Bankruptcy Fraud Case: Mr.KT v The Official Assignee of the property of Mr.KL

Bankruptcy Fraud Case: Mr.KT v The Official Assignee of the property of Mr.KL 

Background of the case:

Mr.KL had a landed property which was a bungalow house situated at Jalan YKS, Kuala Lumpur. This property was held under grant number XXX lot number XX. On September 1990, Mr.KL had sold this property to his son Mr.KT for RM1 million. This was reflected on the sales and purchase agreement dated September 1990 between both of them. The transfer of title for this property was registered 6 month later which was on March 1991. On September 1993, Mr.KL had granted financial facilities to Mr.KT in which it must be secured by two separate collateral and the collateral was the said property. 

However, before this transaction took place, BC company had file a judgment against Mr.KL on December 1989 with the amount of RM5.13 million. Subsequently BC company had presented bankruptcy petition against Mr.KL on August 1991 and Mr.KL had been formally declared as bankrupt on July 1992. BC company had obtained declaratory order from the High Court which found that the transfer of the property conducted by Mr.KL was void under Section 47 and 52 of Bankruptcy Act 1967. Under Section 47 Bankruptcy Act 1967 ".....the first acts of bankruptcy proved to have been committed by the bankrupt within six months next preceding the date of the presentation of the bankruptcy petition" (p.52). Meanwhile, section 52 of Bankruptcy Act explained that if a person make any settlement of property and becomes bankrupt within 2 years after the date of his or her settlement, the settlement will be referred as void against the Director General of Insolvency. Besides that, UMBC also attained declaratory order from the High Court that placing the property as collateral to the financial facilities was regard as void. Based on Section 53B(2) of Bankruptcy Act "The Director General of Insolvency may recover the property referred to in subsection (1) or its value or the money or other proceeds therefrom from the person who acquired it from the bankrupt or from any other person to whom the person may have sold, resold or transferred the property or paid over the money or other proceeds therefrom as fully and effectually as the Director General of Insolvency could have recovered the property if it had not been so sold, transferred, disposed of, realized or collected" (p.58). 

Thus, the High Court judge had made an inference that the motion of Mr.KL transferred his property to his son Mr.KT was regard as fraudulent conveyance since the transaction had took place 26 March 1991, which was within the 6 month period preceding the date of the bankruptcy petition. According to the judge, fraudulent conveyance must not always be in tandem with an intention to delay or defeat the creditors. The act of avoiding the distribution of the insolvent's property are also regard as fraudulent conveyance. Hence, Mr.KL was convicted as performing a fraudulent conveyance under Section 3(1)(b) Bankruptcy Act. In addition, by virtue of Section 47 and 53B(2) of the Act, BC company was entitled to recover the said property from Mr.KT. 

Reference:

Bankruptcy Act 1967

Malayan Law Journal/2003/Volume October 2009