Friday, October 17, 2008



Hi Lex, I am a bankrupt who wants to travel abroad for my daughter’s convocation. I obtained permission from the official assignee but the Income Tax Department won’t give me permission to leave unless I deposit a bank guarantee of 50k or pay my outstanding taxes in full. Is the Income Tax Department doing the right thing or are they infringing my constitutional right to travel freely?


LEX: Unfortunately for you the Income Tax Department is entitled to impose conditions before you travel A situation similar to yours arose in the case of LIM MOON HENG v THE GOVERNMENT OF MALAYSIA .
The plaintiff was adjudged a bankrupt on 30 November 1987 . As the plaintiff had various business contacts overseas, the plaintiff applied to the Official Assignee, Kuching for leave to travel outside Malaysia and leave was granted by a letter dated 20 November 1998, and a bank guarantee of RM50,000 was furnished by Citiloan Mortgage Sdn Bhd as security.
The plaintiff, after being granted leave by the Official Assignee, Kuching to travel out of Malaysia then instructed his advocates to write to the Inland Revenue Board (IRB), to seek leave to travel outside Malaysia. His application was rejected unless the following conditions could be fulfilled:

(a) that the income tax assessment of RM197,140.09 is settled in full; or
(b) a bank guarantee of RM200,000 is furnished.

It is contended that the IRB has no authority to restrict the plaintiff’s right to travel out of Malaysia. This is based on the fact that once a person is adjudged a bankrupt, the official assignee shall be the receiver of any property and no creditor with respect to any debt shall have any remedy against the property of the adjudged bankrupt in respect of the debt. It was further explained that, the property of an adjudged bankrupt is vested in the official assignee. Since the IRB, had filed a proof of debt with the official assignee, the status of the IRB is the same as any other creditors of the plaintiff. As such, the official assignee has control over the estate of the plaintiff and the IRB therefore has no authority to intervene under the ITA. The plaintiff being an adjudged bankrupt, the said certificate, therefore, should be issued against the official assignee being the receiver and manager of the plaintiff’s estate.
In short, the plaintiff pointed out that the ITA (Income Tax Act) is only applicable to those who are not adjudged bankrupts and the ITA is therefore not applicable to the plaintiff who is an adjudged bankrupt. The Bankruptcy Act(BA) is the only appropriate legislation governing the affairs, interest and assets of the plaintiff, being an adjudged bankrupt. Thus, the certificate issued by the IRB to restrict the plaintiff’s travel is void and invalid.

There is no doubt that the plaintiff was caught in a very difficult and awkward situation where the official assignee had granted him leave to travel out of Malaysia but was barred from leaving by the IRB unless he settled his debt in full or furnished a bank guarantee to the amount of RM200,000.
The question here is — who indeed has the authority to grant the said leave to the plaintiff who is a bankrupt? In order to answer this question, one has to look at the wordings of s 38(1) of the Bankruptcy Act and s 104(1) of the ITA respectively.
The authority of the official assignee to grant the said leave is provided under s 38(1)(c) of the Bankruptcy Act which reads:

“Where a bankrupt has not obtained his discharge the bankrupt shall not leave Malaysia without the previous permission of the official assignee or the court.”

The IRB on the other hand is conferred with such authority under s 104(1) of the ITA which reads:

“The Director General, where he is of the opinion that any person is about or likely to leave Malaysia without paying:
(a) all tax payable by him (whether or not due or due and payable);
(b) all sums payable by him under s 103(4), (5), or (5A); and
(c) all debts payable by him under s 107A(2) or 109(2), or 109B(2)
may issue to any Commissioner of Police or Director of Immigration a certificate containing particulars of the tax, sums and debts so payable with a request for that person to be prevented from leaving Malaysia unless and until he pays all the tax, sums and debts so payable or furnishes security to the satisfaction of the Director General for their payment.”

After careful perusal of both provisions, the judge was of the opinion that s 38(1)(c) of the BA is only applicable to a bankrupt who does not owe the Inland Revenue Board any tax. In such case, the official assignee is the full and final authority to grant leave to a bankrupt to travel abroad. However, where a taxpayer still owes tax to the Inland Revenue Board, or in a case where the Inland Revenue Board has filed a claim against the taxpayer with the official assignee, though the official assignee had granted leave to a bankrupt to go overseas, as in the instant case, the Director General of Inland Revenue Board, still retains, under s 104(1) of the ITA, the power to stop him from leaving unless he fulfilled certain conditions imposed therein.
The issuance of certificate under s 104(1) of ITA is one of the authorized modes to recover the tax due.

