Lembaga Kumpulan Wang Simpanan Pekerja v HAI KIONG NIANG (J-03(IM)-53-07/2023)

These are two appeals by the Lembaga Kumpulan Wang Simpanan Pekerja (hereinafter referred to as "EPF") against the orders of the High Court granted on 12 July 2023 allowing the applications by the Judgment Debtors, i.e., the Respondents in both appeals, for the annulment of the Bankruptcy Orders dated 11.5.2021 under section 105 of the Insolvency Act 1967.

Both appeals were first heard on 23.1.2025 and adjourned for continued hearing on 11.4.2025. These appeals are now fixed for decision on 11.7.2025.

Briefly, the EPF is the Judgment Creditor who initiated bankruptcy proceedings against the Respondents, who are the directors of Hawaii Bakery & Food Industries (M) Sdn. Bhd., through bankruptcy actions JA 29NCC-827-08/2020 and JA-29NCC-833-08/2020. Following the service of cause papers which was made personally on the Respondents, Bankruptcy Orders were recorded against the Respondents on 11.5.2021, in their absence. The Respondents took no steps to challenge this decision, and no appeal was filed to set aside the said judgments.

Following the Bankruptcy Orders dated 11.5.2021, the Director General of Insolvency (hereinafter referred to as "DGI") issued letters dated 26.10.2021 requesting the Respondents to contact the relevant officer and fix appointments for interviews and preliminary procedures. However, both Respondents failed to do so. Subsequently, the DGI issued a final reminder letter dated 8.11.2021 to Respondents. Unfortunately, the DGI received no response from the Respondents.

Instead of responding to the DGI, in 2022, the Respondents filed applications on 13.7.2022 for an annulment of the Bankruptcy Orders dated 11.5.2021 pursuant to section 105 of the Insolvency Act 1967 via bankruptcy proceedings JA-29PB-409-07/2022 and JA-29PB-410- 07/2022.

The Respondents' applications were opposed by the EPF and the DGI. The EPF's objection was based on the fact that there were three (3) other Proofs of Debt ("POD") dated 27.7.2022 (two sets) and 22.8.2022 (one set) wherein the debts remained outstanding. Meanwhile, the DGI objected to the application on the ground that the Respondents had yet to comply with initial procedures and had failed to file their Statement of Affairs.

The Respondents' applications were initially heard before the learned Deputy Registrar, Mr. Arun a/I Noval Dass, who dismissed the applications with liberty to file afresh after the Respondents remedied the breaches constituting contempt of court, i.e., by filing their Statement of Affairs pursuant to section 16 of the Insolvency Act 1967. No order as to costs was made.

Dissatisfied with the learned Deputy Registrar's decision, the Respondents filed Notices of Appeal to the Judge in Chambers pursuant to Order 56 Rule 1 of the Rules of Court 2012. The appeal was heard by the Judicial Commissioner ("the JC"), who allowed the Respondents' applications to annul the Bankruptcy Orders dated 11.5.2021. The order of JC was made on 12.7.2023.

The EPF, aggrieved by that decision, has now appealed. Based on its Memorandum of Appeal, the EPF raised six (6) grounds of appeal, as follows: "1. The learned Judicial Commissioner erred in law and fact in allowing the Respondents' appeal via the Notice of Appeal dated 30.12.2022.

The learned Judicial Commissioner erred in law and fact in allowing the annulment of the Bankruptcy Order dated 11.5.2021 under section 105 of the Insolvency Act 1967 based solely on payments made up to the amount stated in the Bankruptcy Notice dated 12.8.2020, without taking into account three other debts proven under:

Proof of Debt filed on 14.3.2022 for the liability period between February 2017 to August 2017;

Proof of Debt filed on 27.7.2022 for the liability period between April 2018 to June 2018;

Proof of Debt filed on 27.7.2022 for the liability period between November 2018 to May 2019. (Collectively referred to as the "Overlooked Proofs of Debt")

The learned Judicial Commissioner erred in law and fact in concluding that the Overlooked Proofs of Debt need not be considered in determining an application to annul a bankruptcy order under section 105 of the Insolvency Act 1967.

The learned Judicial Commissioner erred in law and fact in finding that the Appellant (Judgment Creditor in the High Court) in bankruptcy proceedings has no right to claim or file the Overlooked Proofs of Debt in excess of the amount stated and claimed in the Bankruptcy Notice.

