Bank Pembangunan Malaysia Berhad v Anbanathan A/L Shanmugam (WA-29NCC-155-02/2022)

The Judgment Debtor (“JD”) has filed an appeal against the decision of the Senior Assistant Registrar (“SAR”) dated 07.02.2023, which allowed the Judgment Creditor (“JC”) leave to commence bankruptcy proceedings against the JD.

The JD is a director of Platinum Green Chemicals Sdn Bhd, (formerly known as Platinum Biofuels Sdn Bhd and before that, Ganz Biofuels Sdn Bhd) (“the Borrower”).

The JC has extended a number of loan facilities (“the Facilities”) to the Borrower. As security for the Facilities, the JD obtained a Corporate Guarantee from Platinum Nanochem Sdn Bhd (“the Corporate Guarantor”) as well as charges on several parcels of land (“the Charged Properties”) to secure part of the Facilities.

The Borrower had utilised the Facilities but defaulted on payment on 20.05.2016. The JC appointed a Receiver and Manager to handle the assets of the Borrower on 11.07.2016. The Receiver & Manager, subsequently disposed of the Charged Properties for a total sum of RM13 million.

The Corporate Guarantor was wound-up on 15.07.2016 and the JC filed a Proof of Debt (“POD”) in the Winding-Up of the Corporate Guarantor on 05.03.2020.

The Borrower was wound-up by another creditor on 01.08.2016 and the JC filed its POD on 26.02.2020. Up till the date of hearing, no payment was received under the POD.

On 08.12.2021, the JC obtained a judgment against the JD in Civil Suit No.: WA-22NCC-103-03/2021 (“Suit103”) for the sum of RM64,960,762.80 as of 28.02.2021 under the Facilities (“the Judgment”).

The JD did not appeal against the Judgment.

On 04.01.2022, through its solicitors, the JC demanded from the JD the Judgment Sum pursuant to the Judgment. However, the JD failed to pay the Judgment Sum to the JC.

The JC, thereafter, filed a Notice of Bankruptcy and Request to Issue a Notice of Bankruptcy to this Court on 09.02.2022 for the Judgment Sum, including costs and interest amounting to RM70,239,340.18 as at 23.02.2022.

The JC filed the Leave Application pursuant to section 5(3) of the Insolvency Act 1967 (“IA 1967”), which was allowed by the SAR.

The JD filed the Notice of Appeal against the decision of the SAR on 29.02.2023.

The JD opposes the Leave Application on the following grounds:

13.1 the JC’s failure to obtain leave pursuant to section 5(3) of the IA 1967 prior to taking out the Bankruptcy Notice is fatal to the Leave Application and the proceedings herein;

13.2 The JC has attempted to circumvent the statutory protection mechanisms afforded to guarantors pursuant to section 5(3) and section 5(4) of the IA 1967; and

13.3 The JC has fallen short of the threshold in section 5(3) and section 5(4) of the IA 1967 due to its delay in attempting to recover the debt against the Borrower, which rendered the debt irrecoverable and any purported attempt of recovery thereof, academic. [14] The JD submits that section 5(3) of the IA 1967 stipulates that a petitioning creditor shall not be entitled to commence any bankruptcy action against a guarantor prior to obtaining leave from court. [15] The effect of this provision was recently addressed by the High Court in Re Lim Sue Beng; ex parte AmBank (M) Bhd (dahulunya dikenali sebagai AmFinance Bhd) & Ors [2022] MLJU 3147, wherein the Judge set out the following salient principles:

15.1 The phrase “prior to commencing any bankruptcy action” in section 5(3) of the IA 1967 clearly and unambiguously means prior to the issuance of the bankruptcy notice.

15.2 This is because the jurisdiction of the Bankruptcy Court is invoked upon issuance of the bankruptcy notice.

15.3 Therefore, the failure of a petitioning creditor to obtain leave pursuant to section 5(3) prior to the issuance of the bankruptcy notice would render the bankruptcy notice premature and consequently, invalid. [16] Applying the principles above, the Judge in Re Lim Sue Beng held that the failure of the petitioning creditor to obtain leaver prior to the issuance of the bankruptcy notice was incurable and prejudicial to the guarantor JD in that case. The Court then allowed the guarantor’s appeal against the decision of the SAR in granting leave to the petitioning creditor pursuant to section 5(3) of the IA 1967. [17] The JD also relied on the case of Liew Hon Kong v Bank Pertanian Malaysia Berhad (2022) 1 MLJ 836 where the Court of Appeal (“COA”) held that a bankruptcy action is deemed to commence upon the issuance of a bankruptcy notice. JC’s SUBMISSION [18] The JC submits that this Court is bound to follow the decision of the COA in the case of Hong Leong Bank Bhd v Ong Moon Huat and another appeal [2018] MLJU 1576 where Nallini Pathmanathan JCA (as she then was) held that a judgment creditor has the right to file an application for leave to commence bankruptcy proceedings against a judgment debtor either upon the issuance of the bankruptcy notice, or even prior to that, up to and immediately prior to the filing of a creditor’s petition: The COA held:- [13] A reading of Khairulnizam’s case, as we understand it, discloses that the primary issue before the Federal Court was whether a judgment creditor is bound to obtain leave PRIOR to commencing bankruptcy proceedings? In that case, the learned Judicial Commissioner, despite finding that all modes of execution and enforcement against the principal debtor had been exhausted, went on to hold that there had not been compliance with section 5(3) of the Insolvency Act 1967 because the Judgment Creditor had not obtained such leave before commencement of the bankruptcy proceedings against the Judgment Debtor who was a social guarantor. In short, it appears that the Judicial Commission read the section as requiring leave to be obtained either before the issuance of the request for the filing of a bankruptcy notice or soon thereafter. This, the Federal Court held, was wrong. The Federal Court accepted the appellant’s submission that there was nothing provided in the Act or Rules under the bankruptcy provisions that an ex-parte application for leave to commence a bankruptcy action against a social guarantor should be made when applying for the issuance of a bankruptcy notice. The Federal Court refused to take such a narrow and restrictive meaning and held instead that all a creditor has to do is to satisfy the court at the hearing of the creditor’s petition that it has exhausted all avenues to recover debts owed to it by the principal debtor. That it was held could be done by way of an affidavit pursuant to section 6(1) of the Insolvency Act

