The court upheld that a bankruptcy creditor must exhaust all modes of execution before initiating bankruptcy proceedings against a guarantor, affirming the correctness of using bankruptcy action under the given statutory framework.

JUDGMENT

Evrol Mariette Peters JC:

Introduction

[1] This was an appeal ("this Appeal") by the Judgment Debtor ("JD") against the decision of the Senior Assistant Registrar ("SAR") on 17 March 2021, in dismissing the JD's application to set aside the order dated 6 February 2020, in which the SAR had allowed the Judgment Creditor ("JC") to commence bankruptcy proceedings against the JD.

The Factual Background

[2] The JD was a director of Coojaya Electrical (M) Sdn Bhd ("the Principal Debtor"). Pursuant to a Guarantee and Indemnity dated 14 September 2016 ("Guarantee and Indemnity"), the JD and one Yap Moi Lan stood guarantors for several corporate facilities provided by the JC to the Principal Debtor, which was wound up in March 2019 vide JA-28NCC-241-11-2018.

[3] Since the Principal Debtor was wound up, the JC proceeded to file an action against the JD and Yap Moi Lan, and had obtained judgment against them in September 2019 pursuant to the Guarantee and Indemnity. In January 2020, a bankruptcy notice was issued against the JD and on 6 February 2020, the SAR had granted leave ("the Order") to the JC to proceed against the JD as a guarantor.

[4] In November 2020, the JD filed an application to set aside the Order, which was dismissed in March 2021. The JD then appealed against the decision of the SAR, which was dismissed by this Court.

Contentions, Evaluation, And Findings

[5] At the outset, the JD had highlighted that the wrong statutory provision had been cited by the JC in its Affidavit In Support dated 9 January 2020, in that, s 15 of the Insolvency Act 1967 ("Insolvency Act") had been referred to, which had no relevance at all in this Appeal.

[6] In my view, this was a genuine error, and the JC had explained that reference was meant to be made to s 451 of the Companies Act 2016 ("Companies Act"). In any event, such error was not detrimental or prejudicial to the JD.

[7] The nub of the JD's contention was that, pursuant to s 5 of the Insolvency Act, the JC had not exhausted all modes of execution and enforcement to recover the debt owed to it by the Principal Debtor on account of the JC's failure to commence foreclosure proceedings against two properties charged to it by the Principal Debtor, and a third party called Sinar Meta Holdings (M) Sdn Bhd. Section 5 reads:

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.

(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.

...

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

[Emphasis Added]

[8] The JD contended, therefore, that the word 'include' in s 5(6) of the Insolvency Act, rendered the examples of the modes of execution and enforcement non-exhaustive, and would also include foreclosure proceedings. In a nutshell, the JD submitted that the JC should have commenced foreclosure proceedings against the two properties charged to it by the Principal Debtor.

[9] The JD had also submitted that the Insolvency Act is a social legislation and drawing analogies to other social legislation, the nutshell of his argument was that an approach that favours the guarantor should be adopted.

[10] Social legislation has been defined as 'a legal term for a specific set of laws passed by the Legislature for the purpose of regulating the relationship between a weaker class of persons and a stronger class of persons. Given that one side always has the upper hand against the other due to the inequality of bargaining power, the State is compelled to intervene to