The learned Judicial Commissioner erred in law and fact in finding that the Overlooked Proofs of Debt in excess of the amount claimed in the Bankruptcy Notice can only be pursued by commencing new bankruptcy proceedings against the Respondents (Judgment Debtors in the High Court).

The learned Judicial Commissioner erred in law and fact in failing to appreciate and/or accept that the Respondents (Judgment Debtors in the High Court) at all material times failed to file the Statement of Affairs under section 16 of the Insolvency Act 1967, thereby obstructing the Malaysian Department of Insolvency from carrying out its statutory duties." REASONS FOR HIGH COURT'S DECISION [10] In deciding the Respondents' applications, the JC made findings on three issues raised by the parties as follows:

Whether the failure of the Judgment Debtors (JDs) to file their Statement of Affairs (SOA) is fatal to their application to annul the Bankruptcy Order;

Whether a director's bankruptcy can be annulled after the Company's debt has been settled;

Whether the failure of the JDs to satisfy the Proofs of Debt (POD), filed both before and after the application for annulment, will affect their application. [11] The finding of the JC in allowing the Respondents' applications are summarised as follows: IssueFindings of the JCWhether the failure of the JDs to file the SOA is fatal to their annulment application[16] The word “shall” in section 16 signifies the mandatory nature of filing the SOA, failing which the bankrupt is guilty of contempt of court and may be punished accordingly. [17] However, the Court finds that JDs should not be discredited solely for failing to submit the SOA, and thus the application should be heard on its merits. [18] The Court prioritizes justice over technical non-compliance. The proper consequence should be contempt proceedings or other suitable punishment at the Court's discretion.whether a director's bankruptcy can be annulled after the[26] The Court agrees that directors are jointly and severally liable under Act 452 as held in Ong Kim Chuan v Lembaga Kumpulan Wang Pekerja [2009] 6 CLJ 586 and Lembaga Kumpulan Wang IssueFindings of the JCCompany's debt has been settledSimpanan Pekerja v Edwin Cassian Naggapan[2021]5 MLJ 253. However, JC distinguished the facts.[27]Here, proceedings were commenced directly against the JDs personally without first proceeding against the Company.[32]The Court found the Company's solvency had not been examined before acting against the directors.[35]Since the Company settled all outstanding EPF contributions,the liability of the JDs under section 46 of Act 452 should be discharged.Therefore,the bankruptcy proceedings should be annulled.Whether the failure of the JDs to satisfy the PODs affects the annulment application[40]The Court held that the PODs filed by the JC required acceptance by the DGI first.There was no evidence that the DGI had accepted them as at the hearing.[42]Since debts under the original JID were settled,the Court found no reason to disallow the applications.The JC could pursue other enforcement actions for any other debts.It was unfair to bind the JDs for debts unconfirmed by the DGI at the time of hearing. (Notes: JDs = Judgment Debtors, JC = Judgment Creditor, DGI = Director General of Insolvency, SOA = Statement of Affairs, POD = Proof of Debt) PARTIES' SUBMISSIONS ON APPEAL [12] The EPF, as Appellant, advanced three main arguments:

The Statement of Affairs is a mandatory requirement under section 16 of the Insolvency Act 1967;

The Respondents' denial of any remaining debt owing to the EPF is not a valid justification; and

