PEMIUTANG PENGHAKIMAN MALAYSIA DEBT VENTURES BERHAD PENGHUTANG PENGHAKIMAN TANG SEE MENG

Case Significance

Confirms that a default judgment is a valid and final judgment capable of grounding bankruptcy proceedings against a guarantor until set aside, so that disputes over service or finality do not, without a setting-aside order, defeat the creditor.

This High Court matter at Johor Bahru concerns a judgment debtor's attempt to resist bankruptcy proceedings brought by a financier on a guarantee, and the status of a default judgment said not to have been served. The judgment creditor had extended a Murabahah project-financing facility of RM3,300,000 to a principal debtor company, and the judgment debtor had guaranteed the whole of the sum outstanding under that facility by a personal guarantee dated 21 October 2012. After the principal debtor and the guarantor defaulted, the creditor entered judgment against them, and subsequently pursued bankruptcy proceedings against the guarantor. The guarantor applied to challenge those proceedings, raising two issues: first, whether the creditor's claim was excessive; and second, whether the creditor had failed to serve the default judgment on the guarantor and whether that default judgment was a final judgment capable of grounding bankruptcy. On the second and decisive issue, the Court reaffirmed the settled principle that a Penghakiman Ingkar (default judgment) remains a valid and final judgment, capable of enforcement including by bankruptcy proceedings, until and unless it is set aside by the court. The guarantor, although aware of the default judgment, had produced no order showing that it had been set aside as at the date of decision, so his argument on this issue was rejected; his contention that the claim was excessive was likewise not made out. The Court accordingly held that the guarantor's application should be dismissed and ordered him to pay the creditor RM1,000 as the costs of the application, subject to allocatur. The decision illustrates that a guarantor cannot resist bankruptcy proceedings merely by disputing service of, or the finality of, a default judgment that remains unimpeached. The Court's reasoning reflects that the guarantee created a separate and enforceable obligation on the part of the guarantor, and that the machinery for challenging a judgment lies in an application to set it aside, not in resisting the bankruptcy proceedings founded upon it once it has become entered and unimpeached.