It is in this context that the Federal Court went on to hold that a judicial decision was made at the creditor’s petition stage whereas the issuance of a bankruptcy notice is more administrative in nature. [14] However, there is nothing in the judgment of the Federal Court that holds that:

A judgment creditor is precluded from filing an application for leave at the point in time when the bankruptcy proceedings are initiated;

(ii) On the contrary, the Federal Court is extending time for the obtaining of leave of court to proceed against a social guarantor up to the point in time when a creditor’s petition is filed, at which point it is necessary to stipulate that leave of court has been obtained;

(iii) In other words there is nothing to prevent a judgment creditor from obtaining leave at a point in time prior to the commission of an act of bankruptcy i.e., soon after the issuance of the bankruptcy notice or with the application for the issuance of a bankruptcy notice. The practical difficulty is that there will be no cause papers with an intitulement to enable the judgment creditor to file a summons in chambers and affidavit in support until the bankruptcy notice is issued. Therefore most solicitors, as a matter of practice may wish to obtain leave as a matter of prudence at this juncture, rather than wait for the act of bankruptcy to be committed. This is because it leaves a very narrow window of time for the application for leave to be filed and heard. However, as stated by the Federal Court in Khairulnizam it is open to a judgment creditor to even simply file an affidavit in support at a later stage prior to the filing of the creditor’s petition which will require confirmation, as a matter of fact, that all other avenues against the principal debtor have been exhausted. [15] For these reasons we are of the view that on a proper reading of Khairulnizam which is wholly relevant coupled with section 5(3)(b) as well as Rule 97 it is open to a judgment creditor to file an application for leave to proceed against a guarantor either upon the issuance of the bankruptcy notice, or even prior to that, up to and immediately prior to the filing of a creditor’s petition. This gives leeway to the judgment creditor to obtain such leave as it deems fit in the circumstances of a particular case. This will in no way prejudice the judgment debtor/guarantor who is protected by the legislation which requires such leave to be obtained as a pre-requisite to the grant of receiving and adjudication orders. [19] The JC submits that the decision in Liew Hon Kong (supra) is not applicable to the present case because Liew Hon Kong dealt with the provisions of the old Bankruptcy Act, which has been repealed. This was evident when S Nantha Balan JCA (as he was then) held as follows: [80] In our view, the legislation which governed the CP in this case was the BA1967 and the Bankruptcy Rules 1969. Thus, the issue of obtaining leave of the Insolvency Court under s. 5(3) IA 1967 does not arise. Clearly, s. 60 of the Bankruptcy (Amendment) Act 2017 holds the key to the present situation. In our view, the interpretation that was advanced on behalf of the JD would violate the purpose or the rationale of saving provisions such as s.60 of the Bankruptcy (Amendment) Act 2017. [20] I have also taken note that the learned judge in Re Lim Sue Beng relied on by the JD did not consider the COA’s decision in Hong Leong Bank v Ong Moon Huat in arriving at his decision. I am persuaded by the JC’s submission that the decision of the COA in the case of Hong Leong Bank v Ong Moon Huat applies to the present matter before this Court. Therefore applying the principles laid down in Hong Leong Bank v Ong Moon Huat, I find the appeal on the above grounds is misconceived. [21] On the other issues raised by the JD, particularly the issue of the late filing of the POD by the JC, I agree with the JC’s submission that the arguments have been considered and rejected by the High Court in Suit 103. Thus, they are no longer live issues to be ventilated in this court. [22] For the reasons aforesaid, I dismiss the JD’s appeal with costs. Dated 27 March 2025 …………t.t………………. Ahmad Murad Bin Abdul Aziz Judge High Court of Malaya Kuala Lumpur COUNSEL FOR THE JUDGMENT DEBTOR: MAVIN THILLAINATHAN SOLICITORS FOR THE JUDGMENT DEBTOR: TETUAN LAVANIA & BALAN CHAMBERS COUNSEL FOR THE JUDGMENT CREDITOR: EIZLAN FARHAN BIN NAKHROWI WITH LIM KE XIN SOLICITORS FOR THE JUDGMENT CREDITOR: TETUAN ALBAR & PARTNERS Cases Referred to: ➢ Re Lim Sue Beng; ex parte AmBank (M) Bhd (dahulunya dikenali sebagai AmFinance Bhd) & Ors [2022] MLJU 3147 ➢ Liew Hon Kong v Bank Pertanian Malaysia Berhad (2022) 1 MLJ 836 ➢ Hong Leong Bank Bhd v Ong Moon Huat and another appeal [2018] MLJU 1576 Legislation Referred to: ➢ Insolvency Act 1967 Decision date: 02 November 2023