007] 7 CLJ 270 decided on 17th November 2006 (“Tan Sri Kishu’s Case”) and the second is Re Puan Sri Mona Kishu Thitathrai Ex Parte Affin Bank Bhd [2007] 7 CLJ 657 decided on 23rd January 2007 (“Puan Sri Mona’s Case”).

 

These cases address the important issue as to the requirements that must be satisfied before an adjudication order (“AO”) and receiving order (“RO”) can be made against a judgment debtor. In essence, the issue revolves on the interpretation of Section 6(2) of the Bankruptcy Act 1967 (“the Act”) and how the petitioning creditor must prove that there is a debt due as at the hearing of the creditor’s petition.

 

The relevant parts of Section 6(2) of the Act provide that "(at) the hearing (of the creditor's petition) the court shall require proof of … the debt of the petitioning creditor".

 

The general practice in the bankruptcy courts has been to allow the petitioning creditor to rely upon the judgment and the bankruptcy notice as proof of the judgment debtor’s indebtedness.  There is generally a lapse of some months between the date of the bankruptcy notice and the hearing of the creditor’s petition. Tan Sri Kishu’s Case rejects this practice, whilst Puan Sri Mona’s Case affirms it.

 

 

TAN SRI KISHU’S CASE

The judgment debtor appealed against the decision of the senior assistant registrar who granted an RO and AO against him on 11 May 2005. The issue that arose was whether at the hearing of the creditor’s petition, the petitioning creditor had proved his debt. Counsel for the judgment debtor emphasised and gave prominence to the express provision of section 6(2) of the Act and argued that there was no proof before the Court of the debt due as at the date of the hearing.

 

On the other hand, counsel for the judgment creditor submitted that the proof of the debt was evident from the judgment of the court dated 19 February 2002 which formed the basis of the bankruptcy proceedings and which had been annexed to the request for bankruptcy notice.

 

In support of his argument, counsel for the judgment debtor relied on Re Teoh Thean Peng, Ex Parte D & C Leasing Sdn Bhd [1993] 1 AMR 20 which found support in the English authority of Re A Debtor (7 of 1910) [1910] 2 KB 59 where Vaughan Williams LJ in stating that the affidavit of verification on which the petition is filed is in effect for the purpose of getting leave to file the petition in bankruptcy, went on to say:

 

“The affidavit which is used at the time when the petition is filed is an affidavit which cannot be used upon the hearing of the bankruptcy petition.”

 

Reference was also made to the case of Re A Debtor, Ex Parte The Debtor v. Scott and Another [1954] 3 All ER 74 where Evershed MR stated “… The statute itself makes it quite plain that the petitioning creditor’s debt, i.e., the debt on which the petition expresses itself founded, must be proved to be existing and have the quality and character mentioned in s. 4, both at the date when the petition is presented, and at the date of the hearing…”.

 

Counsel for the judgment debtor also relied on a passage from Williams and Muir Hunter on The Law And Practice In Bankruptcy (19th Edition) at page 56 which states that “the court has a duty to see that all the requirements of the Act and the Rules have been observed and that the petitioning creditor’s debt must be proved not only to have existed at the date of the act of bankruptcy and at the time of the presentation of the petition, but also to exist at the hearing and down to the making of the receiving order”.

 

Further, in The Principles of Bankruptcy Law by J.H. Thompson, at page 16, the author states as follows:

 

At the hearing, the petitioning creditor must prove his debt, service of the petition on the debtor, and the act of bankruptcy, and the court may thereupon make a receiving order.

In delivering his Judgement, Abdul Alim Abdullah JC also referred to the cases of Re Purrett, Ex Parte Purrett, 1895 The Law Times Report Vol. LXXIII, Re A Debtor, Ex Parte Debtor (No 591 of 1934) [1935] 1 Ch 353, Re Loh Kok Huoh, Ex Parte Ban Hin Lee Bank Bhd [1991] 3 CLJ 1817, Michael Chong Ngian Fong v Syarikat Fong Sam Timber and Anor [1977] 1 MLJ 263 where the English courts as well as the Malaysian courts made similar observations on the requirement to prove the debt at the date of the hearing of the petition.

