Bankruptcy Discharge in Singapore: Section 33 IA

Discharge of Bankrupt

• Forms 86 to 102 in IA are relevant for bankrupt discharge.
• There exists three methods for bankrupt discharge: through a court order, a DGI certificate, or an automatic discharge.

Discharge by Order of Court (Section 33)

• A bankrupt can apply to the court for a discharge order at any point after being declared bankrupt, according to Section 33(1) of IA.
• It is important to distinguish a discharge from an annulment, as annulments are executed under Section 105 of IA.
• Notification of the application must be given to the DGI and all creditors who have submitted a debt claim.
• The court will review a report from the DGI regarding the bankrupt's affairs and behavior, especially during the bankruptcy process.
• A creditor who has demonstrated their debt can challenge a discharge application, provided they give at least 3 days' notice before the hearing.
• The court takes a number of factors into account when granting discharge orders, including statutory considerations.
• Statutory considerations include whether the bankrupt committed an offense under Section 33(4), or if facts listed in Section 33(6) have been proven.
• Further considerations also include the bankrupt's age, conduct, the extent of debt settled, and public interest.
• During the hearing, the court is required to hear from both creditors and the DGI (Director General of Insolvency).
• At the conclusion of a discharge hearing, the court may grant an absolute discharge, reject an absolute discharge, or grant a conditional order, as per Section 33(3).

Re Ang Ah Kang [1994] 2 CLJ 738

• A bankrupt applied for discharge three years after being adjudged bankrupt.
• A third party had settled the debt due to the petitioning creditor.
• Debts to two other creditors had also been paid, leaving only one creditor who would be paid a dividend, according to the Official Assignee's report.
• The remaining creditor objected to the discharge application.
• The court observed that the main debts were settled, with only interest remaining.
• The bankrupt had been consistently paying RM60.00 monthly as ordered by the OA.
• The bankrupt's age, 60 years, and unlikelihood of future employment were taken into consideration.
• It was held that chaining a person to bankruptcy when it serves no one is against public policy.
• The court granted the application, entering judgment for the creditor on the proved debt balance, but the court stipulated that the judgment could only be enforced with its permission.

Re Lau Kah Lay and Tang Kuong Tiew (1998) 2 AMR 1347

• The Official Assignee supported the applications made by the bankrupts.
• All creditors, to whom approximately RM13 million was owed, objected to the applications.
• The applications were submitted 10 years after the bankruptcy declaration, with both bankrupts being 51 years old.
• The OA reported satisfactory conduct and recommended monthly payments until the bankrupts reached 55.
• However, the court noted the OA's report did not disclose the pre-bankruptcy sale of property by one of the bankrupts to his wife.
• Further, the wives of both bankrupts were shareholders of a holding company with a supermarket chain.
• The court wanted further investigation before the discharges could happen.
• Investigation was needed into the property disposal and whether the bankrupts owned undetected property when adjudicated bankrupt.
• The wealth and conduct of the bankrupt's wives also had to be examined.

Discharge by DGI's Certificate

• Section 33A allows a bankrupt to apply to the DGI for discharge instead of applying to the court.
• An application can be made 5 years after the date of the Bankruptcy Order, according to section 33A(2).
• There is no set procedure for a bankrupt to apply to the DGI for a discharge.
• The DGI has broad discretion in deciding on the application, as the act doesn't stipulate the factors for consideration, however, internal guidelines seem to have been established regarding application consideration.
• The cause of bankruptcy factors into consideration, and if the bankruptcy was brought about by the bankrupt's own fault, such as gambling, the application will be dismissed.
• The age or health of the bankrupt factors into consideration, and bankrupts over 65 or in poor health are more likely to be discharged.
• DGI may consider whether the bankrupt has cooperated in the proceedings and has been prompt in payments as directed by the DGI.
• Whether the bankrupt committed any bankruptcy offenses or contempt of court is also considered.

Automatic Discharge (Section 33C)

• Under the Insolvency Act 1967, a bankrupt automatically discharges after three years from the date they submitted their statement of affairs, if they have both achieved their target contribution and complied with the rendering of an account and property to the DGI.
• DGI may take several factors into consideration when determining the target contribution, including but not limited to: debt amount, current monthly income, prospective monthly income during bankruptcy, earning capacity, age, work experience, educational level, current economic conditions, and the reasonable expenses for the maintenance of the bankrupt and their family.
• Under Section 33C(3), the DGI will serve a discharge notice to every creditor at least 6 months before the 3-year expiry.
• Within 21 days of being served the notice, a creditor may object to the automatic discharge in court using these grounds:-
  • The bankrupt committed an offense under the Act/Penal Code by concealing property to impede creditor distribution.
  • The discharge would negatively affect the administration of the bankrupt's estate.
  • The bankrupt failed to cooperate in the administration of their estate.
• Under Section 33C(5), a creditor is considered to have no objection to the discharge, if they fail to file an application.
• Under Section 33C(7), the court may dismiss the application and approve the discharge, or suspend the discharge for a period of two years.
• If the court suspends the discharge under Section 33C(7)(b), the bankrupt must continue to fulfill all duties and obligations under the Act during that period, upon which they will be discharged automatically at the end of the two years.

