PEMIUTANG PENGHAKIMAN Kerajaan Malaysia PENGHUTANG PENGHAKIMAN Mohd Nazifuddin Bin Mohd Najib

Case Significance

An appeal against refusal to stay tax-driven bankruptcy proceedings dismissed for want of 'sufficient grounds', the court having no power to entertain a plea that the underlying tax assessment was excessive.

This High Court decision concerns an appeal to a Judge in Chambers against a Deputy Registrar's refusal to stay bankruptcy proceedings, in a matter where the judgment creditor was the Government of Malaysia pursuing a tax debt through the insolvency process. The Deputy Registrar had dismissed the judgment debtor's application for a stay with costs, and the appeal, heard together with a related appeal, brought that refusal before the Court.

The Court examined its power to stay bankruptcy proceedings under section 97 of the Insolvency Act, read with Rule 137 of the Insolvency Rules 2017 and Order 92 rule 4 of the Rules of Court 2012, and the test of what constitutes "sufficient grounds" for such a stay. A stay is not granted merely because a debtor asserts hardship; the debtor must advance sufficient grounds, and a bare argument of irreparable harm, without more, does not meet that threshold. A decisive feature of this case was that the underlying debt was a tax debt. Where the Government brings civil proceedings to recover tax, the court — unlike the Special Commissioners of Income Tax, the forum designated to hear tax disputes — has no power to entertain a plea that the amount of tax sought to be recovered is excessive, incorrectly assessed, under appeal, or incorrectly increased. The debtor's remedy in respect of the quantum of the tax lies in the statutory appeal machinery, with any adjustment to follow if that appeal succeeds, and not in resisting the bankruptcy on the footing that the tax may be wrong.

The Court held that the judgment debtor had not shown sufficient grounds for a stay and dismissed the appeal, and, it following that the related appeal fell to be dismissed on the same reasoning, dismissed that too, awarding costs of RM7,500 for each appeal. The judgment is a useful illustration of the "sufficient grounds" test for staying bankruptcy proceedings and of the principle that a tax debtor cannot resist bankruptcy by disputing the correctness of the assessment.