002 Acts f Bankruptcy Notes

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LAW OF INSOLVENCY I (Law

534)

Topic 2:

ACTS OF

BANKRUPTCY

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Conditions precedent to

bankruptcyy Apart from the statutory requirement of a debt of

RM30,000.00, the debtor must have committed

one

ofthe a

cts of

bankrup

tcy.

y The acts are listed under Section 3(1) (a) to (j) ofBankruptcy Act.

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Acts of bankruptcy in connection with the

debtors dealing with his property.

y Section 3(1) (a) Conveyance of propertyto trusteefor benefit of creditors

A debtor commit an act of bankruptcy if he makes aconveyance or assignment of his property to a trusteefor the benefit of his creditors generally.

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y Such conduct is made an act of bankruptcy as theproperty of the debtor may by conveyance be

distributed otherwise than in accordance with the lawof bankruptcy and thus may detrimental to theinterest of the creditors.

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y 2) Section 3(1)(b) Fraudulent conveyance ofproperty

A debtor commits an act of bankruptcy when he makesa fraudulent conveyance, gift, delivery or transfer of allor part of his property to another person.

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y It must be made with fraudulent intention.

y Intention may be inferred from the surrounding

circumstances and it may be fraudulent even if thetransferee has given valuable consideration.

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In Re Anson Cycle & Motor Works

[1960] MLJ 171y Facts: The debtor claimed that he had sold a

house to his secondary wife for RM16,000.00 three

month before he was made bankrupt. The court was satisfied that the wife had given valuableconsideration for the conveyance, but was of theopinion that she shared her husbands intention to

defraud his creditors. The Court held that the salegave rise to an act of bankruptcy.

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Official Assignee v Koh Thong Chuan [1997]

5 MLJ 136

y The debtor sold to his son a property for RM1millions less than 6 months before a Creditors

petition was presented against him.

y Issue: Whether the conveyance was fraudulent?

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y Court noted the financial standing of the son whowas only25 years old then , his silence over the

over payment of the purchase price which wasitself below the market price, his knowledge of thefinancial difficulties his father was in and thepossible motive for the scheme, and concluded

that on the balance of probabilities, theconveyance was fraudulent.

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y Section 3(1)(c) Fraudulent preference

A debtor commits an act of bankruptcy if he is in

Malaysia or elsewhere convey or transfers orcharges his property or any part thereof and suchtransaction would be void as a fraudulentpreference under the act or any other written law if

he were adjudged bankrupt.

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y A debtor is deemed to have given a fraudulentpreference over other creditors if he is found to havegiven benefit in favour of the creditor when he is

unable to pay his debt from his own money as theybecome due, and if he is adjudged bankrupt on abankruptcy petition presented within six month afterthe date of giving the benefit.

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y The benefit maybe given by way of making aconveyance or transfer of property or making

charge on the property, making payment etc.

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y Section 3(1)(d) Defeat or delaying creditors

A debtor commits an act of bankruptcy if with intent

to defeat or delay his creditors, he:(1) departs from Malaysia or if, being out of Malaysia,remains out of Malaysia; or

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y (2) departs from his dwelling house or otherwiseabsent himself or begin to keep house or closes his

place of business; ory (3) submits collusively or fraudulently to an adverse

judgment or order for payment of money.

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y Section 3(1)(e) Seizure of propertybyexecution

A debtor commits an act of bankruptcy if execution has

been levied by seizure against his property pursuant toa judgment obtained.

The act of bankruptcy takes place the moment theproperty is seized.

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y Section 3(1)(f) Debtors declaration of insolvencyorpresentation ofdebtors petition

A debtor commits an act of bankruptcy ifhe files in the court:-

(1) A declaration of his inability to pay his debt;

(2) or a Bankruptcy petition against himself.

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y The act of bankruptcy takes place only upon the filingof the declaration or the debtors petition.

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y Section 3(1)(g) Notice of suspension of payment ofdebts.

A debtor commits an act of bankruptcy if he givesnotice to any of his creditor that he has suspended or isabout to suspend payment of his debt.

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y The notice of suspension could be given orally butmust be given formally and deliberately, and with the

intention of giving notice.

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y Section 3(1)(h) Offer of Composition

y A debtor commits an act of bankruptcy if he

makes any two or more of his creditors or a schemeof arrangement of his affairs, and such offer orproposal is not followed by registration within 14days thereafter of a deed of arrangement with his

creditors.

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y In Re Kong Mun Cheong [1975] 2 MLJ 131, TheFederal Court explained that under this section, an actof bankruptcy is committed if the debtor has made anoffer and is not followed by registration of a deed ofarrangement. Conversely,if it is followed by theregistration,no act of bankruptcy is committed.

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y Section 3(1)(i) Non-compliance of BankruptcyNotice

y

When a bankruptcy notice has been served on thedebtor, and the debtor fails to comply with therequirement of the notice within 7 days after theservice of the bankruptcy notice, the debtorcommits an act of bankruptcy.

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y Section 3(1)(j) No property liableto seizure

An act of bankruptcy takes place if the executing

officer of a writ of attachment or other process makes areturn that the debtor was possessed of no propertyliable to seizure.

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y In Re Peter Wong [1958] MLJ 116 A CreditorsPetition was presented upon on the sheriff s return

that the debtor had no property liable to seizureunder Writ of Seizure and Sale. The debtor filed anaffidavit to challenge the act of bankruptcy andclaimed that he had goods in stock worth a small

fortune and was interested in a big housingscheme.

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y To counter his allegation, the creditors solicitortestified orally that at the meeting between himself

and the debtor six days after the sheriffs return, thedebtor had confirmed that he has no assets as he hadsold them all previously and applied the proceeds inpart payment of his debts.

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y Based on the evidence, the court was satisfied that thereturn was correct and granted the bankruptcy orders

against the debtor.

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002 Acts f Bankruptcy Notes

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