Statutory Requirements for Bankruptcy Proceedings in Malaysia

Posted on Feb 9, 2026 in Law & Jurisprudence

Acts of Bankruptcy (AOB)

An AOB occurs in connection with a debtor’s conduct or financial situation, allowing for the initiation of a bankruptcy petition against the debtor.

Three Categories of AOB

1. Dealings with Property Leading to AOB

   Under Section 3(1) IA 1967:

   • He assigns his property to trustees for the general benefit of his creditors. It shows an attempt by the debtor to handle their financial affairs in a way that prioritizes certain creditors over others.
   • If he engages in a fraudulent conveyance, gift, delivery, or transfer of his property, even though it just conveys, it still falls under AOB.
   • If he engages in any property conveyance, transfer, or charge that would be void as a fraudulent preference under the law.

2. Fraudulent Conveyance of Property

   It is essential to prove the fraudulent intention.

   • Re Anson Cycle: Selling a house to the debtor’s wife before bankruptcy was an AOB, as her payment was deemed part of a fraudulent intention.
   • OA v Koh Thong Chuan: Sale of a house to the debtor’s son for RM1 million within 6 months before bankruptcy was deemed fraudulent, taking into account the son’s limited financial capacity and the father’s recognized financial challenges.

3. Insolvency Leading to AOB

   • Section 3(1)(e): If his property is seized through legal action for a judgment of RM1,000 or more, it is an AOB.
   • Section 3(1)(f): If he files a court declaration stating he cannot pay debts or submits a bankruptcy petition against himself, it is an AOB.
   • Section 3(1)(g): If he informs any creditor that he has stopped or is about to stop paying debts, it is an AOB.
   • Section 3(1)(i): If a creditor with a final judgment serves a bankruptcy notice on the debtor in Malaysia (or, with court permission, elsewhere) demanding payment within 7 days, and the debtor fails to comply, it is an AOB.
   • Section 3(1)(j): If the officer executing a legal order finds no seizable property, it is deemed AOB, with the date of order issuance considered the act date.

Other Situations Leading to AOB

1. Defeating or Delaying Creditors

   Section 3(1)(d): If, with the intent to defeat or delay creditors, he:

   1. Leaves Malaysia or stays outside Malaysia.
   2. Leaves his dwelling-house, absents himself, starts or closes his business.
   3. Collusively or fraudulently accepts an adverse judgment or order for payment of money.
   • OK Varghese: An AOB requires the debtor to have the intent to defeat or delay creditors while committing the act.
   • Dudley v Vaughen: Beginning to keep house and avoid communication with creditors.

2. Seizure of Property by Execution

   Section 3(1)(e): When a creditor has obtained a judgment against a debtor for a sum of RM1,000 or more and proceeds for judgment by way of writ of seizure, AOB is committed.

   • AOB takes place when the property is seized.
   • Order 47 ROC: Sale is conducted through the sheriff and bailiff.

3. Notice of Suspension of Payment of Debts

   Section 3(1)(g): When a debtor sends notice to the creditor that he has suspended or is about to suspend payment, it is an AOB.

   • Re K Mohd Ibrahim: The debtor notified creditors about its inability to pay debts in full and called for a meeting. The notice suggested selling stock-in-trade and book debts to satisfy 20% of creditors’ claims.
   • Re Walker: Notice can be given orally.

4. Non-Compliance with Bankruptcy Notice

   Section 3(1)(i): AOB based on supporting a creditor’s petition.

   • Re Chai Meng Tut: Deemed AOB after 7 days after the petition has been filed by the creditor, but the debtor fails to comply.

5. No Property Liable to Seizure

   Section 3(1)(j): If the officer executing a legal order finds no seizable property, it is deemed AOB.

   • Re Peter Wong: The sheriff confirmed no property for seizure; a Creditor’s Petition was filed. Despite the debtor insisting they had assets, the court granted the bankruptcy order by relying on the solicitor’s testimony.

6. When Debtor is a Partnership

   • We must ensure that all partners know about the notice.
   • Notice of bankruptcy is individual, thus everyone must know.
   • Re Chop Yew Seong: No knowledge about the notice, thus the claim of bankruptcy shall be dismissed.
   • Notice in the name of the firm is allowed, but upon execution, it must specify the person declared bankrupt.

Bankruptcy Notice (BN)

A BN is a notice issued by the court requiring a debtor to pay a specific sum or to secure or compound for it to the satisfaction of the creditor or the court within the prescribed period.

• Section 3(1)(i) IA: Failure to pay according to the BN is considered an AOB.
• Section 3(1)(i) IA: If someone owes money and a court has decided they must pay, the creditor can send them a BN in Malaysia (or with court permission elsewhere). This notice demands payment within 7 days, including interest. If the person does not pay in that time, the creditor can start bankruptcy proceedings.

