PEMIUTANG PENGHAKIMAN MAYBANK ISLAMIC BERHAD PENGHUTANG PENGHAKIMAN Lee Kwi Chu

Case Significance

Confirms that a creditor holding an unsatisfied judgment against a guarantor may proceed in bankruptcy against him without first realising the principal debtor's assets, even after the principal company has been wound up, consistent with the Insolvency Act 1967.

This High Court decision at Johor Bahru concerns a guarantor's attempt to resist bankruptcy proceedings brought by a bank. The judgment creditor, an Islamic bank, had extended financing to a principal company, and the judgment debtor had guaranteed that financing. A default judgment had been entered against both the principal company and the guarantor in September 2022, for sums exceeding RM158,000 under one facility and RM2.9 million under another. The principal company was subsequently wound up by an order of the High Court in November 2024, and the bank then issued a bankruptcy notice against the guarantor and presented a creditor's petition. The guarantor filed a notice of intention to oppose the petition and a summons in chambers to set it aside, contending, among other things, that the assets of the principal company ought to be realised first before the bank pursued him as guarantor. The Court rejected that contention. It held that it was reasonable and lawful for the bank, as judgment creditor, to pursue the guarantor, and that this was consistent with the provisions of the Insolvency Act 1967, including section 5(3)(b). The argument that the company's assets had to be liquidated before the guarantor could be pursued was without merit, a creditor being entitled to pursue the remedies available to it against a guarantor whose liability had already been established by the unsatisfied judgment. The Court accordingly dismissed both the guarantor's notice of intention to oppose and his summons in chambers to set aside the creditor's petition, with costs of RM700 subject to allocatur. The decision reflects the settled nature of a guarantor's liability: a guarantee ordinarily gives the creditor an independent right of recourse against the guarantor once the principal debtor defaults, and the creditor is not obliged to exhaust its remedies against the principal debtor, or to await the outcome of the principal's liquidation, before enforcing the guarantee. The guarantor's liability having already been reduced to an unsatisfied judgment, the bankruptcy process was a legitimate means of enforcement against him.