HALAL DEVELOPMENT CORPORATION BERHAD v AHMAD ZAKI BIN EMBI

Case Significance

Confirms that an undischarged bankrupt cannot commence or maintain proceedings without the sanction of the Director General of Insolvency under the Insolvency Act 1967, that proceedings begun without sanction are null and void ab initio, and that a sanction obtained after judgment cannot cure the defect retrospectively.

This High Court decision at Shah Alam concerns the effect of an undischarged bankrupt commencing litigation without the sanction of the Director General of Insolvency, and whether a judgment obtained in such proceedings is a nullity. The appellant company had applied in the Sessions Court to set aside a judgment that had been entered against it, after a full trial, in two consolidated suits brought by the respondent. The respondent had been an undischarged bankrupt when he commenced and pursued those suits. The Sessions Court dismissed the set-aside application and held itself functus officio, and the company appealed. The issues were whether the proceedings and judgment were null and void ab initio because of the plaintiff's bankruptcy, and whether the court retained power to entertain the challenge.

The court examined the capacity of an undischarged bankrupt under the Insolvency Act 1967. Sections 8(1)(a) and 38(1)(a) restrict what a bankrupt may do, and it is settled that a bankrupt cannot maintain or commence an action without the sanction of the Director General of Insolvency, subject to limited exceptions. The court held that the respondent, being an undischarged bankrupt, had lacked the legal capacity to initiate or defend the two suits without prior sanction, and that a sanction obtained only after judgment — here on 15 September 2023 — could not operate retrospectively to cure the defect. It followed that the proceedings and the resulting judgment were null and void ab initio, and that the Sessions Court had erred in law both in dismissing the set-aside application and in treating itself as functus officio.

The court allowed the appeal with costs of RM20,000, set aside the Sessions Court order, and declared the judgments in the two consolidated suits null and void ab initio; consequential appeals were struck out with no order as to costs. The judgment illustrates that proceedings commenced by an unsanctioned undischarged bankrupt are a nullity, and that retrospective sanction cannot revive them.