The interpretation of 'debtor' in the Insolvency Act ensures creditor protects the principal debtor before pursuing the guarantor.

[1] Two appeals were argued before us last week. The appeals relate to two specific questions namely:

(a) Whether the word "debtor" in "to recover the debts owed to him by the debtor" in s 5(4) of the Insolvency Act 1967 refers to the guarantor or the principal debtor;

(b) When or at what point should an application for leave under s 5(3)(b) of the Insolvency Act 1967 be made?

Issue (a): Whether The Word "Debtor" In "To Recover The Debts Owed To Him By The Debtor" In Section 5 (4) Of The Insolvency Act 1967 Refers To The Guarantor Or The Principal Debtor

[2] With respect to issue (a) we are satisfied upon a consideration of the judgment of the learned judge as well as the submissions both written and oral of learned counsel for the appellants in both appeals as well as the respondents, that the learned Judge erred in construing the word "debtor" in s 5(4) of the Insolvency Act 1967 . We came to that conclusion for, inter alia, the following reasons.

[3] A purposive construction of the section as a whole discloses that the section seeks to introduce protection for the guarantor against whom bankruptcy proceedings are to be brought. The protection comes in the form of ensuring that enforcement has been exhausted in respect of the principal debtor prior to proceeding against the guarantor. It is to remedy the mischief of judgment creditors proceeding against the guarantors directly in bankruptcy rather than executing and enforcing against the principal debtor. We are borne out in our conclusion by s 5(6) of the Insolvency Act 1967 that provides:

"...For the purposes of subsection (4), modes of execution and enforcement include seizure and sale, judgment debtor summons, garnishment and bankruptcy or winding up proceedings against the borrower."

[4] It follows therefore that in construing s 5(4) regard must be given to s 5(6). And s 5(6) provides that the modes of execution and enforcement that must be exhausted include seizure and sale, judgment debtor summons, garnishment and bankruptcy against the borrower. It does not make sense that the reference to debtor in s 5(4) refers to the guarantor because s 5(6) specifies bankruptcy as one of the modes of enforcement that must be exhausted. As bankruptcy has not been commenced against the guarantor, it makes the entire construction that "debtor" includes the guarantor, wholly untenable and incomprehensible.

[5] The only reasonable construction that can be accorded is that "debtor" in s 5(4) refers to the principal debtor or the borrower. The fact that the word "borrower" was not used does not preclude the construction we have adopted. On the contrary such a construction is fully in accord with the purposive approach to be adopted in construing the section as outlined above.

[6] We are further supported by the decision of the Federal Court in Khairulnizam's case ( Hong Leong Bank Bhd v. Khairulnizam bin Jamaludin , 2016 MarsdenLR 2420 ) which in paragraph 35 stipulates that:

"In the instant case the High Court, as mentioned earlier, was satisfied from the affidavit evidence that the appellant had proved that it had exhausted all avenues to recover debts owed to him by the hirer. As such the appellant had satisfied the requirement of s 5(3) of the Act to commence the bankruptcy action against the respondent."

[7] In that case the hirer was the principal debtor. In other words the Federal Court construed the section on social guarantors (which is identical in terms to the new s 5(4)) such that it was incumbent upon a judgment creditor to exhaust all avenues of execution and enforcement against a principal debtor and not the guarantor himself.

[8] In this context we a