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No Sanction Required for Bankrupt to appeal against Bankruptcy Orders

A commentary on Ho Ken Seng v Progressive Insurance Sdn Bhd by Shantini Guna Rajan

 

INTRODUCTION

On 10 January 2013, the Federal Court (FC) in Ho Ken Seng v Progressive Insurance Sdn Bhd [2013] 2 MLJ 335 authoritatively resolved the issue as to whether an undischarged bankrupt is required to obtain the prior sanction of the Director General of Insolvency (“DGI”) to appeal against bankruptcy orders made against him.

 

BRIEF FACTS

The Respondent filed a Bankruptcy Notice for the sum of RM2,835,179.38 against the Appellant, upon which a Bankruptcy Petition was subsequently filed and served on the Appellant. On 28 February 2005, the Appellant applied to strike out or set aside the Bankruptcy Notice and the Bankruptcy Petition. The Appellant’s application was dismissed by the Senior Assistant Registrar. The Appellant appealed to the Judge in Chambers against the Senior Assistant Registrar’s decision.

Meanwhile, in August 2007, the Respondent obtained a Receiving Order and Adjudication Order against the Appellant. Subsequently, the Appellant appealed to the Judge in Chambers against the grant of the Receiving Order and Adjudication Order. Both of the appeals by the Appellant to the Judge in Chambers were dismissed.

Thereafter, the Appellant filed a Notice of Appeal to the Court of Appeal (“CA”). In turn, the Respondent applied to strike out the Notice of Appeal on the grounds that the Appellant had no locus standi to pursue the appeal by reason of section 38(1)(a) of the Bankruptcy Act 1967 (“the Act”).

 

DECISION OF THE COURT OF APPEAL

The CA, by a majority decision, allowed the Respondent’s application to strike out the Notice of Appeal. It held that the Appellant’s act of filing and prosecuting the appeals fell within the ambit of section 38(1)(a) of the Act and thus required the sanction of the DGI.

The majority judgment adopted the line of reasoning in Re Low Kok Tuan Ex parte Arab-Malaysian Merchant Bank Ltd [1997] 4 CLJ 185 and Bathamani Suppiah v Southern Finance Company Bhd [2002] 2 CLJ 650. The majority distinguished Re Khoo Kim Hock [1974] 2 MLJ 29 on grounds that it did not apply to an appeal by a bankrupt as in the present case, but only to an annulment of a bankruptcy order under sections 92(1) and 105(1) of the Act. The CA also held that section 38(1)(a) should prevail over section 92 as the former is specific whereas the latter is a general provision.

On the other hand, the dissenting judge held that the test in Re Khoo Kim Hock applies to enable a bankrupt to challenge all orders made by a bankruptcy court including appeals without the need to obtain the sanction of the DGI.

 

DECISION OF THE FEDERAL COURT

The Appellant obtained leave to appeal to the Federal Court (“FC”) on the following question of law –

“Whether an undischarged bankrupt when exercising his right under Section 92(2) of the Bankruptcy Act 1967 to appeal any order made by the Court under its bankruptcy jurisdiction is required to obtain the previous sanction of the Director General of Insolvency pursuant to Section 38(1)(a) of the Act.”

In essence, the issue before the FC related to the interplay between section 38(1)(a) and section 92(2) of the Act, namely, whether a bankrupt may bring an appeal falling within the latter section without first obtaining the sanction of the DGI pursuant to section 38(1)(a).

The relevant provisions of the Act are as follows -

Section 38(1)(a):

“(1) Where a bankrupt has not obtained his discharge —

(a) the bankrupt shall be incompetent to maintain any action (other than an action for damages in respect of an injury to his person) without the previous sanction of the Director General of Insolvency;”

Section 92(2):

“(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 FC observed that the majority judgment of the CA had been influenced by the Court of Appeal’s decision in Perwira Affin Bank Bhd v Sardar Mohd Roshan [2009] 4 CLJ 34in two respects. First, the Court of Appeal in that case had interpretedthe expression “any action” in section 38(1)(a) to include, amongst others, the filing of a notice of appeal.Second, it had held that a bankrupt did not have the locus standi to continue with a civil claim which had been initiated by him before he was adjudicated bankrupt.

The CA in this case had proceeded on the premise that the Court of Appeal’s findings on the issue of locus standi in Perwira Affin Bank Bhd v Sardar Mohd Roshan remained intact as it was not specifically dealt with by the Federal Court in Sardar Mohd Roshan Khan v Perwira Affin Bank [2010] 2 CLJ 661, which reversed the Court of Appeal’s decision on another ground. The FC was of the view that the majority decision had failed to appreciate that the Federal Court in Sardar Mohd Roshan Khan v Perwira Affin Bank had implicitly rejected the Court of Appeal’s findings on the issue of locus standi.

The FC acknowledged that there were two diverging lines of case authorities in relation to section 38(1)(a) of the Act, namely Bathamani Suppiah and Re Low Kok Tuan which held that the sanction of the DGI is required for an appeal to be brought under section 92(2) and Re Lim Tai Nian, ex p Kewangan Utama Bhd [2002] 1 CLJ 41 and Re Khoo Kim Hock which held otherwise.

It was held in Bathamani Suppiah that 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, thus, sanction of the DGI must be obtained in order to appeal against a bankruptcy order.

On the other hand, Re Lim Tai Nian, which was cited but not duly considered by the CA, was extensively quoted by the FC. The learned judge in Re Lim Tai Nian who supported the decision in Re Khoo Kim Hock and disagreed with the views expressed in Re Low Kok Tuan and Bathamani Suppiah, inter alia held as follows –

(1) On the authority of Re Khoo Kim Hock,an appeal by an undischarged bankrupt is not caught by section 38(1) and therefore did not require the prior sanction of the DGI;

(2) Section 92 of the Act is substantially similar to section 108 of the English Bankruptcy Act where it has been held in In re Baron that a bankrupt could appeal without any sanction; and

(3) Given that the DGI would invariably have supported the issue of the receiving and adjudicating orders by the bankruptcy court, it would be perverse to expect him to sanction an appeal against the very orders that he had supported.

After careful and anxious deliberation of the two cases, the FC held that it was inclined to follow the reasoning in Re Lim Tai Nian and expressly overruled the decisions in Bathamani Suppiah, Re Low Kok Tuan and any other cases that follow them.

Further, the FC opined that section 38(1)(a) ought not to be given too wide an interpretation in that whilst the word ‘action’ includes civil action and civil proceedings, it should be limited to new, separate actions and not the action which gave rise to the bankruptcy. The FC also held that, save and except for the saving provision (which relates to personal injury claims by a bankrupt), section 38(1)(a) should be limited to a new chose in action that could affect the assets or proprietary rights of a bankrupt intended for distribution to his creditors.

The FC also stressed that it would be most unfair and unconscionable to require a bankrupt to obtain the sanction of the DGI to challenge the very action which disables and incapacitates him and that to do so may tantamount to denying him of his right of access to justice and probably his constitutional right of appeal.

 

CONCLUSION

In unanimously answering the leave question in the negative, the FC has restored certainty in this area of law and relieved an undischarged bankrupt who seeks to appeal against any bankruptcy order obtained against him from the additional burden of having to obtain the prior sanction of the DGI.

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

 
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