A) Who Can Apply for a BN?

A creditor who has obtained a final judgment or order against a debtor, and is entitled to execution of the judgment, can apply for a BN.

• Section 133 IA: It can be an individual, company, or firm.
• Re Winterbottom: Section 3(1)(i) IA also allows a liquidator to issue a BN, but it must be in the name of the company.

B) Restrictions on Issuance of BN

1. Against a Company

   A BN cannot be issued against a company registered under the Companies Act 2016, but it can be against a firm or partnership.

   • Re Solid H Gold Engineering Works: Leave from the court is needed to execute judgment and apply for a BN on each partner.
   • If the judgment is in the firm’s name, no execution on an individual is allowed unless with leave (Ang Kim Leong).

2. Based on Final Judgment/Order

   Issuance of BN must be made upon a final judgment, order, decision upon appeal, or consent judgment.

   • Ratnam v Cumarasamy: Final order means the court has disposed of the final rights of the party after the full trial.
   • Perwira Habib Bank Malaysia: Summary judgment is also a final judgment.
   • Jacob Rabindranath: Judgment pending appeal also entitles the creditor to file a BN.
   • Re Udos: An order is not final if it is due to the non-appearance of a party, not because of a challenge to the decision.
   • Re Aisyah Zainab: Even if containing errors, a judgment is still final, and amendment is allowed to rectify mistakes in a BN.

3. Time Lapse (6 Years)

   Order 46, Rule 2(1)(a): Judgment must be enforced within 6 years, unless leave is obtained from the court.

   • Tan Chwee Hock v Ambank Bhd: As over 6 years had passed since the judgment, and no leave under O 46 r 2(1)(a) had been obtained to enforce the writ of execution, the creditor was not eligible to enforce the final judgment under the proviso to Section 3(1)(i).
   • Dr Shamsul Bahar: Judgment was on 10/10/2000 and BN was on 3/1/2011 (a lapse of 11 years); hence the creditor had no position to execute the judgment.

4. Against a Social Guarantor

   Section 5(3): A creditor cannot issue a bankruptcy notice to:

   1. A social guarantor.
   2. Other than a social guarantor, unless with leave.

   Section 2 defines a Social Guarantor as a person who offers a guarantee not for profit-making, specifically for:

   1. Loan, scholarship, or educational research.
   2. Hire purchase transaction, vehicle, or personal business loan.
   3. Housing loan transaction.
   • Perbadan Usahawan Nasional Bhd: Bankruptcy action against a guarantor can only be pursued upon obtaining court approval. In this instance, the need for leave arose because the guarantor, having signed a guarantor agreement for a corporate facility, was not categorized as a social guarantor.

   Section 5(4): Before granting leave, the court shall be satisfied that all modes of execution have been exhausted.

   • Hong Leong Bank Bhd: Creditors are required to exhaust all methods of execution against the borrower before issuing the bankruptcy notice and proceeding against guarantors. The application for court leave can be submitted from the outset and up until the filing of the petition.
   • Re Rusli Ghani: The court, after reviewing the creditor’s affidavit in support, concluded that there were no remaining avenues for the appellant to pursue the borrower. Consequently, leave was granted.

   Section 5(6): Modes of execution include seizure and sale, judgment debtor summons (JDS), garnishee, bankruptcy, or winding up (WU).

   • Liew Hon Kong: Explains the same as Section 5(6).

5. Amount Demanded from Debtor

   • Section 3(1)(i): BN must contain the judgment sum + interest + cost.
   • Section 5(1)(b): Must be a liquidated amount.
   • Practice Direction No. 1 of 2012: Interest is 5% per annum.
   • Order 42, Rule 12: Cost rate is 8% per annum, calculated from the date of taxation or the date of judgment.
   • Re Undoh: Failure to quantify the amount of interest will render the BN to be set aside.
   • Ghazali Hj Ibrahim: Failure to quantify the amount of interest will cause injustice to the debtor.
   • Hasnah Che Hassan: Failure to quantify the judgment sum shall be set aside.
   • Khor Boon Hoch: There was an excessive amount claimed by the creditor in the affidavit, which differed from the BN.
   • J Raju M Kerpaya: BN can only claim what has been included in the judgment sum.
   • Rengasamy Pillai: Where the judgment debt has been reduced by payment or execution, a BN may be issued for the balance.

C) Procedure to Issue BN

Section 90 IA: The creditor must file the BN in Form 34 with copies for sealing and service to the court. Also required are the official copy of the judgment and a request for issuance of BN in Form 35.

D) Particulars of BN

Section 92 IA:

• Creditor solicitor’s name and place of business.
• Debtor’s name and IC (Identity Card number).
• Notice to the debtor regarding a counterclaim to set-off the debts which equals or exceeds the judgment amount; he must state this in the affidavit.

