This article looks at some recent developments in the bankruptcy and insolvency laws in Singapore and Malaysia.
Singapore: Dispositions of property
Under the Singapore bankruptcy law, any disposition of property made by a bankrupt since the day of making the application for the bankruptcy order is void unless the court consents to, or ratifies, the disposition. This rule is enshrined in section 328 of the Insolvency, Restructuring and Dissolution Act, 2018 (the IRDA).
Recently, two high court judgments clarified the applicable test in deciding whether the court should ratify the disposition of property. In Sutherland, Hugh David Brodie v Official Assignee and anor (2021), the bankrupts, being husband and wife, requested in March 2018 for the applicant to pay the monthly mortgage for their property to the bank so that the bankrupts could obtain a better price when the property was sold in the open market. In turn, the applicant would be repaid from the surplus of the sale proceeds without any interest due. The arrangement was subsequently recorded in an assignment agreement dated 18 September 2018, after the bankruptcy application was filed on 11 May 2018. The bankruptcy order was eventually made on 25 October 2018.
The court held that the purpose of section 328(1) of the IRDA was to preserve the bankrupt’s assets for orderly and rateable distribution to the general body of creditors. The ratification must thus promote the objective of the section. Good faith, notice and value would be relevant when considering ratification, but the importance or necessity would have to be considered part of discretion’s overall exercise. In the Hugh Sutherland case, the high court found that the creditors benefitted from the transaction as they did not have to deduct from the sale proceeds the amount of interest payable to the bank arising from the mortgage payments made by the applicant. Hence, it would have been unfair for the general pool of creditors to have received and retained a benefit due to the assignment agreement, but that assignment agreement was declared void.
In Ong Dan Tze Magdalene v Chee Yoh Chuang and anor (2021), the applicant commenced divorce proceedings against the bankrupt husband 1.5 months before the bankruptcy application was filed. The applicant obtained an interim judgment for the dissolution of marriage 2.5 months before the bankruptcy order was finally made, which included consent orders for a property to be sold and the sale proceeds to be paid to the applicant and the transfer of another property to the applicant (the interim judgment).
The high court declined to ratify the interim judgment. The high court found that parties knew that the first property had already been sold at the time the interim judgment was made and, in any event, found that the applicant had not acted in good faith when she obtained the interim judgment, as she had concealed the truth. Regarding the second property, the high court found that it was of no benefit to the general pool of creditors, and the evidence strongly suggested the interim judgment was an attempt to put the bankrupt’s assets out of the reach of his creditors.
Perhaps unsurprisingly, the touchstone of ratification benefits the general pool of creditors, as outlined by both cases. However, the court is aware of genuine transactions entered into to dispose of the property before bankruptcy. In such cases, good faith when entering into any such arrangement, including divorce proceedings, is essential.
Malaysia: Higher insolvency threshold
In Malaysia, there are three main statutes related to the new changes in insolvency law:
(1) The Insolvency Act, 1967;
(2) the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Bill, 2020; and
(3) the Insolvency (Amendment) Act, 2020. The amendments made are aimed at providing a buffer to the sudden rise of bankruptcy rates in the country.
The particular amendment to note to sections 2 and 5(1)(a) of the Insolvency Act, 1987, are given force through part VII of the temporary covid-19 bill, which should be consulted and applied in relation to insolvency or bankruptcy-related conflicts until 31 August 2021, subject to any extensions by the government.
Of particular note, clause 20 of the above-mentioned bill provides that, while it is in effect, no bankruptcy petition should be brought against a debtor unless the total debt under the petition amounts to MYR100,000 (USD24,125), up from the previous amount of MYR50,000.
The Insolvency (Amendment) Act, 2020, has also been gazetted, but will only come into force on 1 September 2021. Until then, any insolvency or bankruptcy-related issues will still refer to the temporary covid-19 bill.
JOSEPH TAN JUDE BENNY
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