Case Update

BANKRUPTCY

Re Goh Chin Soon, ex p Oversea-Chinese Banking Corp Ltd [2001] 4 SLR 272

High Court - Originating Summons in Bankruptcy No 600384 of 2001 (Registrar's Appeal No 600066 of 2001)
Lai Kew Chai J
17 May, 12 September 2001

Bankruptcy petition - Stay - Stay pending outcome of registrar's appeal and expiry of time to appeal - Appeal - Whether order for stay should be set aside - Whether court could make bankruptcy order on appeal - Bankruptcy Act (Cap 20, 2000 Ed) s 65(4)

VK Rajah, SC, and Lee Eng Beng (Rajah & Tann) for the appellant/petitioner.
Irving Choh Thian Chee and Twang Kern Zern (Chong Yeow & Partners) for the respondent/debtor.

The background and material facts leading to this bankruptcy petition were identical to those in OSB 600029/2001. In brief, the debtor was the controller of four companies, which had defaulted on several loans from the petitioner ('the bank'). The debtor, with two other persons, had acted as a guarantor for those loans and had executed third party mortgages of 13 properties to partially secure the loans extended by the bank to the companies. In addition, the debtor had signed a guarantee in favour of the bank for a sum of $43m. In total, he was liable to the bank in excess of $59m under the said guarantees. By this bankruptcy petition filed on 6 February 2001 the bank sought a bankruptcy order against the debtor on the ground that its statutory demand for the payment of $17,218,233.86, was not complied with nor set aside for more than 21 days since the service of the demand. When the petition came up for hearing, the debtor asked for a stay under s 65(4)(b) of the Bankruptcy Act (Cap 20, 2000 Ed) ('the Act'). The senior assistant registrar ordered, amongst other things, that the bankruptcy petition be stayed pending the disposal of RA 6002/2001 and that the petition be not restored until time to appeal against the outcome of the said registrar's appeal had expired. The bank appealed to the High Court and it asked, among other things, that the debtor's application be dismissed, that the bank be at liberty to continue with the bankruptcy proceedings against the debtor and that the debtor be adjudged bankrupt. Counsel for the bank also invited the High Court to make the bankruptcy order. In response, counsel for the debtor submitted that reading the clause 'the court may, if it thinks fit, stay or dismiss the petition' in s 65(4) of the Act literally, the court could only stay or dismiss the petition and could not make the bankruptcy order.

Held, allowing the appeal:
A stay is only to be granted according to the discretion of the court which should be exercised according to established judicial principles. A mere appeal is not enough. In this case, it was quite clear that the debtor was hopelessly insolvent. All the three cross-claims which the debtor claimed that he had initiated against the petitioner were not bona fide and they were asserted to generate the excuse for prolonging the bankruptcy proceedings, which would be unjust to the petitioner.

The clause 'the court may, if it thinks fit, stay or dismiss the petition' in s 65(4) of the Act did not direct the court to stay or dismiss the bankruptcy petition. It merely referred to the situation where either the judgment entered or the statutory demand upon which a bankruptcy petition is based may be invalidated, and stipulated that a court 'may' (ie in the exercise of its discretion) stay or dismiss the petition, depending on the prospects or likelihood of such invalidation. If an attack on a judgment or a statutory demand is doomed to fail or was made without good faith, the discretion under s 65(4) does not come into play, and the bankruptcy order must follow. On the other hand, if there are sustainable grounds to set aside the judgment or the statutory demand, it would not be right to refuse a stay, resulting in a drastic change in the legal status and capacity of the 'debtor'. Where clearly sustainable grounds are shown to invalidate a judgment debt or a statutory demand, the petition should ordinarily be dismissed. Its continuance can operate unjustly against a 'debtor', inasmuch as his legal capacity is suspended or called into question in his ordinary life, thereby disrupting his normal dealings.