Section 92(2): The debtor is given:

• 7 days to comply with the notice.
• If outside Malaysia, the period will be decided by the court.
• Re Dato Loh Fook Yen: 7 days include weekends and public holidays.

E) Filing of BN

• Practice Direction No 3 1993: If the debtor resides and works in the same state, file the document at the court of that state.
• Section 89 IA: If residence and business are in different states, filing can be in both states.

F) Service of BN

1. Personal Service

   • Rule 94 IA: Once the BN is sealed, it must be served to the judgment debtor (JD) within 3 months from the date of issue. This period can be extended with court permission.
   • Section 3(2) IA @ Rules 108: It must be served through personal service.
   • Rules 95: It must be served to the debtor in person, face-to-face.
   • Rules 92: A copy of the BN must be sent to the Director General of Insolvency (DGI).
   • Aliied Bank: For effective personal service, the deliverer must identify the correct individual, hand over/leave the notice with them, and explain its contents if needed. Plaintiffs attempted postal service in this case but failed to establish proper delivery.

2. Substituted Service (SS)

   Alternative service if personal service fails.

   • Re Aris Massod: Application for substituted service was made.
   • Re S Nirmala: When applying for SS, the court must be convinced that personal service is practically impossible, and the proposed SS is effective in informing the debtor about the proceedings.

   Section 3(2A) IA: Prove to the court that the debtor has the intention to delay, defeat, or evade personal service by:

   1. Departing or remaining outside Malaysia, or;
   2. Dwelling his house or absenting and secluding himself.
   • Section 3(2B): Application for SS must state the facts.
   • Rules 95: Put all the facts in the affidavit.
   • Rules 109: SS may be done by: (a) advertising in a newspaper, (b) placing the petition on a notice board, or (c) other means which the court thinks fit.
   • Zschimmer: Service by way of email was allowed.
   • Rule 64: Service of documents must be made before 3:30 pm, except on holidays, when it should be delivered before 12 noon. Any document submitted after the specified time will be considered the next day.

Setting Aside a Bankruptcy Notice

1. Absence of Final Judgment

   Section 3(1)(i): If there is no final judgment, the BN must be set aside.

2. Time Lapse

   Order 46, Rule 2(1)(a): If 6 years have lapsed, leave must be obtained from the court, otherwise the BN will be set aside.

   • Tan Chwee Hock v Ambank Bhd: As over 6 years had passed since the judgment, and no leave was obtained, the creditor was ineligible to enforce the final judgment.
   • Dr Shamsul Bahar: Judgment was on 10/10/2000 and BN was on 3/1/2011 (11 years lapse); hence the creditor had no position.
   • Ng Gee Yeong: The court refused to grant leave since there was no satisfactory justification for the 3-year delay by the judgment creditor’s (JC) solicitors.

3. Demand Contradicts Judgment Order

   The demand must align with Section 3(1)(i). However, under Section 3(2), a notice is not invalidated solely due to an excess amount, unless the debtor disputes it within the given time. If not contested, the notice is considered valid, even if there is an excessive amount.

   • Ghazali Hj Ibrahim: The judgment creditor must accurately state the sum due in the BN, and if the notice is in question, it must be deemed invalid.
   • Hasnah Che Hassan: Any discrepancies or excess calculations between the BN and the judgment amount should invalidate the BN. However, a flawed BN will still be accepted by the court as valid if the debtor does not challenge it in their affidavit.
   • Khor Boon Hoch: Distinguished from the Hasnah case, as the JD disputed the claim in the affidavit.

4. Interest Not or Wrongly Quantified

   • Re Undoh: It will void ab initio (from the beginning).
   • Low Mun: The BN against the debtor was flawed because it demanded unquantified interest and costs. The Supreme Court emphasized that such demands must be specific and quantified and suggested that the notice should have only asked for the main amount owed or, if needed, separate notices should have been issued for interest and costs after their amounts were determined.
   • Nyana Pandithan: The court awarded interest correctly in 1986, but when the bankruptcy notice was issued in 1992, it wrongly added interest without considering payments made. This mistake led to the notice and petition being set aside because it did not reflect the correct amount owed.

5. Combined Judgment in BN

   • Re Chen Chong: It is not allowed, and doing so will invalidate the bankruptcy proceedings.
   • P Ganeswary: Only one final judgment or order is permitted for a BN.

6. Creditor Outside Jurisdiction

   • Re Peter Wong: BN served with creditor address outside jurisdiction.

7. Counterclaim, Set-Off, or Cross-Demand

   The debtor must demonstrate to the court that they have a counterclaim, set-off, or cross-demand equal to or exceeding the judgment debt, and that they were unable to present this claim in the original action or proceedings leading to the judgment or order.

