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CASE OF THE WEEK

 

BANKRUPTCY: Proof of debt - Setting aside proof of debt - Application for - Amount owing not specifically stated in proof of debt - Application to set aside allowed - Whether judgment creditor may refile new proof of debt - Earlier proof of debt set aside on technical ground and not on merits - Whether proof of debt can be refiled

BANKRUPTCY: Receiving and adjudication order - Rescission and annulment - Director General of Insolvency (`DGI') failing to take into account judgment creditor's proof of debt - Judgment creditor not given notice about hearing of annulment application - Remainder of judgment debtor's assets released by DGI - Whether DGI in breach of statutory duty to judgment creditor - Bankruptcy Act 1967, s. 66(2)


DWITASIK SDN BHD v. KETUA PENGARAH INSOLVENSI
HIGH COURT MALAYA, KUALA LUMPUR
TEE AH SING J
[CIVIL SUIT NO: S7-21-197-2004]
15 JANUARY 2010

Mohd Kamarul Baharin Osman (`Mohd Kamarul') was a former director of the plaintiff and he owed the plaintiff a sum of RM1,109,418.45 which was a personal loan granted to him. Mohd Kamarul himself admitted owing the plaintiff this sum. Whilst Mohd Kamarul was a managing director of the plaintiff, no action was taken against him. However, when subsequently the plaintiff proceeded to claim for the monies owed, it was discovered that Mohd Kamarul was already a bankrupt. The action was thus withdrawn and a proof of debt (`the 1st proof of debt') was filed with the defendant on 23 February 1999. However, the 1st proof of debt lodgment was incomplete as a sealed or certified copy of the judgment and latest statement of accounts were not attached. The plaintiff's solicitors then re-lodged the 1st proof of debt with the relevant supporting documents. On 26 April 2002, the defendant admitted the 1st proof of debt declaring that the plaintiff was entitled to receive the dividend in the amount of RM1,109,418.45. Mohd Kamarul then applied to set aside the 1st proof of debt in the High Court. The application was allowed on 11 June 2004 on the grounds that the amount owing from Mohd Kamarul was not specifically stated in the 1st proof of debt. The plaintiff's solicitors then on 23 June 2004 refiled the proof of debt, this time specifically stating the amount owing by Mohd Kamarul. However, it was then discovered that Mohd Kamarul had on 20 July 2004 successfully applied to set aside the Adjudication and Receiving Order. This was done without taking into account the plaintiff's 2nd proof of debt. The plaintiff was not given notice about the hearing of Mohd Kamarul's application. The plaintiff was unable to injunct Mohd Kamarul from receiving the return of the balance of his assets since the defendant had already released the remainder of Mohd Kamarul's assets. Hence, the plaintiff commenced this present suit against the defendant alleging that the defendant had breached its statutory duty to the plaintiff.

Held (allowing plaintiff's claim with costs):

(1) In the order dated 11 June 2004, it was clearly recited that the acceptance of the form was set aside. The order did not say that "admission" or "akuan" of the proof of debt was set aside. This could only point towards the acceptance of the form and not the admission of the proof of debt. The court did not go beyond the form and was solely concerned with a point of form, and not on the merits. Hence, the setting aside of the 1st proof of debt by the High Court on 11 June 2004 was on the technical ground that the amount and the consideration were not stated in the 1st proof of debt form and not on the merits. (paras 93 & 98)

(2) It followed that the 2nd proof of debt lodged with the defendant on 23 June 2004 to specifically state the amount of RM1,109,418.45 and the consideration was perfectly proper in law. The plaintiff was entitled to present afresh the 2nd proof of debt which the plaintiff did instead of an appeal. (paras 102 & 103)

(3) It was the statutory duty of the defendant to examine the 2nd proof of debt lodged on 23 June 2004 as the property of Mohd Kamarul was still vested in the defendant. The defendant had breached its statutory duty by not examining the 2nd proof of debt and informing the plaintiff whether the 2nd proof of debt was accepted or rejected before the hearing of the annulment application on 20 July 2004. The defendant's failure to give notice under s. 66(2) of the Bankruptcy Act 1967 to the plaintiff on the declaration of final dividend was a clear breach of its statutory duty. It was the duty of the defendant to inform the plaintiff of the annulment of the bankruptcy application. (paras 109, 110, 117 & 118)

(4) There was no remedy under the Bankruptcy Act 1967 as the bankruptcy had been annulled on 20 July 2004 and the balance of the monies released to Mohd Kamarul on 26 July 2004 without the knowledge of the plaintiff. As such, the defendant was liable to the plaintiff for breach of its statutory duties. (paras 128 & 129)

Case(s) referred to:

Hu Sepang v. Inspector Keong On Eng & Ors [1991] 2 CLJ 999; [1991] 2 CLJ (Rep) 739 HC (refd)

Hup Hin Soon Sdn Bhd v. Chong Kin Lin & Anor [2002] 5 MLJ 356 (refd)

Legislation referred to:

Bankruptcy Act 1967, ss. 42, 66(2), (6), 92(1), Sch C rr. 26, 28

Bankruptcy Rules 1969, rr. 89(b), 178, 186

Other source(s) referred to:

Re Deerhurst, Ex Parte Seaton (1891) Morrell's Bankruptcy Reports 258, p 262

Counsel:

For the plaintiff - TJ Su (EL Teh & Abdullah Khubayb with him); M/s Cheah Teh & Su

For the defendant - Siti Badariah Mohd Yusof SFC

Reported by Amutha Suppayah

 
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