Effects of Discharge of a Bankrupt (Section 35)

• Section 35(1) releases the bankrupt from all debts provable in bankruptcy.
• All debts proved in a bankruptcy are then erased.
• A certificate in writing from the Minister of Finance, Chief Minister, or AG can discharge debts due to Federal/State Governments or bail bonds under Section 35(1)(2)(3).
• Section 35(4) provides conclusive evidence of bankruptcy and the validity of its proceedings.

Annulment of Bankruptcy Order (Section 105 of Insolvency Act)

• The court has the power to annul a Bankruptcy Order.
• That power is discretionary, evident from the use of 'may' in the section about the power to annul a Bankruptcy Order.
• Courts may annul a Bankruptcy Order under the following conditions:-
  • The court believes the bankrupt should not have been adjudged a bankrupt.
  • The bankrupt's debts are paid in full.
  • Proceedings are pending in Singapore under Singaporean law for the distribution of the bankrupt's estate, and the distribution ought to occur in Singapore.

Ground 1

• The onus is on the bankrupt to satisfy the court that they ought not to have been made a bankrupt.
• Instances include where the petition had been filed prematurely (Re Natarajan a/l Kuppusamy [1992] 2 MLJ 468), or where the bankruptcy notice was defective (Re George Paul Daniel [1990] 2 CLJ 750).

Re Natarajan a/l Kuppusamy [1992] 2 MLJ 468

• The applicant sought an order to annul their adjudication as a bankrupt.
• A bankruptcy notice was issued and served to them, granting seven days, excluding the service day, to pay the demanded sum.
• The seven-day period had not expired, when they filed an affidavit in court to set aside the bankruptcy notice.
• The registrar failed to fix a hearing date for the application.
• The petitioner filed a bankruptcy petition alleging non-compliance with the bankruptcy notice.
• The petition was served on the applicant; both it and the bankruptcy notice setting aside application were fixed for a hearing on the same day.
• The applicant failed to appear, their application was struck off, and the petition was treated as unopposed, resulting in the receiving and adjudication orders.
• Held, where the r 95(1) affidavit is filed before the expiry of the statutory seven-day period given by the bankruptcy notice, the time for compliance with the notice is to be deemed to have been extended until the application has been heard and determined.
• Also, since no act of bankruptcy was deemed to have been committed until the disposal of the application, the filing of a petition before the disposal of the application purportedly grounded on non-compliance with the bankruptcy notice was invalid.

Ground 2: Debts Settled in Full

• The phrase "where it is proved to the satisfaction of the court that the debts of the bankrupt are paid in full" was considered in the English Court of Appeal in the case of In Re Keet [1905] 2 K.B 666, where it was held that the "debt" - including at least all debts which have been actually and properly proved in the bankruptcy-must have been fully paid in cash.
• Stirling L.J. stated that the court's jurisdiction is discretionary and that the language of the Act requires a payment in full.
• The decision In Re Keet was accepted in Kwong Yik Bank Bhd. v. Hah Chiew Yin Yin [1985] CLJ 178 (Rep); [1985] 2 CLJ 31; [1985] 2 MLJ 452, where the Federal Court held that debts must have been paid in full in cash before an adjudication order can be annulled.

Kwong Yik Bank V Hah Chiew Yin [1985] 2 CLJ 31

• Judgment for RM30,000.00 was obtained against Respondent.
• Appellant filed a Bankruptcy petition against Respondent, and subsequently a ROAO was entered.
• Respondent's spouse paid RM16,000.00 to settle.
• The Respondent applied to annul ROAO based on the debt having been paid in full.
• The Judge found that the appellant had agreed to accept RM16,000.00 in full settlement and there was no merit to objection.
• On appeal, the Court held that the bankrupt has failed to satisfy that the proved debt lawfully due has been paid in full in cash.
• The Judge's order in annulling ROAO was then set aside.

