PEMIUTANG PENGHAKIMAN MAYBANK ISLAMIC BERHAD PENGHUTANG PENGHAKIMAN NG SHOO CHONG

Case Significance

Confirms that a default judgment remains valid and enforceable until set aside and can support bankruptcy proceedings against a guarantor, and that leave to continue such proceedings under section 5(3)(b) of the Insolvency Act 1967 may be granted where the judgment stands unimpeached.

This High Court matter at Johor Bahru concerns a judgment creditor's application for leave to continue bankruptcy proceedings against a guarantor, and the effect of a default judgment that has not been set aside. The judgment creditor, a bank, had extended a facility of RM500,000 to a principal debtor company, repayment of which was guaranteed by the judgment debtor under a Surat Jaminan (letter of guarantee) dated 9 May 2019. The creditor obtained judgment against both the principal debtor and the guarantor, the principal debtor was subsequently wound up, and the creditor filed a proof of debt in the winding up before proceeding by way of Notis Kebankrapan (bankruptcy notice) against the guarantor. It then applied for the Court's leave to continue the bankruptcy action under seksyen 5(3)(b) Akta Insolvensi 1967 (section 5(3)(b) of the Insolvency Act 1967). Two issues arose: whether the creditor was required to obtain the Court's leave before initiating bankruptcy action against the guarantor, and whether the failure to serve the writ, statement of claim and default judgment on the guarantor was fatal to the creditor's case. The Court held that a penghakiman ingkar (default judgment) remains a valid and enforceable judgment until it is set aside by the trial court, relying on established authority including Tetuan Bee Ling & Co v Vijendran Ponniah, and that the guarantor — who admitted awareness of the default judgment after receiving the bankruptcy notice — had produced no order showing that it had been set aside. The guarantor's arguments were accordingly rejected. The Court concluded that the creditor's application should be allowed (permohonan JC wajar dibenarkan), with the costs of the application to be costs in the cause as agreed between the parties. The decision illustrates that an unimpeached default judgment can support bankruptcy proceedings. The Court also noted that the winding up of the principal debtor did not by itself extinguish the guarantor's separate liability, and that the leave mechanism under the Insolvency Act 1967 existed precisely to allow the creditor to pursue the guarantor in an orderly way once the judgment stood unimpeached.