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  • Writer's pictureGavin Jayapal

Paying-down a Judgment Debt to fall below the bankruptcy threshold

Updated: Jul 11, 2023


Image credit: https://www.freepik.com/free-photo/close-up-hands-holding-wallet_11386134.htm#query=bankruptcy&position=6&from_view=search&track=country_rows_v1 (Freepik)


UPDATE ON ARTICLE: After the article was published and having done a bit more research, I came across this decision of His Lordship Nadzarin in Re Wan Su Yi; ex parte Kai Plato Restaurant Sdn Bhd [2021] MLJU 824.


The learned Judicial Commissioner (now presiding HCJ) dismissed an appeal where surreptitious payments had been made by the JD.


The learned JC stated as follows:

[23] Thus, the payments made by the JD on 29.1.2020 and 20.5.2020 were made after service of the BN and the act of bankruptcy. In fact, the 1st payment of RM5000 made by the JD on 29.1.2020 was only made after the JD’s application to strike out the BN was filed on 14.2.2020. As there was a failure to challenge the BN within the time referred to in 3(1)(i) of the Insolvency Act 1967, the JD must now be precluded from raising the issue that payments were made in its attempt to strike out the CP in Enclosure 37. With respect, I find that these surreptitious payments by the JD were clearly an attempt to challenge the Judgment sum and delay as well as derail the bankruptcy proceedings which is in my view an abuse of Court process.
[24] I thus agree with the JC’s counsel that the JD’s argument to sustain its case that since payments have been made vis a vis the transfers of monies to the JC on 29.1.2020 and 20.5.2020 demonstrates that the JD is solvent is illogical as the JC would be prevented from proceeding with the bankruptcy proceedings each time a payment is surreptitiously made into the JC’s accounts.
[25] I also find that the sums paid into the JC’s accounts were not made with the consent of the JC on either occasion and that the said total sum of RM8,000 paid into the JC’s account over the period of 5 months only represents 1.46% of the total debt due by the JD to the JC from the Judgement Sum of RM545,258.18. These amounts in my view are too little and too late and do not show that the JD is solvent in any way. I also find that all these facts tantamount to the JD’s lack of sincerity to bona fide settle the Judgment.

The previously published article is contained below.


Assume a scenario. Mr Doug Bob obtains a Judgment for RM104,000.00 against Mr Pangado. This is above the bankruptcy threshold of RM100,000.00. A demand for payment goes unheeded.


Mr Doug Bob issues a Bankruptcy Notice to Mr Pangado. Upon receipt of the BN, Mr Pangado proceeds to pay Mr Doug Bob a sum of RM9,000.00, thereby bringing the amount due down to RM95,000.00. This is technically below the bankruptcy threshold.


Mr Pangado also proceeds to apply to strike-out the BN, on the allegation that the bankruptcy threshold has not been met.


In such a scenario, what would one do?


The decision in MAM Teguh


Assistance comes in the form of a recent decision rendered by Tuan Muhammad Faisal b Zulkifli, SAR in MAM Teguh v Azmi bin Ariffin [BANKRUPTCY NO.: WA-29NCC-192-02/2022].


Here, the JD made a payment of RM9,000 by direct transfer to the JC’s account. The JD then alleged that by virtue of the payment, no Bankruptcy Order could be recorded.


The JD applied to set-aside the Creditor’s Petition that had been filed against him.


The Court’s decision


The Court carefully noted that the JD did not pay the full sum. Additionally, the JD made rather flippant averments, to the effect that he was throwing down the gauntlet to the JC (see paras. 9 to 11).

The Court scrutinised S. 6(3) IA 1967 and noted that it is for the JD to satisfy the Court that he can pay his debts. Upon perusing the affidavits filed, the Court noted that the JD only paid the sum of RM9,000 solely to reduce the amount below the bankruptcy threshold and not to genuinely pay off his debt (para. 13).

To prove solvency, it was of the imperative for the JD to pay the full sum due (paras. 15-16). The learned SAR then undertook an analysis of Malaysian and English caselaw noted that to avoid the effects of bankruptcy, it would be of the imperative for the JD to pay the full judgment sum (and not just a portion) (paras. 16-24).

The learned SAR considered the following authorities:

  • OCBC Bank (M) Bhd v Sethu a/l Ambalagara Thevar [1998] 3 MLJ 769

  • Husain Manaf, Ex P Malayan Banking Bhd [2002] 7 CLJ 556

  • Lilley v American Express Europe Limited [2000] BPIR 70

  • Allen v London Borough of Haringey [2017] EWHC 2664(CH)

  • HMRC v Garwood [2012] BPIR 575

  • Selborne Says (2019) 5 CRI 187

The learned SAR then concluded authoritatively as follows:

[25] This Court is of the opinion that the Judiciary must not be treated as a fool, and the law must not be manipulated dishonestly. The Court is vested with discretion, and shall exercise the discretion in allowing Creditor’s Petition to be heard and granted Bankruptcy Order despite the amount has been reduced below the minimum threshold of bankruptcy in certain circumstances as been elaborated above.

Takeaways


It’s interesting to note that paying-down a Judgment Debt is not a mechanism that one can utilise to evade bankruptcy. The Courts are vigilant to such hare-brained schemes and to utilise the words of the learned SAR, “the Judiciary must not be treated as a fool”.

NB: An appeal was lodged to the Judge-in-Chambers against the Decision of the learned Registrar. It appears to have been scheduled for a decision on 07.06.2023.


GAVIN JAYAPAL

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