8. BN Issued Without Authority

   • Nyana Pandithan: BN was set aside because 2 out of 7 creditors did not authorize their solicitors to issue the BN. One of them was also illiterate, thus he did not know that his thumbprint was used to verify the affidavit.

9. BN Based on Illegality and Fraud

   • Re Sebastian: BN was set aside because the contract was illegal.
   • Re Wang Lim: BN was set aside because the JD’s signature had been forged.

A) Procedure to Set Aside (Rule 17)

Take note of the time lapse and amount. The court involved is only the court that granted the judgment.

• It can be done after 3 months.
• After 3 months, serve an affidavit (Rules 33-43) with details to counter with the true facts.

Documents needed:

1. Summons in chamber.
2. Affidavit to be served to JC (Rule 20: if JC wants to rebut, then file an Affidavit to oppose the application not less than 3 days before the hearing).
3. Written Submission.

If you fail, you can appeal to the Court of Appeal (COA). It can go up to the Federal Court (FC) but only for questions of law.

B) Formal Defects

Section 131 IA: Formal defects and irregularities in the BN shall not invalidate such proceedings unless the court is of the opinion that substantial injustice has been caused by the defect and the injustice cannot be remedied by any order of that court.

C) Summary Procedure for BN

1. Debtor fails to pay the debt.
2. Creditor files a notice of demand to respond within 7–14 days.
3. Failure to respond: Creditor files Statement of Claim (SOC) + Writ of Summons + Form 177 in Order 74, Rule 11.
4. Service to Debtor at least 7 days before the hearing.
5. Hearing and obtaining judgment.
6. Still fails to pay: Apply for BN.
7. Serve BN within 3 months to respond within 7 days.
8. Any opposition by JD: Apply to set aside.
9. No response on BN: Apply for a creditor’s petition for further bankruptcy proceeding.

Bankruptcy Proceedings

Proceedings begin with the presentation of a bankruptcy petition (BPT) by a creditor when an AOB occurs due to the debtor’s failure to respond to the BN.

The BPT must be served to the debtor, and the court will grant the bankruptcy order (BO).

In such a BPT, the petitioner must prove that the debt and AOB have been committed by the debtor.

Both debtors and creditors can initiate a bankruptcy petition. A secured creditor (as defined in Section 2) can also initiate. If there are two or more secured creditors, the official assignee will divide the right equally.

A) Petition by Debtor (BPTB)

• Section 7(1): BPTB must state the debtor is unable to pay debts, and this is considered an AOB without filing any declaration of the debtor’s inability. The court shall make a BO.
• Rule 102(1): Deposit RM1,500 paid to the DGI. The receipt must be presented to the court together with the petition.
• Rule 102(2): The petition will not be accepted by the Registrar without that receipt. A number of copies must be submitted to the Registrar.
• Debtor’s petition is in Form 40.
• The petition shall be dated, signed by the debtor, and witnessed.
• Rule 100(2): It must be filed in the state where the debtor resides or carries on business.
• Rule 98(3): A sealed copy of the petition must be submitted to the DGI by post or other suitable manners.
• Rule 118: Failure of the debtor to be present during the hearing of the petition, the court may dismiss the petition.

B) Petition by Creditor (BPTC)

• Section 103: Petition by sole proprietorship/partnership is in the name of the firm.
• Section 133(a): Any company’s officer authorized on behalf and putting the company’s name must sign the petition.
• Rules 216: The partner who makes the petition must sign it and add his own name and a statement that he is a partner of the firm.
• Section 47: The petition must be based on an AOB which occurred 6 months prior to the petition.
• Section 5(1): Conditions for creditor’s petition:
  1. Debt owed must not be less than RM100,000. If there are joint creditors in one petition, the total debt must not be less than RM100,000.
  2. Debt is a liquidated sum payable immediately or in the future.
  3. AOB must have occurred within 6 months prior to the petition.
  4. Debtor must be domiciled or have a business in Malaysia. If not in Malaysia, the debtor must have been domiciled or had a business in Malaysia one year before the petition.
• Creditor’s petition is in Form 41 + Affidavit in Form 42 explaining the AOB and the debtor’s residence/business.
• Rule 102(1): Deposit RM2,000 to DGI and attach the receipt with the petition later.

C) Service of Bankruptcy Petition (BP)

• Section 6 / Rule 108: Serve by way of personal service.
• Section 6(1A) / Rule 109: Substituted service may be granted if the creditor can prove that the debtor intends to defeat, delay, or evade personal service.
• Rule 17: SS + File together summons in chamber + affidavit justifying the reason for application in Rule 33.
• Section 6(1B): State the facts upon which the application is founded.
• Rule 98(3): Copy of the petition must be submitted to the DGI.

