ORIX Rentec (Malaysia) Sdn Bhd v Megat Sazari Bin Megat Ibrahim (WA-29NCC-819-07/2022)

The Judgement Creditor (“JC”) applies via Summons in Chambers in Encl. 2 for case no. WA-29NCC-818-07/2022 and Encl. 2 for case no. WA- 29NCC-819-07/2022 for leaves of the court to commence bankruptcy proceedings against both the Judgment Debtors (“JD(s)”) as the guarantors under section 5(3)(b) of the Insolvency Act 1967 (“IA”) and rule 97(1) of the Insolvency Rules 2017 (“IR”).

The JD(s) oppose to the leave applications.

Upon perusing the leave applications, affidavits and written submissions filed by the parties in both cases, it appears that the prayers, grounds of application and contents of the affidavits and written submissions put forward by parties are identical.

This Court has therefore fixed the hearings / decisions for both applications together.

JC and Megasoft Sdn Bhd (“Megasoft”) entered into a Master Rental Agreement on 18.2.2016 for the purposes of hiring of certain machinery, 3 computer equipment and/or goods subject to the terms of the said agreement.

At the expiry of the agreement, the Megasoft failed to return all the machinery, computer equipment and/or goods to the JC and instead requested to purchase the balance of the machinery, computer equipment and/or goods from the JC.

By reason of that, the JC issued the invoices dated 20.12.2019 to Megasoft, however, Megasoft failed to make full payment for the same.

The JD(s) were at all material times the directors and shareholders of Megasoft and they had also executed a Guarantee and Indemnity agreement dated 18.2.2016 in favour of the JC for all monies that may be outstanding and / or payble by Megasoft to the JC.

Due to the non-payment of the part of Megasoft, the JC commenced a writ action against Megasoft and the JD(s) at the Sessions Court, Kuala Lumpur vide suit no. WA-A52NCC-1513-10/2020 and obtained a Judgment in default of appearance against them on 23.11.2020, on jointly and severally liability.

The JC subsequently commenced winding up proceedings against Megasoft at Shah Alam High Court vide suit no. BA-28NCC-253-05/2021 and the winding-up order was granted by the court on 17.8.2021.

The present bankruptcy proceedings was later commenced against the JD(s) on 4.7.2022.

After careful deliberation and perusal of the applications in Encl(s). 2, affidavits and written submissions, there are (3) issues which require this Court’s determination–

whether the JC has to exhaust all modes of execution against the principal debtor, ‘Megasoft Network Sdn Bhd’ in obtaining leave of the Court under sections 5(3)(b), (4) & (6) IA; and

whether the JC is required to show that the JC has filed the proof of debt; and

whether it is oppressive to commence a bankruptcy action against the JD(s) without first exhausting all other modes of execution and enforcement against the principal debtor. Findings of this Court Issue (a): whether the JC has to exhaust all modes of execution against the principal debtor, ‘Megasoft Network Sdn Bhd’ in obtaining leave of the Court under sections 5(3)(b), (4) & (6) IA. [13] It is an undisputed fact that Megasoft, the ‘principal debtor’ had been wound up by the Shah Alam, High Court on 17.8.2021. [14] This Court is of the view that the winding-up order of the court dated 2.3.2021 once properly granted against the principal debtor, the principal debtor will be deprived off the beneficial ownership of all assets whether tangible or intangible ones and hence, the JC will be left with no recourse to recover any debt from the principal debtor. [15] Therefore, it is clear the JC has no further avenues/options/modes of execution and enforcement within the meaning of ss. s. 5(4) & (6) of the IA

