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Case Update: Federal Court decides on issue of solvency of a debtor to annul his Receiving Order and an Adjudication Order

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BANKRUPTCY
Bankruptcy Notice and Notice of Intention to oppose the Creditor’s Petition - Receiving Order and an Adjudication Order annulment application - Whether the solvency of a debtor under must necessarily relate to his ability to pay his debts as they became due, as at the time of the making of the AORO and not to his ability subsequent to the making of the bankruptcy order - Section 6(3) read with section 105(1) of the Bankruptcy Act 1967

Affin Bank Berhad v Abu Bakar bin Ismail
Civil Appeal No: 03(f)-05-10/2017(W), Federal Court
- see the grounds of judgment here

Facts The appellant (the “Bank”) obtained a summary judgment against the respondent (the “debtor”) and then commenced bankruptcy proceedings against the latter. The filed an application to set aside the Bankruptcy Notice and Notice of Intention to oppose the Creditor’s Petition. The High Court dismissed his application to set aside the Bankruptcy Notice and this was affirmed by the Court of Appeal. The Notice of Intention to Oppose the Creditor’s Petition was dismissed by the High Court but was upheld by the Court of Appeal and a Receiving Order and an Adjudication Order (AORO) was recorded against him. Following this, the debtor filed an application to annul the AORO (the “first annulment application”) on the ground that the debtor was solvent and had the means to repay his debts but this application was dismissed by the Registrar of the High Court. Dissatisfied with the decision of the registrar, the debtor appealed to the High Court judge and was allowed but the decision was reversed by the Court of Appeal and the AORO was restored. This decision was never appealed by the Debtor until nine months later, on the ground that he had assets in Singapore totalling more than what the Bank claimed against him. This second annulment application was allowed by the registrar of the High Court and further affirmed by the High Court judge. Dissatisfied, the Bank appealed to the Court of Appeal but was dismissed. Hence, this appeal.

Issues The main issue was whether the solvency of a debtor under section 6(3)[1] read with section 105(1)[2] of the Bankruptcy Act (the “BA”)1967 must necessarily relate to his ability to pay his debts as they became due, as at the time of the making of the AORO and not to his ability subsequent to the making of the bankruptcy order.

Held In allowing the appeal, the Federal Court found that the solvency of the debtor under section 6(3) read together with section 105(1) of the BA 1967 must necessarily relate to his ability to pay his debts as they become due, at the time of hearing of the creditor’s petition. It is trite that the solvency does not relate to the debtor’s ability to pay his debts subsequent to the making of the AORO. Further, it relates to ‘commercial solvency’ and not ‘balance sheet solvency’.


ZUL RAFIQUE & partners
{28 February 2020}
[1] If the court is not satisfied with the proof of the petitioning creditor's debt or of the act of bankruptcy or of the service of the petition, or is satisfied by the debtor that he is able to pay his debts, or that for other sufficient cause no order ought to be made, the court may dismiss the petition.
[2] Where in the opinion of the court a debtor ought not to have been adjudged bankrupt, or where it is proved to the satisfaction of the court that the debts of the bankrupt are paid in full, or where it appears to the court that proceedings are pending in the Republic of Singapore for the distribution of the bankrupt's estate and effects among his creditors under the bankruptcy or insolvency laws of the Republic of Singapore and that the distribution ought to take place in that country, the court may annul the adjudication. (2) Where an adjudication is annulled under this section, all sales and dispositions of property, and payments duly made, and all acts thereto for done by the Director General of Insolvency, or other person acting under his authority, or by the court, shall be valid, but the property of the debtor who was adjudged bankrupt shall vest in such person as the court appoints, or in default of any such appointment revert to the debtor for all his estate or interest therein on such terms and subject to such conditions, if any, as the court declares by order.

ZUL RAFIQUE & partners
{28 February 2020}