D) Hearing of Petition

• Rule 113(2): Hearing must be after 8 days from service, except in other circumstances.
• Rule 121: Hearing will be adjourned if the petition has not been served.
• Rule 126: No adjournment merely on parties’ consent.
• The presence of the petitioner is sufficient, as decided in Re Teok Kien Seng, whereby the petitioner must be present to challenge the existence of AOB.

E) Order and Dismissal

• Section 6(2): If the court is satisfied with the proof of debt and service of the petition, a BO will be granted.
• Section 13: Notice of every order will be gazetted and advertised in a prescribed local paper.

F) Stay of Proceeding

• Section 6(4): A stay of petition can be granted in the case when there is a pending appeal for non-compliance of BN.
• Section 6(5): When there is a question of debt.

G) Discretion in Making BO

It is the court’s discretion whether a BO can be granted or not, even though all requirements have been fulfilled.

• Re Seah Peng: BO was not granted because it would be of no value to the creditor but would cause serious hardship to the debtor.
• Re PK Kassim: BO was not granted because the debtor had no assets and was the employer of the petitioner. Making the order would restrain any further contract necessary for survival.

H) Summary Procedure for Creditor (Common)

1. Service of BN to respond within 7 days.
2. Failure to respond falls under AOB.
3. Creditors file a petition for BP.
4. Service of BP.
5. Hearing of BP.
6. Order BP.

Effects of a Bankruptcy Order (BO)

Section 8 outlines the effects of a BO:

1. Restriction of Rights of Creditors over Debtor’s Property

   Section 8(1)(a): No creditor can take legal action or pursue remedies against the debtor’s property without obtaining permission from the court.

   • Tanavanus Sdn Bhd: The plaintiff sued a bankrupt person without court permission, claiming the suit involved non-provable matters in bankruptcy. The court disagreed, stating that as the dispute stemmed from a quarry agreement, it fell within the category of claims considered in bankruptcy proceedings under Section 40(1) IA.

2. Property Vesting in DGI

   All property of the bankrupt shall become divisible among his creditors and vest in the Director General of Insolvency (DGI).

   • Section 8(1)(b): Property can be divided among all creditors.
   • Section 8(4): DGI shall take possession of all books of account and documents relating to the debtor’s property.

A) Exceptions to Property Vesting

• Secured Creditor: A secured creditor has the right to realize or enforce the security interest within 12 months, as outlined in Sections 8(2) and (2A).
• Employee of the Bankrupt: Employees have protections under the Employment Act 1955 (s 31), allowing them exceptions to the general effects of a bankruptcy order (s 8(2)).

B) Disqualification of Bankrupt

• Section 36: Disqualified from being a Sessions Court (SC) judge or Magistrate Court (MC) judge, or from nominating or exercising power as a Councillor of a local authority.
• Section 37: If such a person is already in that position, his office shall become vacant.
• Section 29 LPA: An advocate and solicitor cannot be a bankrupt person.
• Section 36(2): Disqualification shall be removed or cease when the BO is annulled, or the bankrupt was discharged by the court due to misfortune.

C) Duties and Disabilities of Bankrupt

• Section 38(1)(a): No legal action can be taken by a bankrupt person except a claim for personal injury. Consent must be obtained from the DGI.
  • Priyakumary Muthucumaru: The Court emphasized the necessity of obtaining written approval from the Official Assignee for a bankrupt individual to pursue legal proceedings. It must be in writing and cannot be through implied consent.
• Section 38(1)(b): Every 6 months, he must submit an account of money and property that he gets for his own use to the DGI. Also needs to pay to the DGI any money or property that has not been used for necessary living expenses for himself and his family.
• Section 38(1)(ba): Any money, property, or value exceeding RM500 received, not part of regular income, must be immediately reported to the DGI. The DGI may instruct prompt payment or surrender of such funds as required.
• Section 38(1)(bb): Must immediately inform the DGI of any changes to his home address.
• Section 38(1)(c): Cannot leave Malaysia without DGI permission. Only special conditions allow sanction.
• Section 38(1)(d): Cannot enter business either alone or in partnership or become a director of any company or take part in company management without DGI consent.
• Section 38(1)(e): Cannot engage in the business management of any business run by his family members or relatives.
• Section 38(1)(A): Cannot leave the Federation.
• Section 38(2): Failure to follow these duties constitutes contempt of court.

D) List of Undischarged Bankrupts

• Section 39: A list of undischarged bankrupts is kept by the DGI.
• Available for inspection by the public – DGI may issue a copy of the list to the requesting person.
• The name of a deceased bankrupt will be removed from the list 5 years after the end of the administration of his estate.

