Azlin Azrai bin Lan Hawari v United Overseas Bank (M) Bhd [2017] 5 MLJ 43

Court of Appeal, Putrajaya

Bankruptcy – Setting Aside – Bankruptcy notice  

1.    United Overseas Bank (M) Bhd, is a Judgment Creditor (“the Respondent”). The Respondent obtained a final judgment against Azlin Azrai bin Lan Hawari, a Judgment Debtor, (“the Appellant”) in the amount of RM79,804,851.04, including costs and interest.

2.    The Appellant did not fully settle the final judgment. As such, the Respondent initiated a Judgment Debtor Summons (JDS).  The JDS was issued by Senior Assistant Registrar (SAR) on 13 November 2014, requiring the Appellant to pay RM5,000 per month until full settlement and pay RM4,000 in costs to the Respondent.

3.    The Respondent claimed that the Appellant had failed to make the required RM5,000 payment for March 2015 on time, violating the JDS Order.

4.    On 31 March 2015, the Respondent issued a Bankruptcy Notice (BN) against the Appellant.  The Appellant applied to set aside the BN, arguing that, the JDS Order required payment via monthly instalments.

5.    The Appellant was still complying with the JDS Order and had made instalment payments.  He argues that the BN was invalid because it did not match the final judgment and the BN amount was incorrect and excessive, making it invalid.

6.    SAR dismissed the Appellant’s application and Appellant appealed to High Court.

7.    The High Court dismissed the Appellant’s application to set aside the BN due to the Appellant had breached the JDS Order by failing to pay the instalment for March 2015 on time.  The High Court held that JDS Order did not prevent the Respondent from filing bankruptcy proceedings and the amount in the BN was accurate, making the BN valid.

8.    Hence, the Appellant appealed to the Court of Appeal.

1.    Whether the Respondent could commence bankruptcy proceedings as the JDS was already in place against the Appellant?

2.    Whether there had been a modification or variation of the original judgment?

3.    Whether the Appellant had been in breach of the JDS?

4.    Whether the original judgment was nullified by the JDS?

1.    Whether the Respondent could commence bankruptcy proceedings as the JDS was already in place against the Appellant?

(a)      COA ruled that, the JDS order did not prevent bankruptcy proceedings.  Subsection 3(1) of the Bankruptcy Act 1967 provides that a judgment creditor with a final judgment can file for bankruptcy if the debt remains unpaid.

(b)      The JDS Order only sets a payment schedule but does not replace the original judgment. Under section 8 of the Debtors Act 1957, an instalment order does not stop other enforcement actions unless the court specifically orders it.

(c)      The High Court relied on the case of Re Chen Sing Chew [1974] 2 MLJ 69, which ruled that even if a court orders instalment payments, the creditor can still file for bankruptcy.

(d)      COA found that the JDS order was not an automatic stay of execution. The Appellant argued that because he was following the JDS order, thus he claimed that bankruptcy proceedings should not apply.

(e)      However, COA have referred to Re Sturdee (a debtor) [1985] 2 NZLR 627, a New Zealand case with a similar legal framework. In that case, the court ruled that a judgment summons does not automatically stop the creditor from filing for bankruptcy. The same principle applied in this case that the JDS did not stop the Respondent from enforcing the judgment through bankruptcy proceedings.

(f)        The Court of Appeal agreed, stating that a creditor retains the right to enforce a judgment through bankruptcy if the debtor defaults.

(g)      In this particular case, the JDS order required the Appellant to pay RM5,000 per month, but it did not prevent the creditor from taking further action if payments were missed.

(h)      Since there was a final judgment, the Appellant failed to comply with the BN, and the JDS did not stop execution of the judgment, the Respondent had the legal right to proceed with bankruptcy proceedings.

2.    Whether there had been a modification or variation of the original judgment?

(a)   The Appellant argued that the JDS Order modified the final judgment, meaning that the Respondent could only enforce the JDS Order, not the original judgment.

(b)   The JD relied on Re HA Pereira Ex parte Pagor Singh (Bhagat Singh) [1932] 1 MLJ 112, which ruled that a payment-by-instalment order modified the judgment, making a Bankruptcy Notice (BN) based on the original judgment invalid.

(c)   However, the Court of Appeal disagreed, stating that this case was decided before the Debtors Act 1957 and was no longer applicable.

(d)  COA ruled that JDS order is a method of execution and not a modification. The Respondent’s lawyer referred to Re Watson [1893] 1 QB 21, which held that ordering a debtor to pay in instalments is not execution but just a method of enforcing the judgment.

(e)   COA found that the JDS Order simply allowed instalment payments but did not prevent the Respondent from using other legal actions, including bankruptcy.

(f)     The Court of Appeal ruled that the JDS Order did not modify or change the original judgment. The Respondent could still enforce the original judgment, including through bankruptcy proceedings.

3.    Whether the Appellant had been in breach of the JDS?

(a)   COA judge found that the Appellant had failed to pay the required monthly instalment to the Respondent, which meant the Appellant had breached the JDS order.

(b)   The evidence showed that the Appellant only made a payment after a Bankruptcy Notice (BN) was issued against them on 31 March 2015. The Respondent’s lawyer received the cheque at 4:15 PM on the same day, but it could only be cashed on 1 April 2015. Since the payment was made after the BN was filed, it was not considered valid before the notice was issued.

(c)    The Supreme Court case Re Chen Sing Chew; ex-parte: Oriental Tin Smelters Sdn Bhd [1974] 2 MLJ 69 confirmed that bankruptcy proceedings could be initiated if a debtor failed to pay an instalment as ordered by the court. The court ruled that the bankruptcy proceedings remained valid despite the instalment order.

4.    Whether the original judgment was nullified by the JDS?

(a)   The Appellant argued that the JDS order allowed installment payments, so the original judgment no longer applied. The court disagreed, stating that the original judgment remained valid and enforceable. Under Section 8 of the Debtors Act 1957, the Respondent could proceed with bankruptcy despite the JDS order, especially since the Appellant defaulted.

(b)   The Appellant also claimed the BN was invalid due to an extra RM54.53 interest charge. Missing maturity dates for Performance Guarantee (PG) and Financial Guarantee (FG) banking facilities. Failure to reflect a RM1,500 payment made on 31 March 2015.

(c)   The COA ruled that the interest on costs is valid under the Rules of Court 2012. The judgment already specified Performance Guarantee and Financial Guarantee facility terms. The BN and statement of accounts accurately reflected the debt.

(d)   A BN is not invalid simply for claiming excess amounts unless the Appellant disputes it per subsection 3(2) of the Bankruptcy Act 1967, which the Appellant failed to do. The RM1,500 payment was made after the BN was issued, and accepting it did not nullify the BN.

(e)   As per Moscow Narodny Bank Ltd v Ngan Ching Wen [2005] 3 MLJ 693, bankruptcy proceedings remain valid if the debt exceeds RM30,000.

(f)     In this case, the judgment sum was RM80 million, and the Appellant’s partial payment did not bring the debt below this threshold, making the BN valid.

(g)   Court of Appeal upheld the High Court’s decision, ruling that the Respondent was legally entitled to file for bankruptcy proceedings against the Appellant.

1.    A JDS does not prevent a creditor from initiating bankruptcy proceedings.

2.     A judgment remains enforceable even if instalments payments are allowed.

3.    Defaulting on a JDS can lead to bankruptcy proceedings.

4.    A bankruptcy proceeding is not invalidated by minor discrepancies in the amount claimed.