In the words of the Federal Court in Poh Gaik Lye v Amfraser Securities Pte Ltd [2015] 1 MLJ 453 “Bankruptcy proceedings against anyone is a drastic measure with great and damaging ramifications to one's livelihood. A bankrupt's life in many respects is shackled by many chains and is under the supervision by the Official Receiver during his bankruptcy life.”
This is the reason that bankruptcy proceedings will require strict adherence to the procedures provided for under the Insolvency Act 1967 to safeguard the interest of not only the creditors against the risk of dissipation of assets but also to ensure the proceeding causes no substantive prejudice to the judgment debtor.
A bankruptcy proceeding is started by the issuance of a bankruptcy notice by the creditor to the debtor, followed by an act of bankruptcy, if the debtor is unable to respond to the bankruptcy notice within 7 days of service of the said bankruptcy notice. A creditor’s petition is thereafter filed. The debtor and the creditor then attend a hearing before the court and finally, a bankruptcy order will be made by the court.
Recently, the Federal Court answered the question of whether the withdrawal of a creditor’s petition terminates the whole bankruptcy proceeding, including the setting aside of the bankruptcy notice application in Abdul Rashid Mohamad Isa v PTT International Trading Pte Ltd [2024] 5 MLRA 603.
Brief Facts
PTT International Trading Pte Ltd (the Respondent) issued a Bankruptcy Notice against Abdul Rashid Mohamad Isa (the Appellant) on 17.12.2018. The Appellant applied to set aside the notice within 7 days of the issuance of the bankruptcy notice. The Registrar found the setting aside application inadequate due to the Appellant not filing an affidavit in support and accordingly, declared an act of bankruptcy has been committed on 25.12.2018. Following the Registrar's ruling, a creditor's petition was filed.
The Appellant appealed to the Judge in Chambers to set aside the act of bankruptcy declaration, on the ground that the Appellant’s setting aside application needed to be heard first. The Judge in Chambers allowed the setting aside of the declaration of the act of bankruptcy by the Registrar. The Respondent then appeared before the Registrar to withdraw the creditor’s petition on 5.12.2021. However, the Registrar maintained that the act of bankruptcy took place on 25.12.2018 and because of that, the Respondent was out of time to file a creditor’s petition if they withdraw their current creditor’s petition. The Registrar, however, allowed the current creditor's petition to be withdrawn with liberty to file afresh and ruled all bankruptcy proceedings terminated. The Respondent appealed to a Judge in Chambers.
The Judge in Chambers reversed the decision of the Registrar and found that the bankruptcy proceeding was not terminated and directed the parties to appear and ventilate the setting aside application that was still pending. The Appellant appealed to the Court of Appeal and his application was dismissed. The Appellant then appealed to the Federal Court.
Issue
The issue before the Federal Court was whether the withdrawal of the creditor’s petition terminated the bankruptcy proceeding which included the setting aside application filed by the Appellant at the High Court.
Decision and Analysis
The Federal Court found that there were no merits in the appeal and dismissed the appeal. The Federal Court also distinguished the cases cited by the Appellant which took the position that once a creditor’s petition had been withdrawn or struck out, a bankruptcy proceeding was terminated.
The Federal Court held that for a withdrawal of creditor’s petition to terminate the entirety of the bankruptcy proceeding, the matter will most likely be heard and determined on its merits first. The Federal Court also held that in the present case, the withdrawal was correctly undertaken with liberty granted to file again and this could not be considered a second bite of the cherry because the Appellant’s setting aside application has not been heard and determined.
The Federal Court agreed with the Court of Appeal’s decision that the withdrawal of the creditor’s petition did not bring about the effect of terminating the bankruptcy proceeding. Since the hearing for the setting aside application was still pending, there was no act of bankruptcy that can be declared in the first place. The creditor’s petition can only be filed upon occurrence of an act of bankruptcy. In this regard, the creditor’s petition filed by the Respondent has been correctly withdrawn since it was still premature for the creditor’s petition to be issued when the setting aside application has not been heard and disposed of.
The Federal Court also impressed that whilst the bankruptcy proceeding is penal in nature against the debtor, the interest of creditors must also be considered to balance the harsh nature of bankruptcy law and the risks of unlawful dissipation of the debtors’ assets. If every withdrawal of creditor’s petition will terminate the bankruptcy proceeding, the creditors will be forced to go on a journey to embark on a fresh bankruptcy proceeding even for non-substantial mistakes in the creditor’s petition. This consideration turns on the argument by the Appellant that withdrawal or striking out of a creditor’s petition will terminate the bankruptcy proceeding.
Conclusion
The Federal Court decision has decided once and for all that, the withdrawal or striking out of a creditor’s petition does not automatically terminate the entirety of the bankruptcy proceeding. Each case turns on its own set of facts. This case also highlights that the purpose of the Insolvency Act 1967 and Insolvency Rules 2017 is to dispose of bankruptcy matters effectively while safeguarding the interest of all relevant parties and that parties must not use the provisions of the Act or the Rules to delay or stall the bankruptcy proceedings unnecessarily.
19 August 2024