E) Grounds to Oppose Petition

• No debts owed.
  • Re Ngan Ching Wen: Appeal dismissed petition being set aside due to no debt owed.
• Debt owed less than RM100,000.
  • Re Fong Yuan Kwong: Debt owed RM 39,744.66; thus the petition was struck off.
• Debtor able to settle the debt.
  • Perwira Affin Bank: The court was satisfied that the JD was able to show his ability to pay the debt, but the JC refused it. Thus, the petition was dismissed.
• Debtor resides outside Malaysia.
  • Tan Securities: The burden of proof lies on the JD based on intention to reside permanently and residence.
  • Re Peh Kong Wan: He cut ties with Malaysia in 1976, got permanent residency in Singapore, and only visited Malaysia for passport renewal. The court agreed he moved his domicile to Singapore but found no proof of another change.
• Illegality of contract.
  • Haji Yahya Lampong: JD’s counsel raised the issue of illegality of contract due to the creditor’s position that was not authorized to operate a bank because no license was obtained.

F) Procedure to Oppose

• Rule 116: Notice of application in Form 45, stating the intention to oppose the petition and dispute the facts (Captain Ho Foi).
• Rule 116: Serve to the creditor’s solicitor 3 days before the hearing by any suitable manner.
• Re Hj Khalid: To oppose the creditor’s petition, one must fulfill all the requirements set out in Rule 116 & 117.
• Re Tengku Reza Shah: Once filed, the debtor has the right to be heard in the hearing.

Proceedings After Bankruptcy Order

A) Flow of Proceedings After Obtaining BO

1. Bankrupt person files an affidavit for his statement of affairs.
2. Creditors file proof of debt.
3. Bankrupt person should attend the creditors meeting.
4. Bankrupt person needs to submit all the details of his property.
5. DGI applies for Public Examination (not mandatory).

1) Filing Statement of Affairs by Bankrupt

The bankrupt person is under a duty to disclose his affairs (rights & liabilities) to the DGI by way of a statement of affairs.

• Section 8(3): Within 24 hours, the bankrupt shall file an affidavit to the DGI detailing:
  • Statement of the names & residences of all the partners.
  • Principal assets & liabilities.
• Section 16: Detailed statement of affairs in Form 77 and verified by affidavit showing the particulars.
• Section 16(2): Deadlines:
  1. Creditor’s petition: 21 days from the date of the order.
  2. Debtor’s petition: 7 days from the date of the order.
• Section 16(3): Failure to comply constitutes contempt of court.

2) Proof of Debts by Creditors

A proof of debt, filed as an affidavit with the DGI, is a statutory document to establish a creditor’s claim in a bankrupt’s estate.

• Section 42: Schedule C rules apply to proving debts, especially for secured and other creditors.

Other Creditors’ Affidavit

• Includes evidence to establish the debt.
• Must be a provable debt (liquidated damages), statement of account, vouchers, and secured creditor position.
• If an authorized person makes the affidavit, they must state their authority and knowledge of the debt.
• The creditors bear all the cost for proof of debts.
• Creditors can then acquire the privilege to review and scrutinize the proofs submitted by other creditors.

Secured Creditors

• Section 8(2): Different proof of debt for a secured creditor.
• Schedule C: 4 options available:
  1. Surrender security to DGI & prove the full amount.
  2. Stand on his security & not come to bankruptcy proceeding.
  3. Realize their securities & prove the balance with DGI.
  4. Estimate the value of security.

Procedure for Proof of Debt

• Rule 167: Affidavit proof of debt must be sworn by an authorized officer.
• Rule 169: Bill of exchange, promissory note, negotiable instrument, or security must be submitted to the DGI.
• Rule 170: Proof of debt must be submitted no less than 24 hours before the creditors meeting if the proof is to be used in the meeting.
• Rule 171: If the proof is to be used after the creditors meeting, then submit no less than 24 hours before adjournment.

3) Creditors Meeting

• Section 15: Upon acquiring the statement of affairs, the DGI has a duty to call for a Creditors Meeting.
• The purpose is to disclose to the creditors the situation of the bankrupt (i.e., his assets & liabilities) and to ask creditors if they have any information against the debtor which may assist in the investigation.
• Section 18: At the meeting, the debtor may come forward to propose a composition or scheme of arrangement.

Schedule A Requirements

• First meeting not later than 2 months (debtor’s petition) or 3 months (creditor’s petition) after the bankruptcy order.
• Notice of summons should be given not less than 7 days by the DGI to each creditor.
• Venue of the meeting is flexible, based on DGI convenience.
• The Chairperson will be the DGI, and Minutes will be signed by him.
• The right to vote is only for creditors who are able to prove the provable debt and who have submitted the proof of debt.

