BA-22NCC-151-12/2022 (Sahc)

HONG LEONG BANK BERHAD

MALAYAN BANKING BERHAD

ALLIANCE BANK MALAYSIA BERHAD (NO. SYARIKAT: 198201008390) …GARNISI YANG DICADANGKAN 2 JUDGMENT Introduction [1] In medicine, it is advised against taking both a laxative and a sleeping pill simultaneously. Likewise, in law, filing a bankruptcy petition while concurrently attempting to execute a judgment against the same judgment debtor will lead to unintended consequences, as exemplified by the present case. The Vital Issue [2] The principal issue before this Court is whether an Order to Show Cause for Garnishee Proceedings that had been issued on 24 April, 2024 should be set aside on the ground that a notice of presentation of a bankruptcy petition had been made against the Defendant/Judgment Debtor on 8 January, 2024. Background Facts [3] On 23 June, 2022, the Plaintiff/Judgment Creditor and Yap Kong Yeaw entered into a Friendly Loan Agreement, under which the Plaintiff/Judgment Creditor agreed to lend RM5,000,000.00 to Yap Kong Yeaw. [4]

Restriction of rights of creditor under execution or attachment

Where a creditor has issued execution against the goods or lands of a debtor, or has attached any debt due, or property belonging to him, he shall not be entitled to retain the benefit of the execution or attachment against the Director General of Insolvency unless he has completed the execution or attachment before the date of the bankruptcy order and before notice of the presentation of any bankruptcy petition by or against the debtor, or of the commission of any available act of bankruptcy by the debtor. (own emphasis)

For the purposes of this Act— 5

an execution against goods or land is completed by seizure and sale, or in the case of an equitable interest in land by the appointment of a receiver;

an attachment of a debt is completed by receipt of the debt;

an attachment of property is completed by the sale of such property and the satisfaction out of the proceeds of such sale of the judgment in execution of which the attachment was made.” The Respective Contentions [13] Since bankruptcy proceedings had been initiated against the Defendant/Judgment Debtor, it was his contention that the Order to Show Cause ought to be set aside. [14] The Defendant/Judgment Debtor relied on the provision in section 50(1) of the Insolvency Act 1967 and pointed out that the said provision in no uncertain terms bars the execution of any judgment by a judgment creditor once a notice of the presentation of any bankruptcy petition has been made against a judgment debtor. [15] On the other hand, the Plaintiff/Judgment Creditor contended that “the mere fact that bankruptcy proceedings is ongoing does not automatically bar all execution proceedings against a Defendant/Judgment Debtor”. 6 [16] It was argued by the Plaintiff/Judgment Creditor that the bankruptcy proceedings against the Defendant/Judgment Debtor have been kept in abeyance, pending the disposal of the Judgment Debtor’s appeal to set aside the Judgment in Default. Hence, Plaintiff/Judgment Creditor reasoned that the there is no risk of bankruptcy order being made that would invalidate the current garnishment proceedings. Application of the Law and the Decision of this Court [17] It is undisputed that the Plaintiff/Judgment Creditor had “presented a bankruptcy petition” against the Defendant/Judgment Debtor prior to the initiation of the garnishee proceedings. The facts reveal that it was the Plaintiff/Judgment Creditor himself who had filed a bankruptcy notice on 8 January, 2024. The Order to Show Cause was only issued on 24 April, 2024. [18] The High Court in Ong Kong Kuan v Ong Kong Beng & Anor (CIMB Bank Bhd & Ors, Garnishees) [2023] AMEJ 2214; [2023] CLJU 2236; [2023] MLJU 2496; [2023] MLRHU 1802 recently warned against such an approach: A judgment creditor has to tread with prudence and care as to whether he/she wants to initiate bankruptcy proceeding first before he/she applies for garnishment or writ of execution against the judgment debtor’s assets. [19] This reason for this caution is obvious. As pointed out by His Honour Judge Behrens (sitting as a Judge of the High Court) in Industrial Diseases Compensation Limited v Marrons [2001] BPIR 600 (cited in Ong Kong Kuan): 7 The presentation of the bankruptcy petition constituted proceedings to ensure the distribution of the available assets amongst the creditors according to the statutory, scheme set out in the Insolvency Act 1986. In such a case the court should have regard to the creditors generally not make an order which has the effect of giving one creditor priority over the others. It follows in my judgment that a garnishee order should not be made after the presentation of a bankruptcy petition. [20] Indeed, if this Court were to make the order absolute (as per Order 49 rule 4 of the Rules of Court 2012), the Plaintiff/Judgment Creditor would indirectly benefit from the rights of other secured creditors, a situation expressly prohibited by section 50(1) of the Insolvency Act 1967. [21] In line with the explicit stipulation in section 50(1) of the Insolvency Act 1967, together with the decisions in Ong Kong Kuan and Industrial Diseases Compensation Limited, this Court is of the considered view that although the Plaintiff/Judgment Creditor was spoilt with choices at his disposal to enforce the judgment debt, the fact that he had “presented a bankruptcy petition” against the Defendant/Judgment Debtor prior to the garnishment application had resulted in the unintended consequence of barring himself from enforcing the judgment. [22] Accordingly, this Court agrees with the Defendant/Judgment Debtor’s submission and allows his application to set aside the Order to Show Cause. [23] The Plaintiff/Judgment Creditor to pay costs of RM1,500 to the Defendant/ Judgment Debtor, subject to allocatur. 8 Dated: 1 October, 2023 sgd [CHOONG YEOW CHOY] Judicial Commissioner High Court of Malaya Shah Alam Counsel: Wong Kar Chun for the Plaintiff (Messrs. H Wong & Chia Wen) Carmen Liao for the Defendant (Messrs. Ganaeswaren & Latib)