Topic 2: Bankruptcy Notice (BN)

1) Requirements for the creditor apply to serve BN

 S.5(1)(a): more than RM50, 000
 BN should be issued by the court (Obtain Form 34 + R 89)
 If debtor has set off or counter claim, the debtor must file affidavit and endorsement
within 7 days
 BN should accompanied by a request to Registrar to be issued (Obtain Form 35 + R 90)
 Comply with S.3(1)(i) and S.3(2): Requirement for BN

i) S. 5(1)(a): amount claimed in BN must not < than RM50,000 INCLUSIVE OF INTEREST.

ii) BN – Form 34 Bankruptcy Rules + rule 89

 Rule 89:
(1) A BN shall be issued by the court, then only the bankruptcy petition against
debtor may be subsequently filed.
(2) A creditor cannot apply for the issue of BN by combining 2 or more judgments.
(3) A creditor is not entitled to apply for the issue of BN against joint debtors in a
final judgment unless the debtors carried on business jointly. Otherwise,
application for the issue of BN separately.

iii) Request for Issue of BN – Form 35 Bankruptcy Rules + rule 90

 Rule 90: when applying for the issue of BN, the creditor shall:
(a) Produce a copy of judgment which the notice is founded/ OS/Writ/ agreement
which made against debtor
(b) File the notice together with a request for issue of BN
(c) Lodge sufficient copies of BN to be sealed & issued for service.

iv) Requirement of BN (*most common ground to challenge BN)

 S. 3(1)(i):
i. The creditor has obtained final judgment/final order against debtor;
ii. Execution has not been stayed;
iii. Creditor has served bankruptcy notice to debtor;
iv. Interest quantified up to the date of issue of bankruptcy notice;
v. Debtor does not comply with the notice within 7 days after service of notice; and
vi. Debtor to satisfy the court that he as a counter-claim, set off / cross demand.

S. 3(2): BN shall be in the prescribed form (Form 34) and shall state the consequences of non-
compliance and shall serve in the prescribed manner:
 Provided that a BN:

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 (i) May specify an agent to act on behalf of creditor
(ii) Shall not be invalidated by reason only that the amount due stated in BN
exceeds what actually dues unless the debtor gives notice to the creditor
within the time allowed for payment (7 days)
(*means: failure to object within 7 days render the BN as valid)

2) When BN considered to be issued

 BN may only be issued after final judgment had been obtained
 What amounts to final judgment?

*Re Udos
H: JID is not a final judgment

*Re Lim Chan Kwang

Fact: a JID was obtained against the debtor. Debtor successfully set aside it. On appeal by the
bank, the judge allowed the appeal. The debtor appealed. Pending the appeal, the bank served the
BN.
Held: the ex parte judgment given by the court becomes a final judgment after the judge allowed
the appeal, ordered the judgment to be entered against debtor.
Application: although JID is not a final judgment, it can be crystalized into a final judgment if it
is not set aside by the court.

*Sri Jeluda v Pentalink

 Held: summary judgment remained a good judgment until it is set aside on appeal.
 Application: pending an appeal is not a good ground to set aside the BN.

3) Date
*Fadzil v Malayan Building Ltd
H: When calculating the date of commission of the act of bankruptcy, the date of service of BN
is excluded. (Means: debtor is not bankrupt yet at the time BN is issued & served. Only start
from the next day)

4) Must base on final term of FJ but not any other mutual agreement

 The BN should be based on the terms of final judgment but not based on mutual
agreement arrived by the parties subsequently.

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  Note: this situation happen when debtor negotiates with the creditor and come up with
new terms. In order to render the new agreed terms binding, the parties should have
applied to the court to amend the final judgment so as to include the new terms.

*Datuk Md Sari v Norwich Insurance

-The consent of judgment were controlled by an outside agreement and not amount to act of
bankruptcy.
-The demand for payment in BN not according to S.3 (1)(i), the amount stated not same as
judgment and therefore set aside.
- Cannot claim the whole amount in the judgment unless agreement provided that upon default
the whole sum shall be payable.

5) Amount claimed
* UOBB v Loke Lai Ying (Uncertainty or ambiguity would invalidate it)
*Ghazali Mat Noor v Southern Bank (BN not issued on continuous interest. The interest
should be calculated up to the date of issue of BN)
*Re Ismail Bin Daud v Haja Qameriah (The interest cannot be stated to be ‘continuing’ and
left unquantified)
* Soo Kok Loong v HongKong Bank (deduction of all part payments is allowed even after
commencement of bankruptcy proceedings after the BN is issued. S.3 (2) (ii) BA notice invalid
only if amount in Bankruptcy Notice exceeds judgment sum.).
* J Raju – there was no mention of penalty in the judgment but this was included in BN. The
BN which is contrary to the judgment is null & void. (Strict approach)
*UBMC v Earnest Cheong Yong Yin (Interest claimed cannot exceed 6 years)
*Loh Kok Huah v Ban Hin Lee Bank (JD can carry on making payment even the bankruptcy
had been commenced)
*Fawzia v BBMB (All the technical defect can be cured under S131 and R282)

6) Cannot combine 2 judgments

 R 89(2): 2 or more judgments cannot be combined in 1 BN to satisfy the statutory
minimum of RM50,000.

