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2024 MarsdenLR 1167
HIGH COURT MALAYA PULAU PINANG
RE: TAN PECK KEE; EX-PARTE: LDE PROJECT SDN BHD & ORS
[In Bankruptcy Matter No: PA-29NCC-856-11/2020]
The court held that a Bankruptcy Notice is invalid if the Judgment Creditors fail to obtain leave of Court, and a Creditor's Petition is premature if filed before the act of bankruptcy occurs.
Headnote:(A) Insolvency Act 1967 - Sections 2, 3(1)(i), and 5(3)(b) - Appeal against dismissal of application to set aside bankruptcy notice and creditor's petition - Judgment creditors failed to obtain court leave before commencing bankruptcy action against judgment debtor - Bankruptcy notice and creditor's petition deemed invalid for lack of leave and premature filing. (Paras 6-34)
(B) The court emphasized the necessity of leave for bankruptcy actions against guarantors, distinguishing between social and non-social guarantors based on the type of guarantee provided. (Paras 7-18)
(C) The court ruled that the creditor's petition was filed prematurely, as it was presented before the judgment debtor committed the act of bankruptcy. (Paras 19-30)
The grounds of appeal in this case are primarily based on procedural and substantive deficiencies identified by the appellant. The key grounds include:
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Lack of Court Leave: The appellant contends that the Bankruptcy Notice (BN) and the Creditor's Petition (CP) are invalid because the Judgment Creditors (JCs) failed to obtain the necessary leave of Court before initiating the bankruptcy proceedings against the Judgment Debtor (JD). This procedural requirement is mandated when the debtor is a guarantor other than a social guarantor, and its breach renders the bankruptcy actions invalid (!) (!) .
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Premature Filing of the Creditor’s Petition: The appellant argues that the CP was filed before the JD committed the act of bankruptcy. According to the applicable law, a CP can only be validly presented after the debtor has committed an act of bankruptcy, which must occur within a specific timeframe prior to filing. The appeal claims that the CP was filed prematurely, prior to the occurrence of the act of bankruptcy, thus invalidating the petition (!) (!) .
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Incorrect Computation of the Act of Bankruptcy: The appellant asserts that the Judgment Creditors miscalculated the date on which the JD committed the act of bankruptcy. Proper computation, considering the order for substituted service and the seven-day deeming period, shows that the act of bankruptcy occurred after the CP was filed, further supporting the appeal's challenge to the validity of the bankruptcy proceedings (!) (!) .
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The Court’s Emphasis on the Necessity of Leave and Timing: The appeal emphasizes that the law explicitly requires leave to be obtained for bankruptcy actions against certain types of guarantors and that the timing of the act of bankruptcy is crucial. Failure to adhere to these legal requirements and procedural timelines justifies the reversal of the lower decision (!) (!) (!) .
In summary, the appeal grounds are centered on procedural non-compliance (failure to obtain leave) and the premature initiation of bankruptcy proceedings (filing before the act of bankruptcy), both of which undermine the validity of the bankruptcy notice and creditor’s petition.
JUDGMENT
(Appeal Against Decision Not To Set Aside BN And CP)
Prelusion
[1] By an Order dated 9 November 2021, the Senior Assistant Registrar (SAR) dismissed encl 28-the Judgment Debtor's Application to set aside the Bankruptcy Notice (BN) and the Creditor's Petition (CP).
[2] The Judgment Debtor (JD) appeals to the Judge In Chambers. The Notice Of Appeal To Judge In Chambers is the Appeal for determination before me.
[3] In hearing and determining this Appeal, I am effectively deciding the merits of encl 28-the JD's Application to set aside the BN and the CP.
[4] The JD raises several grounds in this Appeal. However, it suffices to discuss and determine only the issues that are necessary to determine this Appeal. These are the JD's strongest grounds-the grounds that mattered.
[5] I allow the JD's Appeal ie I reverse the SAR's decision. In other words, I grant the JD's Application to set aside the BN and the CP. My reasons are as follows.
The JCs Needed Leave To Commence This Bankruptcy Action Against A Guarantor
[6] There are four Judgment Creditors (JCs) in this bankruptcy action.
[7] Section 5 (3)(b) of the Insolvency Act 1967 (Insolvency Act) requires the JCs to obtain the leave of Court before they can commence this bankruptcy action against the JD.
[8] Section 5 (3)(b) provides as follows (with my emphasis in bold)-
Section 5 . 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.
[9] In this bankruptcy action, the BN issued against the JD was grounded on the summary Judgment dated 17 October 2019 which the JCs (as plaintiffs) obtained against the JD (as defendant) in Sessions Court Suit No PA-B52-11-06/2019 (SC Suit 11).
[10] In this Appeal, the JCs admit that they did not get the leave of Court before they requested for the BN to be issued against the JD. They, however, argue that the JD is not a guarantor. They assert that the JD is not a guarantor because the subject contract in SC Suit 11 which resulted in the Judgment, was not a Guarantee.
[11] First, the JCs argue that the subject contract in SC Suit 11 was an Indemnity, not a Guarantee. Hence the JCs need not comply with s 5(3)(b) of the Insolvency Act.
[12] I find this argument untenable because the subject contract is titled "Guarantee And Indemnity". The preamble of this contract states that the JD and two other named persons "hereby unconditionally jointly and severally agree with and guarantee you (the JCs)...".
[13] Additionally, cl 1 of the contract defines the sum of money that the JC and the two other named persons are obligated to pay on demand as the "Guarantee Sum". Thus, for all intents and purposes, the contract was a Guarantee.
[14] The JCs want to go into an in-depth analysis of whether the contract is in fact and in law a Guarantee, or in effect just an Indemnity- to determine whether the JD is a guarantor under the Insolvency Act. I am of the view that there is no necessity to analyse the issue in this manner.
[15] The leave of Court is required for the JCs to commence this bankruptcy action against a "social guarantor" as well as a "guarantor other than a social guarantor". The Insolvency Act itself guides us with a definition of a "social guarantor" under s 2. Section 2 defines a "social guarantor" in this manner-
"social guarantor" means a person who provides, not for the purpose of making profit, the following guarantees:
(a) a guarantee for a loan, scholarship or grant for educational or research purposes;
(b) a guarantee for a hire-purchase transaction of a vehicle for personal or non-business use; and
(c) a guarantee for a housing loan transaction solely for personal dwelling.
[16] A "social guarantor" is a person who gives a guarantee to pay a sum due under any of the three types of loans listed. This definition neces
