A stay of bankruptcy proceedings requires sufficient reason; mere claims of unusual circumstances do not suffice if the creditor has a valid claim.

JUDGMENT

(Stay Of Bankruptcy Proceeding)

Kenneth St James JC:

Prelusion

[1] The Judgment Creditor (JC) obtained a judgment against the Judgment Debtor (JD). Premised on the judgment, the JC commenced a bankruptcy action against the JD.

[2] The JD applied for a stay of the Creditor's Petition (CP). The Senior Assistant Registrar (SAR) allowed the stay. The JC appeals to Judge in chambers.

[3] Should the appeal be allowed ie should the stay be granted or refused?

The Pertinent Chronology Of Facts And Proceedings

[4] In January 2019, the JC (as plaintiff) sued the Company: Y.C. Travel & Tours Sdn Bhd (as principal borrower), the JD (as guarantor) and another guarantor, in Kuala Lumpur Sessions Court Suit No WA- B52NCC-11-01/2019 (Suit 11) for approximately RM780K. I will refer to the principal borrower-company as the "Company".

[5] In February 2019, a judgment-in-default (JID) was entered against the Company, the JD and the other guarantor.

[6] In June 2019, the JC presented a winding up petition against the Company. In September 2019, the Company was wound up and put into liquidation.

[7] In October 2019, the JC commenced a bankruptcy action. The JC issued a Bankruptcy Notice (BN) against the JD. In August 2020, the JD responded by applying to set aside the BN. In March 2021, the SAR dismissed the JD's application to set aside the BN.

[8] After obtaining the leave of Court, in September 2021, the JC filed a CP against the JD. The JD responded by applying to stay the CP until the Company's liquidation process, including the payment of dividends, is completed. In March 2023, the SAR allowed the stay. Hence the JC's appeal to Judge in chambers.

[9] Concurrently, in the Sessions Court, in December 2019, the JD applied to set aside the JID. In February 2020, the Sessions Court dismissed the JD's application to set aside. The JID was sustained.

The Pertinent Provisions

[10] The two pertinent provisions for this appeal are ss 5 and 97 of the Insolvency Act 1967 ( IA 1967).

[11] Section 5 of the IA 1967 provides that the JC can commence a bankruptcy action against a guarantor who is not a social guarantor (here: the JD) only if the JC has the leave of Court to do so. Also, for the Court to grant leave, the Court must be satisfied that the JC has exhausted all modes of execution and enforcement to recover the debt owed to the JC by the Company. In other words, before the JC can present a CP against the JD, the JC must first demonstrate to the Court that the JC had attempted, through the available modes of execution, to recover the debt, so as to persuade the Court to grant leave.

[12] Subsections 5(3) and (4) are set out here for reference (with my emphases in bold):

Section 5 of the Insolvency Act 1967 — Conditions on which creditor may petition.

(3) A petitioning creditor shall not be entitled to commence any bankruptcy action:

(a) against a social guarantor; and

(b) against a guarantor other than a social guarantor unless the petitioning creditor has obtained leave from the Court.

(4) Before granting leave referred to in paragraph (3)(b), the Court shall satisfy itself that the petitioning creditor has exhausted all modes of execution and enforcement to recover debts owed to him by the debtor.

[13] Next, s 97 of the IA 1967 provides that for a stay to be granted in bankruptcy proceedings, particularly a stay of the CP — there must be "sufficient reason", and the Court must find that it is just to grant the stay.

[14] Section 97 is set out below for reference (again with my emphases in bold):

Section 97 . Power to stay proceedings.

The Court may at any time, for sufficient reason, make an order staying the proceedings under a bankruptcy petition, either altogether or for a limited time, on such terms and subject to conditions as the Court thinks just.

JD's Arguments And My Findings

The Facts Of This Bankruptcy Action And This Appeal Are Unusual

[15] The JD's main argument is that the facts surrounding this bankruptcy proceeding are unique. The JD assert