*Re Chan Chong Fatt

H: A bankruptcy petition cannot be founded on 2 separate judgments even though it may be

obtained in the same suit. (Means: consent judgment & contested judgment cannot be added
together just because the amount of 1 judgment is below RM50,000. In this situation, leave to
amend the BN must be refused. (Strict approach)

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*Dr. Ramachandran

Fact: JD applied to set aside the BN as the gross sum was the combined sum of 3 separate
orders.

Held: such BN contravene s. 3(1)(i) as 2 or more final judgments cannot be combined.

7) 2 or more persons are jointly liable to pay judgment debt

*Yeo Ah Wong v UMBC
H: If the judgment is against 2 or more persons who are jointly liable, then, the BN must be
issued to both.

8) Service of BN
 R 94: BN should be served within 3 months unless court extend the time
 R 95: Notice should be served according to the Rules provided in the Act
 R 108: Personal service
 R 109: Substitute service
 S.93(4): Court may extend the period when it thinks fit

*Kamaruddin v UMW (M) S/B

Fact: JC failed to post the BN to JD’s last known address as required for substituted service.
Held: The modes of substituted service are:
a. Post on the notice board at HC
b. Advertise in 2 largest daily newspapers; and
c. Post to JD’s last known address
The purpose of substituted service is to bring the BN to the knowledge of debtor. If that object s
achieved, the service must be deemed good and sufficient.

*Yap Heng Cheong v Citibank

H: BN valid for 3 months, if fail to do so may apply for extension of time

*Re KV Sathasivam

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H: The court has power to order substituted service of the document if it appears impracticable to
serve it personally.

9) Defects and Irregularities

 S. 131: formal defect not to invalidate bankruptcy proceeding unless there is substantial
injustice caused by such defect.
 Re Arif – there was error in the calculation of the date of act of bankruptcy & the court
allows such error to be remedied under s. 131.
 Re Fadzil
 Fact: BN was served on 8/6 but petition stated 15/6. OA argued that such error is
fatal as the JD had to comply with the notice within 7 days from the date of BN.
 Held: error in the date of service of BN is oppressive to the JD. BN is set aside.

10) Setting Aside BN: Procedure & Grounds

Grounds:
 A debtor may apply to set aside the BN on the following grounds:
a) S.3(1)(i): if a debtor has counterclaim, set off or cross demand which equal or exceeds the
amount of judgment debt.
b) Other grounds (eg: failure to quantify the amount or interest in BN, excessive sum in BN,
irregular service of BN, defects and irregularities in BN

Procedure:
a) Counterclaim, set off or cross demand: to file notice of application + affidavit within 7 days
after the date of service of BN – S.3(1)(i) + rule 93 + Form 36
b) Note: Rule 93: no act of bankruptcy shall be deemed to have committed until the application
is heard and determined by the court.
c) **Note: debtor must give notice within 7 days of service of BN excluding day of service.
Failure to do so will validate the notice even it is defective.

*Ghazali v Southern Bank

H: BN which claims a sum exceeding the amount actually due is bad in law & null ab initio. Any
subsequent proceedings shall be rendered as nullity.

*Sathasivam exp Phileoallied Bank

Held:
i. Understatement of debt due did not cause prejudice/confusion to JD

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 ii. Under s. 6(3) Limitation Act, judgment may be executed within 12 years
from the date of judgment become enforceable, only interest which can
calculated up to 6 years only. Therefore, no leave of court is required.
iii. O. 46, r. 2(3) is superseded by O. 1A that technical non-compliance is not
fatal as long as there is no substantial miscarriage of justice.

*Tan Thean Chooi

 Issue:
i. whether the word ‘interest’ stated in s. 3(1)(i) was applicable to final
judgment arose from Islamic loan
ii. whether the serving of the BN on a Saturday was valid
 Held (dismissing JD's application with costs):
i. Since BA does not contain any provision in relation to Islamic loan, the JC
was not obliged to quantify ‘late payment compensation’ under Islamic
loan. The bankruptcy sums stated in BN was valid.
ii. Serving the bankruptcy notice on a Saturday did not violate rule 64.
 Application: mere denial of BN is not a good ground to challenge the BN.

*Perwira Habib Bank v Samuel

 Before a counterclaim could be raised to challenge the BN, 3 ingredients must be
satisfied:
i. the burden was on JD to show by affidavit that the counterclaim is
capable of being quantified in money and the affidavit must quantify it
ii. the counterclaim must be equal or exceed the debt claimed by JC
iii. the counterclaim must be put forward in good faith and must have
reasonable probabilities of success
iv. the affidavit must show that the counterclaim could not have been set up
in the action in which the judgment was obtained