The annulment of the Bankruptcy Order dated 11.5.2021 under section 105 of the Insolvency Act 1967 was improper. [13] The EPF argued that the Respondents failed to file the Statement of Affairs, which is a mandatory requirement under sections 16 and 38 of the Insolvency Act 1967, citing Lim Tee Keong v HLG Securities Sdn Bhd [2016] 3 MLJ 201. [14] Further, the EPF also argued that the amount paid by the Respondents did not correspond to the total debt under the three PODs filed by the EPF with the DGI, totalling RM443,913.00, and not the RM357,330.00 paid by the Respondents through their solicitors. Under section 105 of the Insolvency Act 1967, all debts must be paid in full for an annulment. [15] The EPF referred to the Court of Appeal decision in Hong Leong Bank Bhd (formerly known as Credit Corp (M) Bhd) v Sheikh Ahmad Marzuki bin Sheikh Yusof [2015] 2 MLJ 13, which held that unless debts are fully settled, annulment cannot be granted. [16] Hence, the EPF's learned counsel argued that the annulment by the JC was improper because of the non-compliance with section 105 of the Act. [17] The DGI's submissions were aligned with those of the EPF. The DGI's main contention is that the bankrupt must file the Statement of Affairs as required under section 16 of the Act. [18] Meanwhile, counsel for the Respondents submitted that the Respondents had fully settled the debts specified in the Bankruptcy Notice. They further argued that they were not personally liable for the EPF debts, being merely directors of Hawaii Bakery & Food Industries (M) Sdn. Bhd., and that the EPF should have proceeded against the Company rather than its directors. ANALYSIS AND FINDINGS OF THE COURT [19] We have carefully considered the JC's ground of judgment, the written and oral submissions of all the parties, and the evidence before us. Our decision is as follows. [20] The critical issue is whether the JC correctly annulled the Bankruptcy Order dated 11.5.2021 under section 105 of the Insolvency Act 1967. [21] At the outset we think that Section 105(1) of the Act should be stated in its entirety. It reads as follows: "Power of court to annul bankruptcy order in certain cases

(1) Where in the opinion of the court a debtor ought not to have been adjudged bankrupt, or where it is proved to the satisfaction of the court that the debts of the bankrupt are paid in full, or where it appears to the court that proceedings are pending in the Republic of Singapore for the distribution of the bankrupt's estate and effects among his creditors under the bankruptcy or insolvency laws of the Republic of Singapore and that the distribution ought to take place in that country, the court may annul the bankruptcy order." [22] Section 105(1) of the Act provides that a bankruptcy order may only be annulled in three situations. Therefore, it is pertinent for this Court to consider this issue to determine whether the decision of the JC to allow the Respondents' application for annulment of the Bankruptcy Order dated 11.5.2021 was within the parameters envisaged under section 105 (1) of The Act. [23] From the facts of these appeals, the Respondents' applications were based on the following reasons:

that Hawaii Bakery & Food Industries Sdn. Bhd. was capable of paying the debts in the Bankruptcy Notice dated 12.08.2020; and

