Developments in Bankruptcy and Insolvency Laws in Singapore and Malaysia
Tthis article examines some recent developments in bankruptcy and insolvency laws in Singapore and Malaysia.
Singapore: Dispositions of assets
Under Singapore Bankruptcy Law, any disposition of property made by a bankrupt since the day of the bankruptcy order is requested is void unless the court consents or ratifies the disposition. This rule is enshrined in section 328 of the Insolvency, Restructuring and Dissolution Act 2018 (IRDA).
Recently, two High Court judgments clarified the applicable test for deciding whether the court should ratify the alienation of property. In Sutherland, Hugh David Brodie against official assignee and anor (2021), the bankrupts, being husband and wife, in March 2018 asked the applicant to pay the monthly mortgage on their property to the bank so that the bankrupts could get a better price when the property was sold on the open market . In turn, the plaintiff would be reimbursed on the excess of the proceeds of the sale without any interest owed. The arrangement was then recorded in an assignment agreement dated September 18, 2018, following the filing of the bankruptcy petition on May 11, 2018. The bankruptcy order was finally issued on October 25, 2018.
The court ruled that the purpose of IRDA Section 328 (1) was to preserve the bankrupt’s assets for orderly and proportionate distribution to all creditors. Ratification must therefore promote the objective of the article. Good faith, advice and value would be relevant when considering ratification, but importance or necessity should be seen as part of the overall exercise of discretion. In the Hugh Sutherland case, the High Court held that the creditors had benefited from the transaction because they did not have to deduct from the proceeds of the sale the amount of interest payable to the bank on the mortgage payments made by the plaintiff. Therefore, it would have been unfair for all of the creditors to receive and retain a benefit as a result of the assignment agreement, but this assignment agreement was declared void.
In Ong Dan Tze Magdalene vs. Chee Yoh Chuang and anor (2021), the plaintiff initiated divorce proceedings against the bankrupt husband 1.5 months before the filing of the bankruptcy application. The plaintiff obtained an interim judgment for the dissolution of the marriage 2.5 months before the bankruptcy order was finally made, which included consent orders for property to be sold and the proceeds of the sale to be paid to the plaintiff and the transfer of other property to the plaintiff (the provisional judgment).
The High Court refused to ratify the interim judgment. The tribunal de grande instance considered that the parties knew that the first property had already been sold when the provisional judgment was rendered and, in any event, considered that the applicant had not acted in good faith when ‘she obtained the provisional judgment because she had concealed the truth. With respect to the second property, the High Court held that it was of no use to all of the creditors, and the evidence strongly suggested that the interim judgment was an attempt to put the bankrupt’s assets out of existence. reach of its creditors.
Unsurprisingly, perhaps, the touchstone of ratification benefits all creditors, as both cases have pointed out. However, the court is aware of real transactions concluded to dispose of the property before the bankruptcy. In such cases, good faith in entering into such an arrangement, including divorce proceedings, is essential.
Malaysia: higher insolvency threshold
In Malaysia, there are three main laws related to the new insolvency law changes:
(1) the Insolvency Act, 1967;
(2) the 2020 Temporary Measures to Reduce the Impact of Coronavirus Disease (Covid-19) Bill; and
(3) Insolvency (Amendment) Act, 2020. The changes are intended to provide a buffer to the sudden rise in bankruptcy rates in the country.
The particular amendment to be noted in Sections 2 and 5 (1) (a) of the Insolvency Act, 1987, is brought into effect by Part VII of the Temporary Covid-19 Bill, which should be consulted and enforced. with regard to insolvency or bankruptcy. related disputes until August 31, 2021, subject to possible extensions by the government.
It should be noted in particular that Article 20 of the aforementioned Bill provides that, while in force, no bankruptcy petition shall be brought against a debtor unless the total debt under the petition is not amounts to MYR 100,000 (USD 24,125), compared to the previous amount of MYR 50,000.
The Insolvency (Amendment) Law of 2020 was also published in the Official Gazette, but will not come into force until September 1, 2021. Until then, any insolvency or bankruptcy related issue will always refer to the temporary covid-19 bill.
Hariz Lee is a lawyer at JTJB in Singapore, and Rahayu Abd Ghani is the managing partner of Rahayu Partnership in association with JTJB Lawyers in Kuala Lumpur
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