1. Guarantor appeals leave granted to creditor to commence bankruptcy proceedings under Section 5(3)(b) of the Insolvency Act 1967 following default by the principal borrower. (Para 1 , 2 , 3 , 4 , 5 )
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2024 MarsdenLR 2885
HIGH COURT (SIBU)
WONG SIONG TUNG, J
Re Goh Kiang Ann; – Plaintiff
Versus
Ex Parte OCBC Bank (M) Bhd – Defendant
BANKRUPTCY PROCEEDINGS NO SBW-29NCC-62-8 OF 2023
Advocates:
Henry Ling Kuong Meng (Ling & Wong) for the judgment debtor.
Lim Lip Sze (with Rachel Ho and Sophie Tan) (Reddi & Co) for the judgment creditor.
Henry Ling Kuong Meng (Ling & Wong) for the judgment debtor.
Lim Lip Sze (with Rachel Ho and Sophie Tan) (Reddi & Co) for the judgment creditor.
To proceed against a guarantor under the Insolvency Act, a creditor must prove they have exhausted all available legal remedies against the principal debtor. Additionally, corporate officers acting in such proceedings must demonstrate their authority was granted under the corporate seal.
Headnote:(A) Insolvency Act 1967 - Sections 5(3)(b), 5(4), 5(6) and 133(a) - Insolvency Rules 2017 - Rule 215 - Bankruptcy proceedings against guarantor - Admissibility of affidavits by corporate officer - Requirement of authorization under corporate seal - Exhaustion of all modes of execution and enforcement against principal debtor - A person claiming to act on behalf of a corporation for any purpose under the Insolvency Act must demonstrate that their authority has been properly granted under the corporation’s seal when challenged. (Paras 10, 11, 13, 16, 25)
(B) Insolvency Act 1967 - Section 5(4) - "Exhausted all modes of execution and enforcement" - To obtain leave to commence bankruptcy action against a guarantor, the creditor must satisfy the court that all available legal remedies to recover debts from the principal debtor have been utilized. This requirement ensures that bankruptcy action against a guarantor is a last resort and includes the enforcement of debentures and other securities held against the principal debtor. (Paras 40, 42, 43, 67, 68)
Facts of the case:
A creditor obtained a judgment against a guarantor for loans granted to a principal borrower. The creditor applied for leave to commence bankruptcy proceedings against the guarantor. The application was supported by affidavits from a corporate officer of the creditor. The principal borrower had been wound up by the court. Although the creditor held a debenture over the assets of the principal borrower, no steps had been taken to enforce the debenture or appoint a receiver and manager.
Findings of Court:
The court found that the affidavits affirmed by the corporate officer were inadmissible because the deponent failed to prove that the authority to affirm the affidavits was granted under the corporate seal. Furthermore, the court found that the creditor had not exhausted all modes of execution and enforcement against the principal borrower, as the rights under the debenture remained available and unutilized.
Issues: Whether affidavits affirmed by a corporate officer are admissible without proof of authorization under the corporate seal, and whether the creditor had exhausted all modes of execution and enforcement against the principal debtor to warrant the grant of leave to proceed against the guarantor.
Ratio Decidendi: A corporate officer acting under the Insolvency Act must prove their authorization under the corporate seal when challenged, as the evidential burden rests on the party asserting the authority. Additionally, the phrase "exhausted all modes of execution and enforcement" requires the creditor to utilize all available legal actions and remedies against the principal debtor, including the enforcement of security via debentures, before seeking leave to proceed against a guarantor.
Result: Appeal allowed and order granting leave to commence bankruptcy action set aside.
Act Referred
Insolvency Act, 1967: S.5(3)(b), S.133(a)
Rules of Court 2012: O.56 R.1
Insolvency Rules 2017: R.215, R.215(1), R.215(2)
Bankruptcy (Amendment) Act 2017: S.12(b)
Companies Act 2016: S.451(1), S.472(3), S.483(1), S.528(1)
Indian Companies Act, 1956: S.295
Rules of Court 2012: O.56 R.1
Insolvency Rules 2017: R.215, R.215(1), R.215(2)
Bankruptcy (Amendment) Act 2017: S.12(b)
Companies Act 2016: S.451(1), S.472(3), S.483(1), S.528(1)
Indian Companies Act, 1956: S.295
Legal Category Hierarchy
- practice and procedure
- commercial law
Table of Contents
2. Whether corporate officer's affidavits are admissible without proof of authorization under seal and whether the creditor exhausted all enforcement modes against the principal borrower. (Para 7 , 8 , 9 , 23 , 29 , 30 )
3. Corporate officers acting under the Insolvency Act must prove authorization under seal; creditors must actively utilize all available remedies, including debentures, before proceeding against guarantors. (Para 12 , 13 , 14 , 16 , 17 , 18 , 20 , 21 , 22 , 24 , 25 , 26 , 38 , 39 , 40 , 41 , 42 , 43 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 , 61 , 62 , 63 , 64 , 65 , 66 , 67 )
4. Corporate officers acting under the Insolvency Act must be authorized under seal; leave to bankrupt a guarantor requires exhaustion of all enforcement modes against the debtor. (Para 25 , 26 , 68 )
5. Appeal allowed; order granting leave to commence bankruptcy action set aside; costs awarded to the respondent. (Para 69 )
