Discharge of Bankrupt PDF

TOPIC 8: DISCHARGE OF BANKRUPT & ANNULMENT DISCHARGE OF A BANKRUPT  Discharge of Bankrupt Form 86 to 102 in IA THREE ways: – i) Order of Court(Section 33) – ii) Certificate of DGI (Section 33A) – iii) Automatic discharge (Section 33C) Discharge by Order of Court (Sec...

TOPIC 8: DISCHARGE OF BANKRUPT & ANNULMENT DISCHARGE OF A BANKRUPT  Discharge of Bankrupt Form 86 to 102 in IA THREE ways: – i) Order of Court(Section 33) – ii) Certificate of DGI (Section 33A) – iii) Automatic discharge (Section 33C) Discharge by Order of Court (Section 33) According to Section 33(1) of IA, a bankrupt may apply at any time after being adjudged bankrupt to the court for an order of discharge. A discharge should be distinguished from an annulment as the latter is made under Section 105 of IA. The application must be served on all the creditors who have filed proof of debt and DGI. Court will consider a report of DGI as to the bankrupt’s conduct and affairs in particular his conduct during the bankruptcy proceeding. A creditor who has proved his debt may oppose an application for discharge by giving notice of opposition not less than 3 days before the hearing.  Discharge by order of court At the hearing, the court will consider a number of factors before granting order to discharge:- – a)Statutory consideration The court must determine whether the bankrupt has committed any offence (Section 33(4)) or any facts contained in Section 33(6) has been established. – b) the age of the bankrupt – c) The conduct of the bankrupt – d) The extent of the debt settled; and – e) Public interest.  At the hearing, court shall hear both the DGI and Creditors. At the conclusion of hearing court may make any of the following orders:- – (i) grant absolute discharge – (ii) refuse absolute discharge – (iii) grant order but subject to any conditions – Section 33(3)  Re Ang Ah Kang 2 CLJ 738 Facts: The bankrupt made application three years after being adjudicated bankrupt. The debt due to the petitioning creditor had been settled by a third party. The debts owing to two other creditors had also been paid, leaving only a creditor, according to the Official Assignee’s report would be paid a dividend. The creditor objected to the application.  The court noted that the principal debts had been settled and what remained owing was only the interest. The bankrupt was also had been faithfully paying a RM60.00 a month as ordered by OA. The fact that the bankrupt already 60 years old and not likely to be gainfully employed were taken into consideration. Held: It was against the public policy to chain a person to bankruptcy when it did not serve anyone any good. The court allowed the application with judgment being entered for the creditor in respect of the balance of the proved debt. The court imposed the condition that the judgment could only be enforced with the leave of court. Re Lau Kah Lay and Tang Kuong Tiew (1998) 2 AMR 1347 In this case, the bankrupt’s application were supported by the OA but objected to by all of their creditors to whom approximately RM13 million was owed. The applications were made 10 years after they were made bankrupt and both of them were 51 years of age. The OA reported that the conduct of the bankrupts had been satisfactory and recommended that they be ordered to pay monthly payments till they were 55 years old.  However, the court noted that the OA’s report did not disclose the sale of a property by one of the bankrupts to his wife just before his bankruptcy. Further, though both were bankrupts, their wives were shareholders of a holding company with a chain of supermarkets. The court was of the opinion that further investigation was required before the bankrupts could be discharged. Investigation ought to be conducted into the aforesaid disposal of the property and to ascertain whether the bankrupts really did not own any property when they were adjudicated bankrupts. The wealth and conduct of the bankrupts’ respective wives had to be looked into too.  DISCHARGE BY DGI’S CERTIFICATE Section 33A: A bankrupt may instead of making application to the court, to apply to the DGI for discharge. An application may only be made 5 years after the date of Bankruptcy Order – section 33A(2)  Application for discharge by DGI’s certificate There is no procedure as to how a bankrupt may apply to the DGI for discharge. The DGI has a wide discretion in deciding on the application as the act is silent on the factors to be considered. Nevertheless it appears that internal guidelines have been laid down as to how the application may be considered.  The factors to be considered: 1. The cause of the bankruptcy- where the bankruptcy was brought about by the bankrupt’s own fault such as gambling, the application will be dismissed. 