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Tutorial 5, Q4 (Slides)

The bankrupt negotiated with the judgment creditor to reduce the debt from RM150,000 to RM75,000. Under Malaysian law, a bankrupt is allowed to negotiate settlements with creditors as long as any agreement is brought to the DGI for approval. The DGI approved the scheme of arrangement to reduce the debt. The judgment creditor cannot object to the approved scheme and appeal the DGI's decision, as the scheme is now binding on all creditors under the Insolvency Act 1967.

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167 views4 pages

Tutorial 5, Q4 (Slides)

The bankrupt negotiated with the judgment creditor to reduce the debt from RM150,000 to RM75,000. Under Malaysian law, a bankrupt is allowed to negotiate settlements with creditors as long as any agreement is brought to the DGI for approval. The DGI approved the scheme of arrangement to reduce the debt. The judgment creditor cannot object to the approved scheme and appeal the DGI's decision, as the scheme is now binding on all creditors under the Insolvency Act 1967.

Uploaded by

Marvin Goshan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Tutorial 5

Question 4
Prepared by ,
Marvin Raja ( 1161100438 )
The JC had lodged a proof of debt with the DGI for a sum of RM150,000 inclusive of interest which was initially
approved. Subsequently, at the creditor’s meeting, the JD, consequent upon negotiations for a scheme of arrangement
with the creditors, informed the DGI of the reduction in the JC’s debt to RM75,000. The DGI later applied under s. 42
Schedule C IA1967 and r. 152 IR 2017, for approval of the Scheme of Arrangement and this was allowed by the SAR.
The JC appealed against the decision of the SAR in allowing the DGI’s reduction of the Proof of Debt. Discuss whether
the bankrupt himself could after the Bankruptcy Order has been made, negotiate with the judgment creditor for a
reduction of his debt;
The first issue in this situation is Whether the bankrupt himself can negotiate with the judgment creditor for a reduction of his
debt after the Bankruptcy Order has been made?

The relevant laws for this issue are firstly Section 18(1) of the Insolvency Act 1967(IA 1967) which provides that Should a
debtor becomes a bankrupt, the creditors by a special resolution can resolve to entertain. Proposal for composition to satisfy
the debts to the creditors. Scheme of arrangement of the bankrupt’s Affairs. In the case of Re Hashbudin Hashim; Ex P Citic
Ka Wah Bank Ltd it was held that A bankrupt is competent to negotiate any settlement of his debt with his creditor provided
that any agreement that is reached pursuant to that negotiation is brought to the attention of the DGI for approval.
Additionally, in the case of Big Team Construction Sdn Bhd v Sedia Gaya Sdn Bhd the principal in Re Hashbudin Hashim was
adopted and the court stated stated that the DGI in this case could adopt the settlement and reduce the amount of the proof
of debt lodged by the creditor who had agreed with the bankrupt's proposal for settlement In application, it can be seen from
the facts that the bankrupt had negotiated for a scheme of arrangement during the creditor’s meeting following which he
informed the DGI on the reduction of debt to RM75,000. From Re Hashbudin Hashim, it is established that any settlement
agreed must be brought to the attention of the DGI and as such the bankrupt is entitled to negotiate for the settlement of the
debt. From the facts it can be seen that the bankrupt had duly informed the DGI complying with the requirement.

Applying the case of Big Team Construction Sdn Bhd, it is established that the DGI would adopt the settlement as long as
there is an agreement between the bankrupt and the creditor. Thus, following the creditors acceptance of the scheme of
arrangement and the approval from the DGI, the creditors no longer have the option to retract. As such, the DGI is not in the
position to reduce the amount of debt and merely acts as the administrating authority whereas the negotiations must be
between the bankrupt and the creditor In conclusion, the bankrupt himself can negotiate with the judgment creditor for are
duction of his debt after the Bankruptcy Order has been made and the appeal most likely dismissed
The second issue in this situation is Whether the DGI may apply for approval of the Scheme of
Arrangement?

The relevant laws for this issue are firstly Section 18(2) IA 1967 which provides that the composition or
scheme shall not be binding on the creditors unless it is confirmed at a subsequent meeting of the
creditors by special resolution. In the situation at hand, it can be assumed that the subsequent meetings
have been concluded given that the SAR had already approved the scheme of arrangement. With
reference to Section 18(8) IA 1967, it can be seen that the court before approving a composition or
scheme shall hear a report of DGI as to the terms of the composition or scheme and as to the conduct of
the bankrupt, and shall hear any objections which may be made by or on behalf of any creditor. From the
facts it can be seen that the approval as already be given and as such the stage for objections had
passed. Therefore, the judgment creditors cannot at this juncture make objections. Finally, from Section
18(11) IA 1967 it is provided that a composition or scheme accepted& approved in pursuance of this
section shall be binding on all the creditors so far as relates to any debts due to them from the bankrupt &
provable in bankruptcy.

Thus, it can be concluded that the approved scheme of arrangement is now binding on the judgement
creditor and objections should have been made prior to the approval. In conclusion, since the scheme of
arrangement has already been approved the judgement creditor cannot now raise objections.

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