This is also in line with sections 451(1) & (2), 472(3), 483(1) and 528(1) of the Companies Act 2016 which, inter alia, provide that any disposition and/or transfer of the principal debtor’s assets whether tangible or intangible ones shall be void after the presentation of the winding-up petition and/or after the principal debtor has been wound up. [16] In the premises, this Court finds that all modes of execution under ss. s. 5(4) & (6) of the IA 1967 have been exhausted – see Hong Leong Bank Bhd v. Ong Moon Huat and Another Appeal [2018] 1 LNS 1612; [2018] 1 MLJU 302; Perbadanan Usahawan Nasional Bhd v. Shahidatul Laila binti Zainal Abidin [2018] MLJU 1198; Re: Malaya Sibuku; Ex P: Kaya Karisma Sdn Bhd [2021] 5 CLJ 403, and Tan Tiang Lai v. KKRMC Trading Sdn Bhd [2020] 1 LNS 1266. Issue (b): whether the JC is required to show that the JC has filed the proof of debt. [17] The JD(s)’ contention that the JC has failed to / did not exhaust all modes of execution and enforcement, because the JC has failed to prove its claim and/or file its proof of debt against the principal debtor, to this Court’s view, is misguided and misplaced. [18] The express provisions in sections 5(3), (4) & (6) IA are clear and unambiguous and do not expressly require the filing of any proof of debt before the JC can proceed to obtain leave of the court to commence bankruptcy proceedings against the JD(s) as the guarantors see - Hong Leong Bank Bhd v. Khairulnizam Jamaludin [2016] 7 CLJ 335; [2016] 4 MLJ 302. [19] Further to that, this Court is of the view that the principal debtor is currently in the process of liquidation and the filing of a proof of debt with the liquidator is naturally part of the liquidation process where the principal debtor’s assets whether tangible and intangible ones are seized and realised to pay off the debts and liabilities owed to the creditors including the JC. And upon the completion of the liquidation, the principal debtor goes into dissolution and shall thereafter be deemed properly dissolved. [20] Therefore, it is apparent that, the granting of leave of the court under sections 5(3), (4) & (6) IA does not require that the liquidation of the principal debtor must be completed and the principal be dissolved. [21] In Hong Leong Bank Berhad v. Ong Moon Huat & Another Appeal [2018] 1 LNS 1612, the Court of Appeal in allowing the appeal and granting leave to the creditor, held that the creditor was not required to wait until the liquidation of the principal debtor's company assets had been realised and/or completed before the creditor could proceed with bankruptcy proceedings against the guarantor. [22] Further to that, If the Parliament intended that the proof of debt must be filed and liquidation of the principal debtor must be completed and also, that the principal debtor must be dissolved before leave could be granted under ss. 5(3) & (4) of the IA, such the express wordings would have been spelt out clearly in ss. 5(3) & (4) of the IA - see Hong Leong Bank Bhd v. Khairulnizam Jamaludin (supra). [23] This Court shall not read words into ss. 5(3) & (4) of the IA. The plain and ordinary meaning of the wordings in ss. 5(3), (4) & (6) mean that the JC must comply with conditions and requirements as provided in the provisions of ss. 5(3), (4) and (6) IA, nothing more and nothing less. Issue (c): whether it is oppressive to commence a bankruptcy action against the JD(s) without first exhausting all other modes of execution and enforcement against the principal debtor. [24] This Court reiterates all of the above reasonings as stated in issues (a) and (b), and holds that the contention of the JD’s that it is oppressive to commence the present bankruptcy proceedings against the JD without first exhausting all other modes of execution and enforcement against the principal debtor, cannot hold water and is devoid of merits. [25] The JD is essentially demanding this Court to exercise its inherent jurisdiction provide a remedy to the JD, and/or to not grant leave of the court to the JC because the JC should have undertaken and/or exhaust all other modes of execution first against the principal debtor. [26] In the case of Pacific Centre Sdn Bhd v. United Engineers (M) Bhd [1984] 2 CLJ 56; [1984] 2 CLJ (Rep) 319, Edgar Joseph HCJ (as he then was) observed that– "It is also clear that the inherent jurisdiction of the Court includes all the powers that are necessary to fulfill itself as a Court of Law"; "to uphold, to protect, and to fulfill the judicial function of administering justice according to law in a regular, orderly and effective manner. [27] This Court also refers to the article of Scott Bomhof entitled 'The Court's Inherent Jurisdiction - What Are the Limits?’, wherein the learned author says that the exercising of the Court’s inherent jurisdiction to do justice has been utilised in various Bankruptcy and Insolvency Act proceedings and the definition of ‘inherent jurisdiction’ is often referred to, from the Halsbury’s Law of England– “In summary, it may be said that the inherent jurisdiction of the court is a virile and viable doctrine, and has been defined as being the reserve or fund of powers, a residual source of powers, which the court may draw upon as necessary whenever it is just or equitable to do so, in particular to ensure the observance of due process of law, to prevent vexation or oppression, to do justice between the parties and to secure a fair trial between them.” [28] The learned author further says that the key restriction on the application of inherent jurisdiction appears to be that the doctrine cannot be used to override an existing statute or rule. In Baxter Student Housing Ltd. v. College Housing Co-Operative Ltd. [1976] 2 SCR 475 the court held: “Inherent jurisdiction cannot, of course be exercised so as to conflict with a statute or rule. Moreover, because it is a special and extraordinary power, it should be exercised only sparingly and in a clear case.” [29] In the present case, this Court is of the view that the JC has fulfilled all the conditions and requirements under sections 5(3), (4) and (6) of the IA and also, rule 97 of the IR and therefore, the JC is entitled to obtain leave of the court and to commence the present bankruptcy proceedings against the JD(s), as the guarantors. This is despite the fact that the JC has not undertaken and/or exhaust every single other modes of execution first against the principal debtor. [30] This is because it is settled law that once the principal debtor has been wound up, the JC is deemed to have exhausted all modes of execution and enforcement to recover the debt as against the principal debtor under sections 5(3), (4) and (6) of the IA. [31] Therefore, it is this Court’s considered view that the JC’s due compliance with the conditions and requirements under sections 5(3), (4) and (6) of the IA and also, rule 97 of the IR in obtaining leave of the court to commence the present bankruptcy proceedings against the JD is not at all necessarily unjust, discriminatory and/or oppressive. [32] The JC herein is essentially complying with the conditions and requirements of the sections 5(3), (4) and (6) of the IA and also, rule 97 of the IR in seeking leave of the court and therefore, there is really no valid reason for this Court to exercise its inherent jurisdiction prevent any injustice, abuse of the court’s processes and/or to fill any gap or lacunae in sections 5(3), (4) and (6) of the IA and also, rule 97 IR. [33] There is also no valid reason for this Court to exercise its inherent jurisdiction to conflict with the compliance of sections 5(3), (4) and (6) of the IA and also, rule 97 of the IR by the JC. Conclusion [34] After judicious consideration of the parties’ affidavits and written submissions, the applications in WA-29NCC-818-07/2022 (Encl. 2) and WA- 29NCC-819-07/2022 (Encl. 2) are allowed in paras. (1) and (2) with costs subject to allocatur. Dated: 21.9.2022 t.t (CHAI GUAN HOCK) Senior Assistant Registrar High Court of Malaya Kuala Lumpur Counsel/Solicitors For the Judgment Creditor: Chuah Thiam Ming Messrs. Azri Chuah & Yap 13-7, Tingkat 13, Menara Sentral Vista 150 Jalan Sultan Abdul Samad Brickfields, 50470 Kuala Lumpur For the Judgment Debtors: Mohd Syakirin Syazwan Bin Mohd Nayan Messrs. Firdaus Ahmad & Associates B-8-6, Megan Avenue 2 12, Jalan Yap Kwan Seng 50450 Kuala Lumpur