Y.A. TUAN MAH WENG KWAI:- "it would be incumbent upon the Official Assignee to give reasons to support his decision and to inform a party who is not only interested in but aggrieved by the decision" (of his reasons to grant sanction o a Bankrupt)

Y.A. TUAN MAH WENG KWAI
Judicial Commissioner High Court Malaya Kuala Lumpur

HIGH COURT OF MALAYA AT KUALA LUMPUR IN BANKRUPTCY NO: D-29-5236-1992

DATO’ MOHD FATHI BIN HAJI AHMAD EX-PARTE: STANDARD CHARTERED BANK (M) BERHAD
1. DATO’ DR CHEN LIP KEONG 2. DATO HAJI ABDUL RAHMAN HAMZAH 3. KEMAJUAN HOLDINGS SDN BHD ... APPLICANTS
KETUA PENGARAH INSOLVENSI ... RESPONDENT JUDGMENT

Brief facts
On 20/11/06, Adjudication and Receiving Orders (AO/RO) were obtained by the Judgment Creditor, Standard Chartered Bank (Malaysia) Bhd (JC) for the judgment sum of RM9,905,514.54 against the Bankrupt. The Bankrupt appealed against the AO/RO to the Court of Appeal but the appeal was dismissed. An application for leave to the Federal Court was also dismissed. Pending the appeal by the Bankrupt against the AO/RO, the D1 and D3 Suits were stayed to enable the Bankrupt to obtain the requisite sanction of the Official Assignee under Section 38 (1) (a) of the Bankruptcy Act 1967 (BA) to proceed with the D3 Suit. The Bankrupt applied to the Official Assignee for his sanction on 29/10/08. The D1 and D3 Suits have not been disposed off till today.

On 23/12/08, the Official Assignee gave the sanction to the Bankrupt to pursue his D3 Suit against all the Applicants (Enclosure 89 – Exhibit ‘RO 3’). On 6/2/09, the Applicants requested the Official Assignee to furnish them with his grounds for giving the sanction to the Bankrupt as well as to inform them of whether the guarantor had paid the deposit sum as required. The Official Assignee did not respond to this request.
9. However on 23/2/09, the Official Assignee informed the Applicants that “Dalam hal ini kami berpendapat bahawa si bankrap mempunyai kepentingan terhadap saham syarikat tersebut. Oleh itu Ketua Pengarah Insolvensi Malaysia telah melaksanakan kuasanya secara budibicara dengan memberi sanksi kepada si bankrap. Sekiranya tuan ingin mendapatkan dokumen-dokumen sanksi tersebut pihak tuan bolehlah mendapatkannya sendiri daripada si bankrap.”

Decision of the Court
On hearing the appeal on 22/9/10 and after considering the oral and written submissions of the Official Receiver and Counsel for the Applicants, the Court dismissed the appeal with costs.
Reasons for the Decision

Upon the grant of the AO/RO, the Official Assignee is vested with the property of the Bankrupt and has conduct of the financial affairs of the Bankrupt and the administration of his estate (see Section 71 of the BA).

The Official Assignee as the administrator and receiver of the Bankrupt’s estate ought to have full knowledge of the Bankrupt’s financial affairs. The Official Assignee must be fully satisfied of the grounds of the application before exercising his discretion to grant the sanction. The Official Assignee must be in the position to give his reasons for granting the sanction as his decision can be challenged by the Bankrupt, creditor and /or an aggrieved person (see Section 86 of the BA).

In this case, the Applicants have the locus to challenge the decision of the Official Assignee as they are aggrieved persons.

The Applicants contend that the Official Assignee ought not to have granted the sanction on the following grounds:

a) that the Official Assignee did not fully appreciate the facts in the D3 Suit and that the relief sought by the Bankrupt in the D3 Suit will be ineffectual and futile in view of the several changes in the ownership of the Shares in First Malaysia and that the Shares are of little or no value,
b) that the estate of the Bankrupt is not in the position to pay the costs of the D3 Suit which has been pending for the last 21 years,
c) that the estate of the Bankrupt will be no position to satisfy the claims of the 1st and 3rd Applicants in the D1 Suit in the event the Bankrupt is held liable, and
d) that the conditions set out in the Official Assignee’s letter of 4/12/08 have not been properly and fully met.

I am of the view that although the Official Assignee was correct to hold that the Bankrupt has an interest in the Shares, the Official Assignee had failed to give his reasons to support his decision to grant the sanction. It was insufficient for the Official Assignee to state in his letter in reply to the Applicants dated 23/2/09 that the Bankrupt had an interest in the Shares and that it was his discretion to grant the sanction without saying more.
I am of the view however, that it is incorrect for the Applicants to contend that the Bankrupt did not possess an interest in the Shares merely because ownership of the Shares had changed hands several times and that the Shares are of little or no value. The Applicants themselves had conceded that the Bankrupt had a beneficial interest in the Shares. What this means in simple terms, is that in the event the Bankrupt is successful in the D3 Suit the judgment sum would be paid to the legal owners of the Shares namely, MRSB Sdn Bhd and FUSB Sdn Bhd and not to the estate of the Bankrupt. …


….Whether the estate of the Bankrupt will be able to recover the money on the basis of the Bankrupt’s beneficial interest will be another matter to be resolved at another time.