4) Public Examination

• The purpose is to discover the debtor’s assets through court proceedings to question his conduct, dealings, relationships, past & present actions, liabilities, causes of bankruptcy, and antecedent transactions.
• DGI can investigate up to 5 years backward.
• If the debtor refuses to attend without reasonable ground, a warrant of arrest will be issued.
• Procedure: Section 17 & Rules 143-149.

Scheme of Arrangement (SCA)

A plan offered by the bankrupt as a means to settle debt after the adjudication of bankruptcy to settle his debt and escape bankruptcy.

The debtor can arrange a certain percentage of his debts to be paid as a means of settlement within a period of time.

Procedure for SCA

Outlined in Section 18:

1. Bankrupt makes a proposal to the DGI.
2. DGI convenes a creditors meeting voting the proposal by simple majority.
3. DGI calls a second meeting where the proposal has to be confirmed by special resolution.
4. DGI/debtor informs the court that the SCA has been accepted by creditors.
5. Court can approve or rescind the SCA.

Effect of SCA

• Section 18(10A): Upon approval of the SCA, the court may make an order annulling the BO and vesting the property of the bankrupt in the bankrupt or other persons for them to regain control for their financial recovery.
• Section 18(11): SCA is binding on all creditors once approved.
• Section 18(13): Any interested person may enforce the SCA.
• Section 18(14): If the debtor defaults in SCA payment, the court may adjudge bankruptcy and annul the SCA.
• Re Kong Mun: SCA must be registered, otherwise it will be an AOB.
• Mohamed Shariff: If a creditor joins a composition with the debtor and others, they cannot pursue a full debt action. This creates a new agreement, replacing the original contract, where each creditor’s consideration is the commitment of others not to press individual claims.

Distribution of the Bankrupt’s Estate

Section 8(1): When a person is bankrupt, all property will become divisible among creditors and falls under the DGI’s power to receive, manage, and administer.

Section 62(1): Distribution by the DGI is limited to those who can prove their debt. The DGI is also required to swiftly declare and distribute dividends among creditors who have substantiated their debts.

• Re Jimmy Zee: The DGI is prohibited from making any payments from the bankrupt’s assets to a third party who has not substantiated their debt, regardless of the reasonableness or appropriateness of such a request.

A) The Dividend

The distribution of the bankrupt’s estate to creditors is in the form of payment called a dividend.

• Section 62(2): The Official Assignee (OA) is obligated to promptly declare and distribute dividends among creditors who have proven their debts.
• Section 62(2): The first dividend, if applicable, must be declared and distributed within 12 months after the adjudication.
• If distribution within 12 months is not practical, the OA can postpone the declaration to a later date, with reasonable delay communicated to the creditors.
• Section 62(3): The OA must declare and distribute subsequent dividends at regular intervals, not exceeding 12 months. Only for valid and justified reasons may the OA adjust the intervals.

B) How to Distribute

1. Expenses on the administration of the bankruptcy to the DGI.

2. Debts of Priority

   • Section 43: Debts that share equal standing among themselves and take precedence over other debts during payment or distribution.
   • Section 43(2): Payment shall be in full, but if the property is insufficient, an equal proportion should be given.
   • Section 43(1)(a): List of debts of priority.

3. Preferential Claims

   1. Apprentice or Articled Clerk

      A person who learns by working under the supervision of a skilled person for an agreed period.

      • They will be discharged from an apprenticeship contract when they have informed the DGI in writing of their position.
      • Any money paid by the apprentice may be refunded upon application.

   2. Expatriate Employee or Foreigner

      Section 44(4): If he has been employed for at least a year and has not found any job within 3 months of the BO, or their employment promises a return passage after termination, the court may instruct the DGI to provide the entitled passage if it thinks fair and expedient to do so.

4. Other Debts Proved

   Section 43(4): If there is a surplus after settling the priority & preferential debts, other debts proved shall be paid pari passu (equally) without preference.

5. Interest on Proved Debts

   • Section 43(6): For dividend purposes, interest on a debt (not exceeding 6% per annum) is calculated up to the BO date.
   • If there is any surplus, additional interest may be allowed.
   • Example: Agreed interest for the creditor is 8% up to the BO date, and interest by law is only 6%. The additional difference of interest that may be considered is 2%. Hence, if any surplus is left, creditors are entitled to 6% by law + 2% additional. If not, only 6%.

Liquidator and Winding Up (WU)

A) Who is a Liquidator?

A liquidator is appointed to manage the liquidation process, to wind up the company by distributing the assets to the creditors and the balance to members.

• Section 450(6): The power of directors will cease upon the appointment of a liquidator, except with the liquidator’s consent or approval from the committee of inspection.
• The liquidator must ensure the company completely dissolves.

