CAN A BANKRUPT SUE OR BE SUED?

The laws surrounding bankruptcy proceedings underwent a revamp recently, due to the alarming number of individuals being declared bankrupt in Malaysia. As such, a new Insolvency Act 1967 (“the Act”) was introduced.

However, has the Act changed an undischarged bankrupt’s capacity to sue or be sued?

Can a bankrupt be sued?

Pursuant to Section 8(1)(a) of the Act, it is clear that a bankrupt cannot be sued, unless leave of court is first obtained, and on such terms as the court may impose. The rationale behind this is simple: once an individual is declared a bankrupt, his or her assets would then vest with the Director General of Insolvency, who shall then act as the receiver, manager, administrator and trustee of all the properties of the bankrupt. This being the case, the bankrupt, even at the commencement of any action against him or her, will be unable to satisfy the debt.

Can a bankrupt sue?

Section 38(1)(a) of the Act spells out that a bankrupt shall not be able to sue any person without obtaining the previous sanction of the Director General of Insolvency. However, this does not apply to an actions for personal injury. In simpler terms, sanction merely means the authorization of the Director General of Insolvency to commence and maintain an action.

It is important to note that sanction must first be obtained before any action is commenced, and sanction cannot be applied for retrospectively, after a suit is initiated in court, unless the Director General of Insolvency expressly makes it clear that the said sanction is to apply retrospectively.

However, in an abundance of caution, it would be wise, to sue as a bankrupt, to first obtain the relevant sanction from the Director General of Insolvency before commencing an action.

If you are a bankrupt and intend to sue or are being sued, kindly consult a competent lawyer who will be able to advise you on the procedural requirements relating to your rights as a bankrupt.