2. The age or the health of the bankrupt – bankrupts who are more than 65 years of age or unhealthy are likely to be discharged. 3. The conduct of the bankrupt- the DGI may consider whether the bankrupt has been cooperative in the proceedings and prompt in payment as directed by the DGI and whether he has committed any bankruptcy offences or contempt of court. 3) AUTOMATIC DISCHARGE (SECTION 33C) Under the Insolvency Act 1967, there is an automatic discharge of a bankrupt upon the expiry of three years from the date of submission of the statement of affairs by the bankrupt if the bankrupt has a) Achieved an amount of target contribution of his debt; b) Complied with the requirement to render an account and property to the DGI.  There are several factors that the DGI may take into consideration in determining the target contribution. For example: a) Amount of the debt of the bankrupt; b) Current monthly income of the bankrupt; c) Prospective month income during the bankruptcy period; d) Earning capacity of the bankrupt e) Age and work experience; f) Educational level; g) Current economic conditions h) The reasonable expenses for the maintenance of the bankrupt and the bankrupt’s family. 15  Section 33C(3) : The DGI would then serve a notice of discharge on every creditors not less than 6 months before the expiry of 3 years. A creditor may, within 21 days of being served such notice, object to the automatic discharge by applying to court using the following grounds: a) The bankrupt has committed any offence under the Act or certain provisions under the Penal Code in relation to concealment of property to prevent distribution to creditors; b) The discharge would prejudice the administration of the bankrupt’s estate; c) The bankrupt has failed to co-operate in the administration of his estate.  Section 33C(5)- A creditor who fails to file an application is deemed to have no objection to the discharge. Section 33C(7)- Upon an application, the court may, if it thinks just and expedient- – a) Dismiss the application and approve the discharge or – b) Suspend the discharge for a period of two years. 18  Where the court makes an order under Section 33C(7)(b), the bankrupt shall, Continue to fulfill his duties and obligations under the Act during that period and Be discharged automatically at the end of the two years’ period. 19  EFFECTS OF DISCHARGE OF A BANKRUPT (Section 35) Release from all debts provable in bankruptcy- Section 35(1) All debts proved in a bankruptcy are erased. Discharge from such excepted debts by certificate in writing of the Minister of Finance (debt due to Federal Government) or Chief Minister (state debts) or AG (Bail bonds) Section 35(1)(2)(3) Conclusive evidence of bankruptcy and the validity of its proceedings- section 35(4)  ANNULMENT OF BANKRUPTCY ORDER (SECTION 105 OF INSOLVENCY ACT)  Annulment of Bankruptcy Order The power to annul Bankruptcy Order vests in the court. The exercise of that power is discretionary and this is evident from the use of the word ‘may’ in the section on the power of court to annul Bankruptcy Order.  Annulment (Section 105) The court may annul Bankruptcy Order on the following grounds:- – 1. In the opinion of the court that the bankrupt ought not to have been adjudged a bankrupt – 2. Where bankrupt’s debt are paid in full. – 3. Where proceedings are pending in Singapore under the Singaporean law for the distribution of the bankrupt’s estate among his creditors and the distribution ought to take place in Singapore.  Ground 1: In the opinion of the court that bankrupt ought not to have been adjudged a bankrupt. The onus is on the bankrupt to satisfy the court that he ought not to have been made a bankrupt. For instance:- – i) Where the petition had been filed prematurely- Re Natarajan a/l Kuppusamy 2 MLJ 468 – ii) Where the bankruptcy notice was defective- Re George Paul Daniel 2 CLJ 750 Re Natarajan a/l Kuppusamy 2 MLJ 468 The applicant applied to the court for an order to annul the adjudication of the applicant as a bankrupt. A bankruptcy notice had been taken out against the applicant and was served on him. He was given seven days excluding the day of service to pay the sum demanded. Before the seven-day period had expired, he filed an affidavit in court by which he sought to have the bankruptcy notice set aside.  The registrar of the court had failed initially to fix a date for the hearing of the application and eventually the petitioner presented a bankruptcy petition against the applicant alleging that he had failed to comply with the requirements of the bankruptcy notice. The petition was served on the applicant and eventually the petition and the application to set aside the bankruptcy notice were fixed for hearing on the same day. The applicant failed to appear and his application was struck off. The petition was treated as unopposed and receiving and adjudication orders were then made.  