Can The Bankrupt Be Sued?
I. ILLUSTRATION
Ali was made bankrupt in 2023. However, Siti and Mark wish to sue him for the following matters, respectively:
- Siti wishes to file a civil suit against Ali for a debt due and owed by Ali of RM50,000.00.
- Mark, a famous influencer, also wishes to file a defamation suit against Ali for a derogatory statement made in a Facebook Account.
Question: Can both Siti and Mark filed a civil suit against Ali? If the answer is in affirmative, is there any prior requirement needed to be adhered to in order file the said civil suit against Ali since he is now a declared bankrupt individual?
II. EXPLANATION
The effect of Bankruptcy Order against the bankrupt, e.g. Ali, is that, no creditor in respect of the debt provable in bankruptcy shall commence any legal action against such debt without leave of the court.
III. APPLICABLE LAWS
Let us understand the main provisions under the Insolvency Act 1967 once the party to be sued, which is Ali, is now a bankrupt person:
Section 8(1)(a) of the Insolvency Act 1967 (“IA”) states that:
8 Effect of bankruptcy order
(1) On the making of a bankruptcy order-
(a) except as provided by this Act, no creditor to whom the bankrupt is indebted in respect of any debt provable in bankruptcy shall have any remedy against the property or person of the bankrupt in respect of the debt, or shall proceed with or commence any action or other legal proceeding in respect of such debt unless with the leave of the court and on such terms as the court may impose;
Section 8(1)(a) of the IA above mention on debt provable to which Section 40 of the IA describes debt provable as the followings:
40 Description of debts provable in bankruptcy
(1) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust shall not be provable in bankruptcy.
(2) A person having notice of any act of bankruptcy available against the debtor shall not prove under the receiving order for any debt or liability contracted by the debtor subsequent to the date of his so having notice.
- Save as provided in subsections (1) and (2) all debts and liabilities present or future, certain or contingent, to which the debtor is subject at the date of the receiving order, or to which he may become subject before his discharge by reason of any obligation incurred before the date of the receiving order shall be deemed to be debts provable in bankruptcy.
So, are Siti and Mark required to obtain the Court’s leave in order to file a legal suit for debt and defamation, respectively, against the same bankrupt person, Ali? The answers are Yes and No.
Explanations:
(1) Mark’s position: Not required to apply for a leave from the Court to initiate the suit
Legal proceedings such as the injunction, tort of defamation and the claim for general damages intended to be filed by the applicant, namely Mark against Ali, the bankrupt person are not debts nor liabilities provable in bankruptcy within the meaning of Section 8(1)(a) and Section 40 of the IA. Therefore Mark is not required under the Insolvency Act to obtain Court’s leave to commence defamation suit against Ali.
(2) Siti’s position: Required to apply for a leave from the Court to initiate the suit
Meanwhile, the debt due and owed of RM50,000.00 is debt provable as described via Section 40 of the IA. Consequently, before Siti can initiate a civil action against Ali for the debt due and owed of RM50,000.00 in civil court, she must first obtain the Court’s leave as mandated by virtue of Section 8(1)(a) of the IA.
Another example can be seen in the case of Tengku Dato’ Kamal Ibni Sir Sultan Abu Bakar & Ors v. BURSA Malaysia Securities Bhd [2022] 4 CLJ 854 the Federal Court held that the monies as referred to, in the Section 360 Capital Markets And Services Act 2007 order are not debts nor liabilities as envisaged under Section 40 of the BA (IA), thus Section 8(1) of the IA has no application whatsoever in the present case because there is no debt owing by the defendant to the plaintiff.
CONCLUSION
In conclusion, as Ali was declared bankrupt in 2023, Siti is required to seek the Court’s leave under Section 8(1)(a) of the IA before commencing a civil suit to claim a sum of RM50,000.00 as debt due and owed by Ali. Meanwhile, Mark can initiate the defamation suit against Ali directly without obtaining the Court’s leave since the damages claimable are considered general damages, which are not provable debts under Section 40 IA.
If you have any questions or require any additional information, please contact our lawyer that you usually deal with.