A creditor must prove compliance with s 5(3) of the Bankruptcy Act 1967 before commencing bankruptcy proceedings against a social guarantor.

Hasan Lah FCJ:

Introduction

[1] This is an appeal against the decision of the Court of Appeal given on 11 July 2014 which upheld the decision of the Kuala Lumpur High Court affirming the Senior Assistant Registrar's decision to set aside the appellant's bankruptcy notice against the respondent.

[2] The leave to appeal was given by this Court on 6 January 2015 on the following question of law:

"Whether the phrase 'unless he proves to the satisfaction of the Court that he has exhausted all avenues to recover debts owed to him by the debtor' in s 5(3) of the Bankruptcy Act 1967 requires a judgment creditor to obtain leave of Court prior to commencing a bankruptcy action against a social guarantor?"

Background Facts

[3] The respondent had guaranteed the repayment of amounts outstanding under a hire purchase agreement ("HP agreement") between the appellant and one Mohd Shahreen bin Abd Khabir ("hirer") in respect of a motorcar for personal use.

[4] Upon the hirer's default in repayment of the outstanding sums under the HP agreement, the appellant took steps to repossess the motorcar from the hirer and commenced legal proceedings against the hirer and the respondent. The appellant obtained a judgment in default of appearance against the hirer and the respondent on 15 January 2010. The judgment was served on the hirer and the respondent under cover of the appellant's former solicitors' letter dated 30 March 2010.

[5] On 31 March 2011, the appellant obtained receiving and adjudication orders against the hirer.

[6] On 15 August 2011, the appellant filed a request for issue of bankruptcy notice and a bankruptcy notice against the respondent. Vide orders dated 4 November 2011, the validity of the bankruptcy notice against the respondent was extended and the bankruptcy notice was ordered to be served on the respondent by way of substituted service. It was effected on 30 November 2011 and 2 December 2011.

[7] On 29 March 2012, the appellant presented a creditor's petition against the respondent. In response, the respondent issued a letter dated 7 June 2012 to the appellant, proposing to settle his debt totaling RM50,000.00 by paying monthly instalments of RM200.00 and a deposit of RM2,000.00. The settlement proposal was rejected by the appellant.

[8] The respondent then issued a letter dated 7 September 2012 to the appellant to inform the latter that the motorcar can be repossessed at a particular address in Port Klang.

[9] On 26 September 2012, the respondent applied to set aside the bankruptcy notice on the following grounds:

(a) the respondent had not been personally served either the judgment or bankruptcy notice;

(b) the outstanding sum stated in the bankruptcy notice was wrong;

(c) the respondent had a meritorious defence to the appellant's claim against him under the guarantee; and

(d) the respondent would ensure that the motorcar be returned to the appellant.

[10] The appellant's authorised repossession agent issued a letter dated 23 October 2012 confirming that he had made several attempts to repossess the motorcar at the address in Port Klang provided by the respondent but to no avail.

Decision Of The High Court

[11] The Senior Assistant Registrar allowed the respondent's application to set aside the bankruptcy notice on the ground, inter alia, that the appellant failed to show any proof to the satisfaction of the Court that the appellant had exhausted all avenues to recover the debt owed by the hirer pursuant to s 5(3) of the