On 9 July 2024, the Federal Court in Abdul Rashid Mohamad Isa v PTT International Trading Pte Ltd [2024] 5 MLRA 603 (“Abdul Rashid”), with a panel comprising Nallini Pathmanathan FCJ, Hasnah Mohammed Hashim FCJ and Abdul Karim Abdul Jalil FCJ, held inter alia that a Creditor’s Petition could be withdrawn without the consequences of bringing the entire bankruptcy proceedings to an end.
 
What are bankruptcy proceedings? According to the Malaysian Department of Insolvency, “bankruptcy” refers to a process where a debtor will be declared bankrupt pursuant to a court order on the Creditor's Petition or the debtor’s petition. All the unsecured property belonging to the bankrupt will be vested in the Director General of Insolvency (“DGI”) and the DGI has the responsibility to realise all such assets. The proceeds of the sale will then be distributed among creditors who have filed their proof of debts and the debts have been admitted by the DGI.¹
 
Having outlined the effects of bankruptcy, the basic steps in bankruptcy proceedings are as follows:
 

 
BRIEF FACTS OF ABDUL RASHID
 
The bankruptcy notice in this case was issued on 17 December 2018. Before the lapse of seven days, the judgment debtor filed an application to set aside the bankruptcy notice (“Application”) under Rule 93 of the Insolvency Rules 2017 (“Rules”). However, the Registrar ruled that the Application was inadequate as no affidavit in support was filed with the Court and held that an act of bankruptcy had occurred on 25 December 2018, as if no application to set aside was before the Court. Pursuant to this ruling, the judgment creditor filed the Creditor's Petition.
 
Upon appeal by the judgment debtor, the learned High Court Judge set aside the declaration of an act of bankruptcy. This was because no act of bankruptcy was deemed to have been committed on 25 December 2018 and the act of bankruptcy would only be deemed to have been committed when the Application had been heard and determined.⁸
 
When the case was remitted to the Registrar, the Registrar allowed the judgment creditor to withdraw the Creditor's Petition with liberty to file afresh, but then went on to rule that all bankruptcy proceedings, including the bankruptcy notice, were terminated by reason of the withdrawal.
 
APPEAL TO THE HIGH COURT AND COURT OF APPEAL
 
The High Court held that, because the setting aside application under Rule 93 had not yet been heard, the declaration of the act of bankruptcy as occurring on 25 December 2018 by the Registrar was erroneous. Therefore, as there was no act of bankruptcy on which any Creditor’s Petition could be premised, the judgment creditor was correct to seek the withdrawal of the Creditor’s Petition.
 
The Court of Appeal affirmed the High Court’s decision.
 
JUDGMENT OF THE FEDERAL COURT
 
Upon appeal to the Federal Court, there were two issues to be decided:
 

 
The Federal Court’s answered (1) and (2) in the negative. In deciding that the withdrawal of the Creditor’s Petition would not bring the entire bankruptcy proceedings to an end, the Federal Court considered the following three main grounds.
 
Firstly, the purpose and intent of the Insolvency Act 1967 (“Act”) and the Rules are to safeguard the estate of the judgment debtor to ensure that there is no unnecessary or wrongful dissipation of assets in the interests of the creditors as a whole. If the bankruptcy proceedings are delayed on grounds that are not substantive, but merely typographical or inadvertent, the interests of the creditors will be adversely affected.
 
Therefore, each case ought to be perused with care and caution to ascertain “whether the error in the Creditor's Petition is substantive, going to the root of the act of bankruptcy or to the viability of the Creditor's Petition”, or on the other hand, is “an error that is capable of remedy by reason that it is de minimis and/or inadvertent, and causes no substantive prejudice to the judgment debtor”. The Court's bankruptcy jurisdiction allows the Court to review, amend, and correct an error where it is suitable to do so, resulting in the Creditor’s Petition being heard and disposed of efficiently.
 
Secondly, the termination of a Creditor's Petition would only terminate the entirety of the bankruptcy proceedings if the matter has been heard and disposed of on its merits. The aggrieved party could appeal against such a decision. Any final adjudication on the matter would be determinative of such termination.
 
Thirdly, it is provided under Section 6(7) of the Act that the Creditor's Petition can only be withdrawn with the leave of the Court. Thus, a Creditor's Petition can be withdrawn without the entire bankruptcy proceedings necessarily coming to an end. The Court's bankruptcy jurisdiction accords wide powers to impose any condition on withdrawal, including liberty to file afresh.
 
As the Creditor's Petition in this case was a non-starter by reason that there was no act of bankruptcy at all on which any Creditor's Petition could be premised, the Creditor's Petition could be withdrawn with liberty to file afresh. This was not a “second bite at the cherry” (as contended by the judgment debtor) as the Application has not been heard on its merits. The withdrawal of the Creditor’s Petition could not have the effect of bringing the entire bankruptcy proceedings to an end when such proceedings were non-existent.
 
CONCLUSION
 
The Federal Court dismissed the judgment debtor’s appeal but declined to answer the leave questions (which were not reproduced in the law report). This case does not involve new law but applies established bankruptcy law principles to a unique factual matrix. In particular, it demonstrates the expansive Court's bankruptcy jurisdiction which allows the Court to review, amend, and correct an error pursuant to inter alia section 91(1) of the Act “for the purpose of doing complete justice…”, and section 93(3) of the Act.
 
Case Note by Trevor Jason Mark Padasian (Partner) and Tan Yng Yiin (Associate) of the Insolvency Practice of Skrine.

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