Discharge of Bankruptcy at the Discretion of DGI S33A and 33B Insolvency Act and Case Study

The Act in brief

[1] S33A of Insolvency Act confers the power of discharge of bankrupt to Director General of Insolvency (DGI). The section says that as the DGI may, in his discretion but subject to section 33B, issue a certificate discharging a bankrupt from bankruptcy after five years of the adjudgment of bankruptcy order.

[2] A notice of his intention to issue the certificate should be served to each creditor who has filed a proof of debt and the creditors will have chance to reply with a notice of objection stating the grounds of his objection within 21 days (ss 33B (1) & (2) Insolvency Act). If a creditor fails to do so, he is deemed to have no objection to the discharge (s33B (3) Insolvency Act).

[3] There are 4 situations where the creditors cannot make objections to the notice, where:

(a) the bankrupt was adjudged bankrupt by reason of him being a social guarantor;

(b) the bankrupt is registered as a person with disability under the Persons with Disabilities Act 2008 [Act 685];

(d) the bankrupt suffers from a serious illness certified by a Government Medical Officer.

[4] If the creditor’s objection was rejected by the DGI, then he may make application to court. The court may dismiss the application or make an order that for a period not exceeding two years a certificate of discharge shall not be issued by the DGI. It is not sure what will happen after two years if the creditor is still not happy with the discharge. The court in Asia Commercial Finance (M) Berhad v Bassanio Teo Yang [2009] MLJU 313 confirmed that it could certainly delay the issuance of certificate of the DGI by two years as this is clearly provided in section 33B. In another word, the delay cannot be longer than 2 years.

Power of Director General of Insolvency

[5] Since the DGI has discretionary power to decide whether to issue the discharge under S33A, he does not need to state the reasons of him doing so and the courts are not under any statutory obligation to question the DGI on this issue (Asia Commercial Finance (M) Berhad v Bassanio Teo Yang [2009] MLJU 313). However, in the cases where a matter of issuing a certificate to discharge was brought to courts, the DGI may and is likely to give the grounds why he intends to discharge the respondent by way of affidavit.

[6] In Asia Commercial Finance (M) Berhad v Bassanio Teo Yang [2009] MLJU 313, the counsel for creditors claimed that the DGI did not prepared an updated report on the bankrupt. However, this point was rebutted by the DGI representative that the DGI cannot be faulted for not preparing an updated report, because he alone is the decision maker, therefore it is common sense that he need not “report” to himself about the status of the bankrupt. It must be assumed that all the relevant information that is in the file of the bankrupt has been considered by the proper officer of the DGI and this point of argument was accepted by the court and affirmed in the judgment of JC Ravinthran Paramaguru.

[7] Same approach was then adopted in Re Benny Ong Swee Siang, ex parte United Overseas Bank (M) Bhd [2016] 8 MLJ 805 by the High Court where the judge is in the opinion that it is perfectly within the DGI discretion to give reasons and he is equally entitled to exercise his discretion to issue the certificate of discharge. The DGI can also issue the certificate of discharge even the debts are not paid off yet (Public Bank Bhd v Kok Lee Wah [2004] 4 MLJ 433 and Re Siow Ah Moi @ Seow Yin Fong; ex p United Orient Leasing Co Bhd [2007] 3 MLJ 713).

Purpose of s33A

[8] In order to find out purpose of certain law, we can make reference to the parliamentary debate in relation to the Act. In the Hansard of 29 July 1998, the honorable Deputy Minister said that:

“Purpose of inserting section 33A is to make it easier for the bankrupt who were adjudged bankruptcy by the reason of involving himself in business and company’s affairs to get relief. In addition, this section is also to dispose cases that are inadmissible.”

[9] In the bill of relevant law. The bill of Insolvency Act mentions that the purpose of section 33A is to confer power to DGI to further their original intention to afford a bankrupt some relief. The Minister in the Prime Minister’s Department Datuk Liew Vui Keong also said in an interview that s33A of Insolvency Act is a provision which can assist a bankrupt to get out of bankruptcy by way of obtaining a discharge certificate from the Director-General of Insolvency.

[10] From the wordings of the bill, we know that the Act was designed to meet two major conflicting concerns. One stemmed from the fact that many individual businessmen become insolvent not through any fault, moral or otherwise, but through just being caught at the wrong turning of the economic cycle. It would be in the interests of society that people who had become bankrupt in such circumstances should be given a second chance in life. The other concern was that without proper safeguards, people who have used dishonest and fraudulent methods in conducting their business affairs to the detriment of their creditors might get an undeserved advantage from their own wrong doings.

[11] Therefore, the DGI is a key character under this section to differentiate those who deserve a relief and those who should not be forgiven until they have repaid all debts. Bearing in mind the purpose of this section, the creditors who are dissent to the decision of DGI should prove to the court that the bankruptcy was adjudged due to the respondent’s fraudulent acts.

[12] The power of the court to prohibit the DGI from issuing the certificate to discharge the respondent for a period of two years should only be exercised in clear cut cases of abuse of section 33A. Clear cut cases of abuse would be where the bankrupt had obtained huge loans with no intention of paying them back or where the bankrupt is maintaining an extravagant lifestyle beyond his reported income or where he has continued to be reckless in his financial affairs.

[13] However, as noted in the judgment of Asia Commercial Finance (M) Berhad v Bassanio Teo Yang [2009] MLJU 313, even if the above facts were proven by the creditor, the court can only delay the discharge of the bankrupt by two years as Parliament in its wisdom had granted the power to discharge a bankrupt to the DGI.

Rights to travel

[14] The rights to travel overseas of the bankrupt is deprived by s38(1)(c) of Insolvency Act. A bankrupt who has not obtained a discharge shall not leave Malaysia unless he has got the permission from DGI or the court. If the bankrupt also owes tax to the Inland Revenue Board (IRB), or in a case where the IRB has filed a claim against the bankrupt, then the bankrupt has to obtain permission from the director general of IRB under s104(1) of the Income Tax Act (ITA) as well as from the DGI under s38(1)(c) of Insolvency Act.

[15] The issuance of certificate under s104(1) of ITA is one of the authorized modes to recover the tax due as was held by Supreme Court in the case of Tai Choi Yu v Government of Malaysia & Ors [1994] 1 MLJ 677 that:

‘One of the primary functions of the Director General of IRB under the Act is to collect and recover assessed tax effectively, and to do that, he must employ all the modes of recovery authorized in Pt VII (ss 103-111) of the Act’

[16] Hence, the Insolvency Act does not take precedent over ITA and one should not be read as rule out another as they both have their own function.

[17] Insolvency Act and ITA have their distinct applications. The ITA was enacted to regulate the collection of revenue of the country; and the Insolvency Act to protect the creditors’ interests. It is not wrong to say that these two Acts are both complementary and yet independent of each other. Therefore, it is only prudent for these two bodies to give due regard to their respective roles and responsibilities and to coordinate their decisions in order to avoid any unpleasant situations.

[18] An example of parallel application of these two acts can be found in the case LIM MOON HENG v THE GOVERNMENT OF MALAYSIA & ANOR [2002] 2 MLJ 499. The plaintiff was an adjudged bankrupt and was granted a leave to travel by the DGI. However, his application to travel was rejected by the IRB under s104 of the Income Tax Act, unless certain conditions were fulfilled. The court held that the Director General of IRB still retains the power to stop the plaintiff from leaving even if he was a bankrupt and have got the permission from the DGI.

Ting Bee Ren
University of Leeds