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. As 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 meaning of 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 2 K.B 666 where it was held that to satisfy the section 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. said that the jurisdiction conferred to a Judge by this section is discretionary and further adds that "the language of the Act, interpreted according to its natural meaning, appears to me to require a payment in full..."  The decision In Re Keet (supra) was accepted and adopted by our Federal Court in Kwong Yik Bank Bhd. v. Hah Chiew Yin Yin CLJ 178 (Rep); 2 CLJ 31; 2 MLJ 452 where it was held that the proved debt must have "been paid in full in cash" before an adjudication order can be annulled. KWONG YIK BANK V HAH CHIEW YIN 2 CLJ 31 Facts: Judgment obtained against Respondent for RM30,000.00. Appellant filed a Bankruptcy petition against Respondent and subsequently ROAO was entered. Respondent’s husband, paid RM16,000.00 for settlement. Respondent filed application to annul ROAO on the ground that the debt has been paid in full. The learned Judge found that since appellant agreed to accept RM16,000.00 in full settlement , no merit for objection.  Appellant appealed. Federal Court held: Section 105 “where it is proved to the satisfaction of court that the debt is paid in full… court may annul the adjudication.” The bankrupt has failed to satisfy that the proved debt lawfully due has been paid in full in cash. Order of the learned Judge in annulling ROAO set aside.  Ground 3: The distribution of the bankrupt’s estate among his creditors ought to take place in Singapore. Re Peh Kong Wan, ex parte United Malayan Banking Corp Bhd 2 MLJ 292 Receiving Order and Adjudication Order were made against the debtor in his absence. Upon the application of the debtor, the court rescinded and annulled ROAO on the ground that the orders ought not to have been made, as the court was satisfied that before the time of bankruptcy proceeding, the debtor has changed his domicile from Malaysia to Singapore.  In hearing the application, the court shall also take into consideration :- – the bankrupt’s conduct – the interest of the creditors – the interest of public.  Conduct of the bankrupt In Re Peter Wong, Ex parte the Debtor MLJ 27 The bankrupt applied to annul ROAO on the ground that the act of bankruptcy relied upon in the bankruptcy petition was not valid. The act of bankruptcy relied on was the Sheriff’s return, and the debtor adduced evidence that he had the property which could have been seized by the sheriff at the time the return was made. The petitioner’s solicitor gave evidence that one month before the hearing of the petition, the debtor met him at his office and maintained that he did not have any assets and that all his previous assets had been sold.  The court held that it had discretion on whether the order ought to be annulled and that in exercising its discretion, the court must consider all circumstances, including the bankrupt’s conduct. The bankrupt’s conduct was found to be unsatisfactory. The bankrupt’s appeal was therefore dismissed. (b) the interest of the creditors- Re Seow Yin Fong Ex Parte United Orient Leasing Company Bhd 2 CLJ 845 Facts: The applicants contended, in support of their application, that the amount stated in the respective bankruptcy notice were not quantified up to the date of the bankruptcy notice and further that the bankruptcy notice also included sum which was not due and owing as at the date of the notices, namely interest until the date of full and final settlement.  In the circumstances, the applicants contended that the bankruptcy notice were invalid and therefore, the whole bankruptcy proceeding were a nullity and both ROAO ought not to have been made. The Judgment Creditor and other Creditors who had proved their debts opposed the application on the ground that the applicants had admitted in full the proof of debts filed against them at the first creditor’s meeting; and had further affirmed their liabilities to the respective creditors at Public Examination. It was averred that the applicants were guilty of prolonged and inexcusable delay in making the application and that the petitioning creditor and the other creditor who had filed their proof of debts would be highly prejudiced by the applicants.  