that the debts stated in the Bankruptcy Notice dated 12.08.2020 had been settled. [24] When referring to the Respondents' affidavits, they emphasised that the debts had been fully settled. [25] It is our view that since the Respondents are individuals who have been adjudged bankrupt under the Bankruptcy Order dated 11.5.2021, they shall be subjected to the statutory procedures required under the Insolvency Act 1967, which include the requirement for them to file the Statement of Affairs. [26] In these appeals, the Respondents have failed to cooperate with the DGI and they did not even appeal the Bankruptcy Orders. Their applications for the annulment of the Bankruptcy Order dated 11.5.2021 did not state that they ought not to have been adjudged bankrupt. Nor did the JC's judgment conclude that the Respondents ought not to have been adjudged bankrupt. The JC's primary reason for the annulment was that the Company had settled the outstanding EPF contribution. [27] As far as we are concerned, we disagree that the Respondents had fully settled their debts. This is because the amounts which are said to have been paid by the Company differed from the amounts in the PODs filed by the EPF with the DGI. We are also of the view that the Bankruptcy Notice dated 12.08.2020 is outdated as it notice was issued in 2020, while the payments were made on 26.05.2022 (two years after). Obviously, there will be differences to the debt figures after taking into consideration the PODs which were filed before and after the annulment applications. Thus the issue on the exact amount of debt remains unresolved. In addition to that, the Respondents' lack of cooperation with the DGI makes it more difficult to ascertain the true amount of indebtedness. [28] Therefore, it is our view that the JC had erred in her decision that all debts were settled and that the Bankruptcy Orders ought to be annulled. We are of the opinion that the Respondents had failed to prove that the debts have been paid in full as required under section 105(1) of the Act. In the result, we take the view that the Respondents did not prove that they ought not to have been adjudged bankrupt. [29] In this regard, we refer to the Court of Appeal's decision in the case of Ketua Pengarah Insolvensi v Goh Ah Kai & Anor [2015] 6 MLJ 422, which held that it is improper for third parties to settle a bankrupt's debts without the knowledge or involvement of the Official Assignee (now the DGI). In the present appeals, the DGI should have involved from the beginning since the Respondents have already been adjudged bankrupt and they are subject to the DGI's administration. This does not mean that other parties cannot make payments for the debts, but all matters pertaining to the bankrupt must be administered by the DGI. The Court of Appeal in Ketua Pengarah Insolvensi v Goh Ah Kai & Anor [supra] held as follows: “In the present case, the first respondent's application for an annulment is predicated upon the ground that the debts have been paid in full by a third party as indicated in Parkway Hospitals' letter of 6 November 2013. Even if Parkway Hospital's letter amounts to an unconditional release to the first respondent, it does not automatically follow that the court will make an order of annulment. The authorities on this issue are quite settled. The court is not bound to exercise its discretion in annulling an adjudication simply because the creditors consent. It has never been held that the consent of the creditors alone will justify the court in annulling an adjudication. At any rate, the assent of the creditors can only be exercised subject to the approbation of the court, and subject to the condition that the conduct of the first respondent does not fall within certain categories of the BA 1967. On the basis of the affidavit evidence as aforesaid, we do not think that it has been proven to the satisfaction of the court that the debts of the first respondent has been paid in full. The purported payment was not made through the OA. The OA has no knowledge of the payment transaction and as such the OA is unable to verify whether the debt has in fact been paid in full in cash. Accordingly, the question is answered in the negative. As such, the question of whether the court should exercise its discretion to annul the adjudication is also answered in the negative." [30] In the event that the Respondents believe that they ought not to have been adjudged bankrupt, they should take proper legal steps by filing an appeal of if they wished to apply for annulment then they should prove that they ought not have been adjudicated as bankrupts. We in this regard, it is important to emphasize that in bankruptcy cases, not only the rights of the debtors need to be protected, but rather the rights of the creditors also need to be given due consideration. Here, the JC only considered the debtors' interests and did not give due consideration to the fact that the Bankruptcy Order 11.5.2021 had already been issued to the Respondents which originated from the debt claim made by the EPF. In this case, the rights of the creditors have certainly been ignored. [31] In deciding these appeals, we are also minded with the decision of this Court in the case of Ong Kim Chuan & Anor v Lembaga Kumpulan Wang Simpanan Pekerja [2009] 5 MLJ 807 in which it was held as follows: "The liability under s 46 on the appellants is created by statute 'directly' and personally on the appellants as directors or former directors of the first defendant company. Thus the contributions due and payable become the debt of the appellants personally, jointly and severally with the company. therefore, the appellants' argument that they were 'not personally liable for the debt of the company' cannot be hold water. The plaintiff had decided not to proceed with its claim against the first defendant company. instead the plaintiff proceeded against the appellants as allowed under s 46 of the EPF act. the plaintiff has the right and choice to do so. there is nothing unlawful about that." [32] The above decision was affirmed by the Federal Court in recent decision of YAA Tan Sri Abang Iskandar Abang Hashim in the case of Mohd Abdul Karim bin Abdullah & Ors v Lembaga Kumpulan Wang in Civil Application No. 08(i)-66-03/2024(B) as follows: [36] Having considered the arguments put forward by the Applicants in contesting the interpretational approach by Ong Kim Chuan in the manner as was suggested by them, we are not convinced that there is any ambiguity in the interpretation of section 46 of the EPF Act which requires further clarification by this Court. The Applicants have not in fact provided us with any authority to support its proposition as to how and where the Court of Appeal had gone wrong in that Ong Kim Chuan case. There is also no authority to show that there have been different or conflicting interpretations on section 46 of the EPF Act in respect of the proper party and the question of liability." [33] For these reasons, this Court finds merit in these appeals. Both appeals by the EPF are allowed. The orders of the High Court are set aside. The decision of the learned Deputy Registrar is restored, whereby the annulment applications are dismissed with liberty to file afresh. We make no order as to costs. -sgd- (AZMAN BIN ABDULLAH) Judge Court of Appeal Malaysia Putrajaya Date of Decision : 11th day of July 2025 For the Appellant:Mr. Mohd Wafiy bin Azman (with Mr. Muhammad Haikal bin Muhammad Suhaimi) [Messrs. Azmi & Associates (Johor Bahru)]For the Respondents:Ms. Izzatul Amira binti Abd Samad [Messrs. K H Choo & Co. (Johor Bahru)]For the Malaysian Department of Insolvency:Ms. Hafizah Johor binti Ariff Johor (with Mr. Mohamad bin Yusoff Hafizol) [Malaysian Department of Insolvency]