The court clarified that a judgment creditor must obtain leave before commencing bankruptcy proceedings, but this can occur at various stages, emphasizing statutory protections for guarantors.

Ahmad Murad Abdul Aziz J:

Introduction

[1] The Judgment Debtor ("JD") has filed an appeal against the decision of the Senior Assistant Registrar ("SAR") dated 7 February 2023, which allowed the Judgment Creditor ("JC") leave to commence bankruptcy proceedings against the JD.

Background Facts

[2] The JD is a director of Platinum Green Chemicals Sdn Bhd, (formerly known as Platinum Biofuels Sdn Bhd and before that, Ganz Biofuels Sdn Bhd) ("the Borrower").

[3] The JC has extended a number of loan facilities ("the Facilities") to the Borrower. As security for the Facilities, the JD obtained a Corporate Guarantee from Platinum Nanochem Sdn Bhd ("the Corporate Guarantor") as well as charges on several parcels of land ("the Charged Properties") to secure part of the Facilities.

[4] The Borrower had utilised the Facilities but defaulted on payment on 20 May 2016. The JC appointed a Receiver and Manager to handle the assets of the Borrower on 11 July 2016. The Receiver & Manager, subsequently disposed of the Charged Properties for a total sum of RM13 million.

[5] The Corporate Guarantor was wound-up on 15 July 2016 and the JC filed a Proof of Debt ("POD") in the Winding-Up of the Corporate Guarantor on 5 March 2020.

[6] The Borrower was wound-up by another creditor on 1 August 2016 and the JC filed its POD on 26 February 2020. Up till the date of hearing, no payment was received under the POD.

[7] On 8 December 2021, the JC obtained a judgment against the JD in Civil Suit No:: WA-22NCC-103-03/2021 ("Suit103") for the sum of RM64,960,762.80 as of 28 February 2021 under the Facilities ("the Judgment").

[8] The JD did not appeal against the Judgment.

[9] On 4 January 2022, through its solicitors, the JC demanded from the JD the Judgment Sum pursuant to the Judgment. However, the JD failed to pay the Judgment Sum to the JC.

[10] The JC, thereafter, filed a Notice of Bankruptcy and Request to Issue a Notice of Bankruptcy to this Court on 9 February 2022 for the Judgment Sum, including costs and interest amounting to RM70,239,340.18 as at 23 February 2022.

[11] The JC filed the Leave Application pursuant to s 5(3) of the Insolvency Act 1967 (" IA 1967"), which was allowed by the SAR.

[12] The JD filed the Notice of Appeal against the decision of the SAR on 29 February 2023.

Jd's Grounds For Opposing The Leave Application

[13] The JD opposes the Leave Application on the following grounds:

13.1 the JC's failure to obtain leave pursuant to s 5(3) of the IA 1967 prior to taking out the Bankruptcy Notice is fatal to the Leave Application and the proceedings herein;

13.2 The JC has attempted to circumvent the statutory protection mechanisms afforded to guarantors pursuant to ss 5(3) and 5(4) of the IA 1967; and

13.3 The JC has fallen short of the threshold in ss 5(3) and 5(4) of the IA 1967 due to its delay in attempting to recover the debt against the Borrower, which rendered the debt irrecoverable and any purported attempt of recovery thereof, academic.

[14] The JD submits that s 5(3) of the IA 1967 stipulates that a petitioning creditor shall not be entitled to commence any bankruptcy action against a guarantor prior to obtaining leave from Court.

[15] The effect of this provision was recently addressed by the High Court in Per: Lim Sue Beng v. Ex-Parte: Ambank (M) Berhad & Ors [2022] MLRHU 483, wherein the Judge set out the following salient principles:

15.1 The phrase "prior to commencing any bankruptcy action" in s 5(3) of the IA 1967 clearly and unambiguously means prior to the issuance of the bankruptcy notice.

15.2 This is because the jurisdiction of the Bankruptcy Court is invoked upon issuance of the bankruptcy notice.

15.3 Therefore, the failure of a petitioning creditor to obtain leave pursuant to s 5(3) prior to the issuance of the bankruptcy notice would render the bankruptcy notice premature and consequently, invalid.

[16] Applying the principles above, the Judge in Re Lim Sue Beng held that the failure of the petitioning creditor to