For reasons stated above, I am thus unable to agree with the contention of the Official Assignee as stated in the written submission of Counsel, that the Official Assignee was not obliged to “assess the fact and merit of the application of sanction by the Bankrupt and no duty of DGI to inform and give the justification of granting the sanction to the Bankrupt pursuant to Bankruptcy Act 1967”. Having made a decision which is quasi-judicial in nature it would be incumbent upon the Official Assignee to give reasons to support his decision and to inform a party who is not only interested in but aggrieved by the decision. I cannot agree with the Official Assignee’s submission that the basis for granting the sanction is not an issue and “cannot be questioned by the Applicants”.

On 19/11/09, the Applicants wrote to the Official Assignee (Enclosure 183 – page 181) to inquire whether the estate of the Bankrupt would be willing and able to pay RM300,000.00 as security for costs. The Official Assignee replied on 3/12/09 informing the Applicants that the estate did not have the funds to do so.

I am of the view that the Official Assignee ought not to have granted the sanction to the Bankrupt for the following inter alia reasons:-

a) the Official Assignee having failed to carry out an indepth study into the merits of the D3 Suit or to take legal opinion on it was not in the position to determine meaningfully whether the estate of the Bankrupt would really benefit from the continuance of the trial of the D3 Suit.
b) the estate, not having the funds to furnish RM300,000.00 as security for costs, will not be in a position to settle the judgment debt in the sum of RM9,905,514.54 to the JC.
c) it appears that the Official Assignee did not consider at all the position of the D1 Suit in the event the D3 Suit is proceeded with, as the 2 cases have been consolidated.
d) the Official Assignee has failed and/or neglected to address the fears of the Applicants in not being able to recover the costs in the D3 Suit in the event the suit is dismissed against them, and
e) importantly, the conditions set out by the Official Assignee for the Bankrupt to comply in his letter of 4/12/08 have not been adequately met or at all within the period of 21 days from the date of the letter namely:-
(i) Bankrupt to secure a competent guarantor to give letter of undertaking
A letter of undertaking by a guarantor was purportedly given by one Ahmad Sakhee bin Shamsuddin to the Official Assignee. However the letter of undertaking was undated and it appears that it was received by the Official Assignee’s office on 17/11/08 that is, even before the letter of the Official Assignee setting out the conditions dated 4/12/08 was issued! Thus, the validity of the letter of undertaking itself is questionable.
(ii) The Bankrupt was to furnish the Guarantee Bond (Bon Jaminan)
a) According to the letter of conditional approval dated 4/12/08, the guarantor was required to furnish a Guarantee Bond and to deposit the sum of RM3000 as security with the Official Assignee.
b) It is doubtful as to who the actual guarantor is. On the one hand the Letter of Undertaking was given by Ahmad Sakhee bin Shamsuddin who should also be the guarantor, while on the other the name of one Kamarulaizian binti Kamsah appears on page 1 of the Bon Jaminan with an undertaking to pay the deposit sum of RM3000, with yet the name of Ahmad Sakhee bin Shamsuddin appearing on page 2 (See Enclosure 89 – Exhibit RO3). No explanation has been given by the Official Assignee as to why the name of Ahmad Sakhee bin Shamsuddin does not appear on page 1 of the Bon Jaminan. If it was the Official Assignee’s intention to have 2 guarantors, then the space for the sum required on page 2 should not have been left blank.
c) It is also to be noted that there are 3 signatures on page 2 of the Bon Jaminan. As the signatures have not been identified it is unknown who the signatories are. Without the proper execution of the Bon Jaminan, the Bon will not be enforceable.
d) Importantly, the Bon Jaminan was only signed and dated 2/3/09 that is, almost 3 months after the sanction had been given on 23/12/08. The delay in the provision of the Bon Jaminan is in clear breach of paragraph 4 of the conditional letter of approval dated 4/12/08 which clearly stipulated that the Bankrupt had to comply with the conditions within 21 days from the date of the letter, failing which the sanction would not be given.
(iii) The Guarantor was to deposit RM3,000 as security for costs
There is no evidence on record to show whether the said deposit had in fact been paid by the Guarantor to the Official Assignee and if so, when it was paid as stipulated by the Official Assignee, it is clear that the Official Assignee should not have granted the sanction to the Bankrupt as the interest of the Applicants have not been safeguarded.

The various complaints on the shortcomings have not been refuted by the Official Assignee on affidavit and hence following the principle expounded by Gopal Sri Ram JCA (as he then was) in the case of Ng Hee Thoong & Anor v Public Bank Berhad [1995] 1 CLJ 609, the Official Assignee is deemed to have admitted the allegations made by the Applicants.

In the final analysis, the Official Assignee’s decision to grant the sanction must be on an informed basis and not made purely as an administrative decision. The Official Assignee has failed to show to the Applicants that the estate of the Bankrupt will have the funds to meet the costs of the D3 Suit which has been pending for the last 21 years. There is no basis for the Official Assignee to say there was no risk that the estate of the Bankrupt could not pay the costs.

In view of the Bankrupt’s failure to comply fully with the conditions
Accordingly, the Official Assignee’s appeal was dismissed with costs. Dated 27th day of October 2010.



Y.A. TUAN MAH WENG KWAI
Judicial Commissioner High Court Malaya Kuala Lumpur

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1. Turn off all technology for 60 minutes a day and focus on doing your most important work.


 
2. Work in 90 minute cycles (tons of science is now confirming that this is the optimal work to rest ratio).


 
3. Start your day with at least 30 minutes of exercise.


 
4. Don't check your email first thing in the morning.


 
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8. Schedule every day of your week every Sunday morning. A plan relieves you of the torment of choice (said novelist Saul Bellow). It restores focus and provides energy.


 
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Stay Productive and Make Your Work