Court Held: – (i) The application to annul ROAO were made more than six years after the grant of the said Orders. If the Order were rescinded on the grounds that the whole bankruptcy was a nullity, the creditors would be greatly prejudiced. – (ii)The power of Court under Section 105 of the Act to annul the adjudication is a discretionary. The interest of the parties effected must be taken into consideration in exercising discretion. In addition, the applicants had not given any explanation for the delay in bringing the application in court.  Annulment Effects:- – The bankrupt is put in a position as if there has been no adjudication order. – The bankruptcy is wiped out altogether as if the debtor was never a bankrupt. Mohamed Hanifa Mohamed Yusoof v Sikandar Batcha Abdul Majeed 7 CLJ 77 Facts: – Plaintiff ordered the defendant to hand over to the Plaintiff the records and documents of the Pertubuhan Kongres Indian Muslim Malaysia ("KIMMA") and to refrain from holding himself out as the president of KIMMA for the session of 2000-2002. – Plaintiff alleged that that the defendant was not the lawful president of KIMMA because he was an undischarged bankrupt, having been adjudged a bankrupt on 6 November 1997 and according to s. 9A(1)(d) of the Societies Act 1966 and Article 17(6) of KIMMA's Constitution, an undischarged bankrupt cannot be an office-bearer. – The Defendant produced evidence that ROAO has been annulled since he had paid the debt in full.  Held: The Effect of annulment of adjudication is to wipe out the bankruptcy altogether as if the debtor was never a bankrupt. Therefore annulment of ROAO (Bankruptcy Order now) has a retrospective effect.  Ting Nguk Yong v Bank Utama (Malaysia) Bhd 1 CLJ 173 Kwong Yik Bank Bhd v Hah Chiew Yin (1985) 2 MLJ 452 Sama Credit & Leasing Sdn Bhd v Pegawai Pemegang Harta Malaysia 1 MLJ 274  SECOND BANKRUPTCIES (SECTION 49 OF INSOLVENCY ACT)  As a general rule, a bankrupt who is discharged from bankruptcy unconditionally is regarded as a freed man, free from liability for all provable debt except those specified in Section 35 of Insolvency Act. This does not, however, precludes him from being made a bankrupt again in the event that he becomes insolvent again. It is also not impossible for a second bankruptcy action to be commenced against a bankrupt who has not yet been discharged from the first bankruptcy. Such an action would be in relation to debts which are incurred after the commencement of the first bankruptcy. However, filing for second bankruptcies is in practice very rarely done.  Bankrupt can be subjected to a further bankruptcy order pursuant to Section 49 of IA. The Creditors in the second bankruptcy cannot recover payment from the DGI in the existing bankruptcy, since the only debts provable in that bankruptcy are debts that were owed by the bankrupt at the date of that Bankruptcy Order. Hence, the need to commence the second bankruptcy. Where a second bankruptcy is commenced before the bankrupt is discharged from the first, the two bankruptcies must be administered separately. Sama Credit & Leasing Sdn Bhd v Pegawai Pemegang Harta Malaysia 1 MLJ 274 Fact: The Appellant obtained a second bankruptcy order against the bankrupt, not knowing that he already been made a bankrupt two years earlier by another petitioner. The Official Assignee in the first bankruptcy did not appear in court to object to the making of the second bankruptcy order, although all relevant papers had been served on him.  Subsequently, the Official Assignee applied to have the second bankruptcy order set aside. The Supreme court refused to annul the second bankruptcy order, inter alia on the ground that:- (i) Section 49(1) & (2) of the Act renders the making of subsequent ROAO against undischarged bankrupt permissible. (ii) Furthermore, the Appellant had acted in a good faith at all times and without knowledge of the prior bankruptcy order. The court may refuse to make a further receiving order if it is satisfied that there is no probability of any assets being available for administration under the subsequent bankruptcy.  Re Othman Abu Bakar (1954) MLJ 75 Receiving and Adjudication Orders were made against the bankrupt in 1936 and before he obtained his discharge in that bankruptcy, subsequent Receiving and Adjudication Orders were made in 1953. The point for consideration was the manner in which the two bankruptcies were to be administered.  Held: The two bankruptcies must be administered separately. Any property acquired by the bankrupt since the first adjudication must be treated as assets in the first bankruptcy and cannot go to the benefit of the creditors in the second bankruptcy until the creditors in the first bankruptcy have been paid in full or until the bankrupt has obtained a discharge in the first bankruptcy.