Ground 3

• The distribution of the bankrupt's estate should occur in Singapore.
• In Re Peh Kong Wan, ex parte United Malayan Banking Corp Bhd [1992] 2 MLJ 292, a Receiving Order and Adjudication Order were made against the debtor in his absence.
• The court rescinded and annulled ROAO because the debtor had changed his domicile from Malaysia to Singapore before the bankruptcy proceedings.
• When considering the application, the court is required to take into consideration, the bankrupt's conduct, the interest of the public, and creditors.
• In Conduct of the bankrupt, In Re Peter Wong, Ex parte the Debtor [1959] MLJ 27, the bankrupt requested annulling ROAO because the act of bankruptcy relied on in the petition was invalid.
• the act of bankruptcy relied on was the Sheriff's return, and the debtor had evidence that showed that they had the property, which could have been seized by the sheriff when the return was made, and a solicitor gave evidence showing the debtor claimed to own no assets.
• The court held it had discretion which had to be exercised in consideration with all circumstances, and the conduct of the bankrupt.
• The court found the bankrupt's conduct unsatisfactory and dismissed their appeal.
• When considering the application, courts must take into consideration the interest of creditors.
• In Re Seow Yin Fong Ex Parte United Orient Leasing Company Bhd [1994] 2 CLJ 845, the applicants, in support of their application, contended, that the amounts stated in the bankruptcy notice was not up to date, and included undue amounts.
• The applicants said that because of circumstances, the bankruptcy notice was invalid, rendering the proceeding a nullity, and the Judgment Creditor the their Creditors had admitted in full the proofs debts held against them.
• The applicants' liabilities had further been affirmed to the respective creditors at Public Examination, and they were averred to be delaying the process, prejudicing the petitioning creditors.

Ground 4

• The annulment can only be granted if the debt lawfully due has been paid in full in cash.
• The application to annul ROAO was made more than six years after the Orders were granted.
• If the Order were rescinded, the creditors would be greatly prejudiced.
• The power of the Court to annul the adjudication under Section 105 is done with consideration for effects on parties.

Annulment Effects

• A bankrupt is placed in a position as if there has been no adjudication order.
• The bankruptcy proceeding is erased as if the debtor was never a bankrupt.

Mohamed Hanifa Mohamed Yusoof v Sikandar Batcha Abdul Majeed [2002] 7 CLJ 77

• The Plaintiff sought records and documents transfer for the Pertubuhan Kongres Indian Muslim Malaysia ("KIMMA") from the Defendant.
• The plaintiff alleged the defendant was a bankrupt from 1997, and therefore could not legally be president under s. 9A(1)(d) of the Societies Act 1966.
• The defendant proved that ROAO had been annulled because of debts being paid in full.
• It was held that annulment of adjudication wipes out bankruptcy as if the debtor had never been bankrupt, and ROAO has retrospective effect.
• There are relevant cases on the matter, including Ting Nguk Yong v Bank Utama (Malaysia) Bhd [1999] 1 CLJ 173, Kwong Yik Bank Bhd v Hah Chiew Yin (1985) 2 MLJ 452, and Sama Credit & Leasing Sdn Bhd v Pegawai Pemegang Harta Malaysia [1995] 1 MLJ 274.

Second Bankruptcies (Section 49 of Insolvency Act)

• Bankrupts discharged from bankruptcy are freed from liability for provable debts, but remain able to become bankrupt again if insolvent, as specified in Section 35 of Insolvency Act.
• A second action can be commenced against people in extant bankruptcies, provided it relates to new debts.
• Doing so is rarely done.
• Bankrupts are therefore subjected to further bankruptcy orders as per Section 49 of IA.
• Creditors in second bankruptcies cannot recover payment from the DGI from previous debts provable at the date of the Bankruptcy Order.
• If a second bankruptcy is commenced before discharge from the first, the bankruptcies are administered separately.

Sama Credit & Leasing Sdn Bhd v Pegawai Pemegang Harta Malaysia [1995] 1 MLJ 274

• A second bankruptcy order was obtained unknowingly against someone bankrupt already.
• The earlier Official Assignee did not voice objection to the order.
• The second bankruptcy order however remained after the second bankruptcies, because the parties acted in good faith, and because the Section 49(1) and 49(2).
• The courts may further refuse to make receiving orders if it is satisfied no assets will be available for administration under the new order.

Re Othman Abu Bakar (1954) MLJ 75

• Receiving and Adjudication Orders were issued in 1936 and then again in 1953, before the prior bankruptcy discharge.
• The central question for consideration became how both bankruptcies should be administered.
• It was held that they must be treated separately, and property post the first adjudication must be considered assets to it, unless debts have been fully cleared or the individual has been discharged.