B) Appointment in Compulsory WU (CWU)

• Section 476: A liquidator will be appointed any time before or after the WU Petition. If appointed before, they are known as the Interim Liquidator.
• Section 476(2): The interim liquidator has the same function as the official liquidator but is subject to company restriction.
• The court may also appoint a liquidator.
• Section 433: The person must be an Official Receiver or an approved liquidator.
• Section 477: If the court does not appoint the Liquidator, the Official Receiver shall be the interim liquidator pending appointment.

C) Appointment in Voluntary WU (VWU)

• Section 445: Members’ VWU: the company will appoint through a meeting.
• Section 450(2): Creditors’ VWU: appointment is subject to creditors’ vote by simple majority in a meeting.
• If no appointment is made, the court will appoint one.
• Section 433(2): The liquidator does not need to be an approved liquidator.
• Section 433(2): Directors or other officers may be appointed.
• CWU: Section 440: They must appoint an approved liquidator to be the “interim liquidator”.
• Section 440(3): Appointment shall continue for one month or until a liquidator is appointed at the creditors’ meeting.
• Section 440(2): Powers and function of the liquidator.

D) Approved Liquidator

• Those defined in Section 433(3)-(4).
• Known as insolvency practitioners, qualified as accountants, etc.

E) Not Approved Liquidator

• Those defined in Section 433(1).
• In VWU, because company members can be appointed, if that person owes money to the company, they cannot be appointed.

F) Removal, Resignation, or Vacation of Liquidator

• Members (Section 445(3)): By special resolution.
• Creditors (Section 450(7)): Through a creditors meeting.
• Compulsory (Section 482): Removal by court.

G) Remuneration

H) General Function of Liquidator

• Voluntary: Section 483-489 & 11th Schedule.
• Compulsory: Section 486 & 12th Schedule.
• Main duty: Distribute and manage the property equally in satisfaction of its liabilities according to rights and interest.
• Section 483: Property is under the liquidator’s power (custodian of property).
• Section 483(2): At any time, the court may order company assets to be under the liquidator’s control upon the liquidator’s application.
• Breach of duties is liable for legal action.
• The liquidator is also subject to the supervision of the High Court.
• A complaint can be made by any creditor if the liquidator fails to fulfill their task well.

The Liquidation Process

Members’ Voluntary Winding Up (VWU)

1. Liquidator’s Role

   The person primarily involved in undertaking all works in the course of the liquidation process until completion. Duties include:

   • To take possession and realize the assets of the company & distribute them to the creditors (if any).
   • To undertake assessment & review what assets can be realized & what other recoveries can be made.
   • To conduct administrative processes: reports & dealings with the relevant government departments.
   • To convene a general meeting of the members of the company if the liquidation process takes more than 1 year: purpose – to lay before the meeting an account of his acts & dealings & the conduct of the WU – s 458(1)(a).

2. Final Meeting

   Section 459:

   • The liquidator shall make up an account showing how the WU has been conducted & how the company’s property has been disposed of.
   • The account will be laid before the final meeting.
   • The relevant accounts & reports/returns from the final meeting must be lodged with the Registrar of Companies (ROC).

3. Dissolution

   The company is deemed to be dissolved 3 months after the filing of the return.

Creditors’ Voluntary Winding Up (VWU)

Following the Extraordinary General Meeting (EGM) & the creditors’ meeting, the appointed liquidator shall need to deal with the relevant reporting & notification requirements:

1. To lodge the special resolution passed at the EGM with the Companies Commission of Malaysia (CCM).
2. Notice in the newspaper.
3. Insert the word “in liquidation” to the company’s name on every letter, invoice, etc.
4. Taking control of the company’s assets & transferring them into his name as Liquidator, changing banking signatures, closing the current account & opening a new account (in liquidation).
5. To realize company’s assets, pay off creditors in accordance with priority provided by the law.
6. To convene a general meeting of the company & the creditors if the liquidation process takes more than 1 year: purpose – to lay before the meeting an account of his acts & dealings & the conduct of the WU – s 458(1)(b).

7. Final Meeting

   Section 459: Once the Liquidator has realized the assets & distributed proceeds accordingly & has obtained clearance of settlements from the relevant statutory bodies (e.g., IRB), he will prepare a “Final Accounts” to show how the liquidation has been carried out & assets disposed of. The accounts will be tabled in the meeting. The returns & statements from the meeting will be lodged with the CCM within 1 month from the date of the meeting.

8. Dissolution

   The company is deemed to be dissolved within 3 months after the lodging of the documents.

Compulsory Winding Up (CWU)

In CWU, the dissolution of a company occurs by order of court upon application by the liquidator – Section 490.

The application for dissolution may be made if the liquidator has:

1. Realized all the property of the company or so much as in his opinion can be realized without needlessly protracting the liquidation.
2. Distributed a final dividend, if any, to the creditors.
3. Adjusted the rights of the contributories among themselves.
4. Made a final return, if any, to the contributories.