Can You Avoid Bankruptcy with Partial Payments IN MALAYSIA?

Written By Cheat Chun

Introduction
In Malaysian insolvency law, it’s not uncommon for judgment debtors to attempt strategic payments to avoid bankruptcy. But can paying part of a judgment debt actually prevent a bankruptcy order? Recent cases suggest the answer is a resounding no. Let’s explore the legal principles through two notable cases: MAM Teguh Sdn Bhd v Azmi Ariffin [2023] and Re Wan Su Yi; ex parte Kai Plato Restaurant Sdn Bhd [2021].

Partial Payments Won’t Always Save You
In MAM Teguh Sdn Bhd v Azmi Ariffin [2023], the judgment debtor (JD) transferred RM9,000 to the judgment creditor’s (JC) account to reduce the claim below the statutory RM100,000 threshold. The JD argued that this payment should prevent a bankruptcy order.

The Court disagreed. It emphasized that the payment was strategic, not bona fide:

“This Court is of the opinion that the Judiciary must not be treated as a fool, and the court must not be manipulated dishonestly. The Court is vested with discretion, and shall exercise the discretion in allowing Creditor’s Petition to be granted Bankruptcy Order despite the amount has been reduced below the minimum threshold of bankruptcy.”

Key takeaway: Partial or tactical payments are insufficient to demonstrate solvency. Courts require genuine settlement of the debt to block bankruptcy proceedings.

Even Small Payments After a Bankruptcy Notice Don’t Help
The second case, Re Wan Su Yi; ex parte Kai Plato Restaurant Sdn Bhd [2021], confirms this principle. The JD made two small payments totaling RM8,000 after a Bankruptcy Notice (BN) had been served for a debt exceeding RM545,000.

The Court rejected the attempt to rely on these payments to avoid bankruptcy, noting that:

  • The payments were unilateral and without the creditor’s consent.

  • They represented only 1.46% of the judgment debt—far too small to prove solvency.

  • Relying on such partial payments would constitute an abuse of court process.

The Court emphasized that solvency must be demonstrated by the ability to settle the debt in full, not by small or tactical reductions.

Harmonized Legal Principle
Both cases reinforce a key principle in Malaysian bankruptcy law:

Partial payments made after the service of a Bankruptcy Notice cannot prevent bankruptcy proceedings, especially if the remaining debt exceeds the statutory threshold. If the debt drops below the threshold due to partial payment, the debtor’s intention is critical. Surreptitious attempts to manipulate the court will not succeed.

This principle ensures that the judiciary is not misled by tactical maneuvers, preserving the integrity of bankruptcy enforcement.

Conclusion
Malaysian courts are clear: you can’t dodge bankruptcy with partial payments alone. Courts will examine the debtor’s intention, the proportion of the debt paid, and whether the payment genuinely settles the debt. Attempting to manipulate the process is likely to be treated as an abuse of court discretion, ensuring creditors can enforce judgments fairly.

For judgment debtors considering partial payments to escape bankruptcy, the law is unambiguous: paying a small portion isn’t enough—intention and solvency matter.

References

Cheat Chun
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