6. What is the requirement for a corporate officer to affirm affidavits under the Insolvency Act 1967?
Under Section 133(a) of the Insolvency Act 1967 and Rule 215 of the Insolvency Rules 2017, a corporate officer must be duly authorized under the corporation's seal to act on its behalf when taking action under the Act. (Para 10 , 11 , 13 , 25 )
7. What must a creditor prove to obtain leave to commence bankruptcy proceedings against a non-social guarantor?
The creditor must satisfy the court under Section 5(4) of the Insolvency Act 1967 that all modes of execution and enforcement to recover debts from the principal debtor have been exhausted. (Para 34 , 35 , 41 , 43 , 68 )
8. How is the term exhausted interpreted regarding enforcement modes against a debtor?
It implies that a creditor must utilize or complete all available legal actions or remedies possible against the principal debtor, and is not limited to the specific methods listed in Section 5(6) of the Insolvency Act 1967. (Para 42 , 43 , 65 )
9. Does a winding-up order prevent a creditor from enforcing rights under a debenture?
No, a winding-up order does not invalidate a power of attorney given to a debenture holder, and the receiver and manager operates independently of the winding-up process unless the debenture holder chooses to prove debt in liquidation. (Para 56 , 57 , 58 )
Wong Siong Tung J:
GROUNDS OF DECISION Introduction
[1]Goh Kiang Ann (JD) is one of the three (3) guarantors for the principal borrower, Episo Enterprise Sdn. Bhd. (Episo) in respect of two (2) Term Loan Facilities granted by OCBC Bank (Malaysia) Berhad (JC) to Episo.
[2]Due the default of Episo in the repayment of the term loans to the JC, the JC commenced action in Suit No. MYY-22NGC-1/7-2022 in the High Court, Miri and obtained judgment against all the three (3) guarantors, including the JD for the sum of RM17,802,031.36 as at 30 -6- 2022 with the prescribed interest in respect of the first Term Loan Facility and the sum of RM246,838.18 as at 30-6-2022 with the prescribed interest in respect of the second Term Loan Facility and costs on solicitor and client basis.
[3]The JC took up an application by Summons In Chambers dated 24-8-2023 (Encl. 3) for leave under section 5(3) (b)Insolvency Act, 1967
[4]On 18-3-2024, the learned Senior Assistant Registrar allowed the JC’s application and granted JC leave to commence bankruptcy action against the JD.
[5]Dissatisfied with the decision of the learned Senior Assistant Registrar, the JD appealed to the Judge of the High Court in Chambers under Order 56 Rule 1 of the Rules of Court 2012
The affidavits and the core issues
[6]There are four affidavits affirmed by Tong Mei Hsien on behalf of JC and three affidavits affirmed by JC himself for the hearing of the application. These affidavits contain substantial argument mixed with factual materials, making them unnecessarily lengthy and time-consuming to read. It should be reminded that affidavits should primarily serve to present evidential facts, not to include arguments or submissions on behalf of the parties.
See: Courts Mammoth Bhd v Subramaniam A/L Paramasivam Yamamori (Hong Kong) Ltd v Davidson & Ors Re: Application by Dow Jones (Asia) Inc
[7]Despite the lengthy and extensive affidavits filed and written submissions, the disputes can be distilled into two core issues as follows:
(a).Whether the Affidavits affirmed by Tong Mei Hsien are admissible for failure of proof that she is duly authorised by the JC; and
(b).Whether the JC has exhausted all modes of execution and enforcement to recover debts owed by the Principal Debtor/Borrower
Issue: Whether the Affidavits affirmed by Tong Mei Hsien are admissible for failure of proof that she is duly authorised by the JC
[8]In summary, learned counsel for the JD submitted that the affidavits of Tong Mei Hsien (the said Deponent), filed in support of the JC’s application for leave under section 55(3)(b)Insolvency Act 1967Section 133(a)Insolvency Act 1967
[9]The learned counsel for the JD submitted that Rule 215 of the Insolvency Rules 2017 and Section 133Insolvency Act 1967
[10]Section 133(a)Insolvency Act 1967
133 Acts of corporations, firms and mentally disordered persons
For all or any of the purposes of this Act-
(a)a corporation may act by any of its officers authorized in that behalf under the seal of the corporation;
(b)….
(Emphasis added)
[11] Rule 215 of the Insolvency Rules 2017 provides that:
215 Officer of corporation, etc
(1)Where a corporation presents a petition or takes any other action under this Act, the officer of the corporation may act in his own name, stating that he is such officer duly authorised under seal but a petition may be presented by the corporation, and signed by the officer on its behalf.
(2)Any person chosen by the corporation to act for it as agent, is an “officer” within section 133of the Act, and if duly authorised under seal can act for the corporation.
(Emphasis added)
[12]Unless otherwise permitted by other provisions of the Insolvency Act 1967, Section 133For all or any of the purposes of this Act”- (the Insolvency Act 1967).
See: Re Lai Hua Kian, ex p Credit Corp (M) Bhd
[13]Similarly, Rule 215 (1) of the Insolvency Rules 2017 also states that where a corporation presents a petition or takes any other action under the Insolvency Act 1967, its officer may act in their own