 

The Learned Judge stated that the above-referred cases all clearly favour a determination that at the hearing of the petition, the petitioning creditor must prove the debt and that the fact that the judgment debtor may not have raised the issue at the hearing is of no consequence as the bankruptcy court must be satisfied by evidence of the existence of the debt.

 

In allowing the judgment debtor’s appeal, the Learned Judge held “… that by reason of there being no proof of the debt at the hearing of the creditor’s petition, a requisite thereat, and which is an obligation that had to be discharged by the judgment creditor at the hearing of the creditor’s petition” the petition shall stand dismissed in line with section 6(3) of the Act.

 

Further, it was held that the statutory requirement as to proof of debt is procedural in nature and in  view of bankruptcy proceedings being quasi-penal in nature, it was imperative that the procedural requirements were strictly complied with.

 

The Judge also held that he had no express power to grant a request by counsel for the judgment creditor, relying on section 92 of the Act, that the matter be remitted to the senior assistant registrar for a fresh hearing of the creditor’s petition. Further, the Judge was of the view that the proceedings before the senior assistant registrar were fundamentally defective.

 

 

PUAN SRI MONA’S CASE

The judgment debtor appealed against the decision of the senior assistant registrar in making a RO and AO against her on 15 September 2006. The RO and AO arose from a judgement debt of RM10,225,753.42 obtained by the judgment creditor from the Kuala Lumpur High Court and pursuant to a judgment notice issued by the judgement creditor. The grounds of appeal were, inter alia, that the debt had not been proved at the hearing of the petition before the senior assistant registrar, the judgment debtor having served a notice under section 117 of the Bankruptcy Rules 1969 (“the Rules”) disputing the debt and the act of bankruptcy.

 

Counsel for the judgment debtor referred to Tan Sri Kishu's Case, and specifically to the cases relied on therein, namely, Re Teoh Thean Peng, Ex Parte D & C Leasing Sdn Bhd [1993] 1 AMR 20 and Re A Debtor (7 of 1910) [1910] 2 KB 59 and submitted that the judgment creditor must prove the debt as at the date of the hearing of the petition as certain sums might have been paid to the judgment creditor before the hearing.

 

Conversely, the counsel for the judgment creditor submitted that it was not necessary to provide any additional proof of debt at the hearing of the petition before the senior assistant registrar as section 6(2) of the Act merely says at the hearing there should be proof of the debt as opposed to proof of debt at the date of hearing. It was further submitted that proof of debt had already been provided by the affidavit verifying petition and also by the fact of the judgment. The case of Re Sharma Kumari Shukla; ex parte Dato’ Abdullah Hishan bin Haji Mohd Hashim (No. 2) [2000] 6 MLJ 391 was relied on by counsel for the judgment creditor.

 

In dismissing the appeal, Dato’ Kang Hwee Gee J held that a judgment of the court for all intents and purposes is conclusive of the debt owed to the judgment creditor and stated as follows:

 

“I accept the submission by counsel for the judgment creditor that the proof of debt had been provided by the bankruptcy notice itself which alluded to the judgment obtained from the court.”

 

 

CONCLUSION

Tan Sri Kishu’s Case clearly establishes that the petitioning creditor’s debt must be proved at the date of the hearing of the creditor’s petition and that the verifying affidavit which is used at the time when the petition is filed is insufficient for that purpose.

 

Conversely, Puan Sri Mona’s Case states that the proof of debt is provided by the bankruptcy notice itself which alludes to the judgment obtained from the court.

 

The two cases appear irreconcilable, and it will require a decision of the appellate courts to ascertain the position.  It is understood that appeals have been filed with the Court of Appeal in both cases.  In the interim, the Judges and Registrars of the High Court of Malaya will be at liberty to follow either case.

 

Pending the decision of an appellate court, it will be prudent for a petitioning creditor to file an affidavit stating the sum owing by the judgment debtor as at the date of the hearing of the creditor’s petition. This will prevent the court from dismissing the petition based on Tan Sri Kishu's Case. This practice would save the judgment creditor time and costs. More importantly, it will avoid a situation arising whereby the petitioning creditor may be time-barred from commencing fresh bankruptcy proceedings if his petition is dismissed. In summary, judgment creditors may well feel that the costs and administrative burden of filing an additional affidavit are trivial by comparison to the risks attendant upon their petition being dismissed.

 

 

ANUSHKA CHANDRA

 
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