Leave To Commence Bankruptcy Proceedings Against Guarantor: How Exhaustive Is Exhaustive?

• Published date: 06 July 2021
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Insolvency/Bankruptcy
• Law Firm: SKRINE
• Author: Wong Chee Lin and Quek Jian Long

In Re:Malaya Sibuku; Ex P: Kaya Karisma Sdn Bhd [2021] 5 CLJ 403, various submissions were advanced by a judgment debtor ("Debtor") in an appeal against the Senior Assistant Registrar's ("SAR") decision in granting leave to the judgment creditor ("Creditor") to commence bankruptcy proceedings against the Debtor.

The issue before the Court was whether a corporate principal debtor must be dissolved (and not just wound up) in order to satisfy the Court that all modes of execution and enforcement have been exhausted, before leave to commence bankruptcy proceedings against a guarantor can be granted under s.5(4) read with s.5(6) Insolvency Act 1967 ("IA 1967")

Background Facts

In a separate suit, the Debtor and Elvis Maidin Ebrahim ("co-guarantor") were held liable under a director's guarantee and indemnity for defaults amounting to RM2,808,221.75 which were incurred by Dunggon Jaya Sdn Bhd ("Borrower"). Shortly after, the Borrower was wound up and the co-guarantor was adjudged bankrupt. Subsequently, the SAR granted the Creditor leave to commence bankruptcy proceedings against the Debtor. The Debtor then appealed against the SAR's decision.

High Court Findings

In reaching its decision, the Court analysed past authorities dealing with a similar issue;

In the Federal Court case of Hong Leong Bank Bhd v Khairulnizam Jamaludin [2016] 7 CLJ 335, the appellant was deemed to have exhausted all avenues for the recovery of the debt when the principal debtor was adjudicated bankrupt. Subsequently in Hong Leong Bank Bhd v Ong Moon Huat & Another Appeal [2018] 1 LNS 1612, the Court of Appeal did not require the liquidation of the principal debtor's assets to be completed prior to the grant of leave. In Per: Lim Sow Hoon; Ex Parte: Malayan Banking Bhd [2018] 1 LNS 1611 the High Court stated that the Creditor must have exhausted all modes of execution and the borrower must be either adjudicated bankrupt or wound up.

The Court also referred to various provisions under the Companies Act 2016 ("CA 2016") in support of the proposition that the Creditor has no other avenue of recovering the debt against the Borrower, if the Borrower being a corporate debtor has been wound up, given that-

1. Upon appointment of a...