One of the primary function of the Director General of Inland Revenue under the Act is to collect and recover assessed tax effectively, and to do that, he must employ all the modes of recovery authorized in the Act. Action under s 104 is one of the authorized modes. It is the requirement of s 103 of the Act that a person pays his assessed tax on the service of the notice of the assessment on him failing which the Director General of Inland Revenue may besides using all other authorized modes, proceed to recover in court the assessed tax as a debt due to the Government and if judgment is obtained, to execute the judgement.

Likewise, in a case where a bankrupt had settled his tax and granted leave by the Director General of the Inland Revenue Board to travel abroad, the bankrupt still requires the approval of the official assignee for such trips if he still owes other claimants.
The finding that the Director General of the Inland Revenue Board has the power to stop the plaintiff from leaving Malaysia is further fortified by the fact that an international passport is not property as defined under s 2 of the Bankruptcy Act. The international passport of the applicant cannot be turned into an asset for payment of debts to the creditors. So the international passport of the applicant does not come within the ambit of the definition of ‘property’ under the Bankruptcy Act. In other words, the international passport of the applicant does not vest in the official assignee.

Since the international passport is not vested in the official assignee, the IRB still possess the right to stop the plaintiff from leaving Malaysia unless he fulfilled the conditions stipulated, ie to pay the debt in full or pay a deposit of RM200,000.
On the above grounds, it is abundantly clear that the question as to which of the two Acts take precedent over the other does not arise. The two laws have their distinct applications. The ITA was enacted to regulate the collection of revenue of the country, and the BA to protect the creditors’ interests. It is not wrong to say that these two Acts are both complementary and yet independent of each other. Therefore, it is only prudent for these two bodies to give due regard to their respective roles and responsibilities and to coordinate their decisions in order to avoid any unpleasant situations, as happened in this case.


Dear Lex,

I was guarantor to a finance company for my friend who bought a Mercedes.
Now both my friend and the Mercedes are gone. The finance company threatened to sue me but can they? I thought that the finance company must first repossess the car first..

Desperate Housewife

LEX: No the finance company does not need to reposess the car first before they can sue you in Court to recover the outstanding balance. They can take both actions together or sue you and the hirer first of they cannot repossess the car. This was the decision in ARAB-MALAYSIAN FINANCE BHD v HASLIZA BTE HASAN where the Court held that it would be contrary to public policy if a hirer in a hire purchase action could come before a court of law to plead a defence that even though that he had not paid his hire purchase instalments and even though he had not returned the hired goods to the owner although being served with a notice of termination of the hire purchase agreement and/or a 4th Sch Notice (for repossession) under the Hire Purchase Act, he could not be sued as the owner had not succeeded in repossessing the hired goods. This finding could lead to abuse by the hirer and may adversely affect the viability of the hire purchase industry. At present, many finance companies have already been frustrated by hirers who illegally sell the hired goods to third parties in contravention of s 38 of the Hire Purchase Act (which makes it an offence to sell hired goods), and thereby make it impossible for the goods to be repossessed as the identities and whereabouts of the third parties and thus the hired goods become unknown.
The Act provides for the hirer to surrender the hired goods to the owner and by doing so the Act exempts the hirer from having to pay any costs of and incidental to repossession of the goods. Hirer who no longer could afford to keep the hired goods should be expected to resort to these provisions. The law cannot be interpreted in such a way that it could be abused by the hirer at the expense of the owner, unless there are express provisions to that effect in the Act itself. The Act is not only meant to protect the interest of the hirer, but also the interest of the owner. Proper balance must be drawn between them. Only then can the hire purchase industry prosper for the sake of all parties concerned. The court was of the opinion that repossession of the hired vehicle is not a prerequisite for the owner to file his suit against the hirer or gaurantor in court to recover moneys due under the hire purchase agreement. The owner had attempted to repossess the hired vehicle but the vehicle could not be found as it has not been in the address agreed to in the hire purchase agreement and as such repossession was genuinely not possible.


Dear Lex,

My sister and I have a jewellery and gold collection. We keep them in a safe deposit at a bank. The deposit box is in her name but we both have the key. Do I have a legal share to the property if something happens to my sister or if I lost the key and my sister refuses to give me her key?

Mrs. Chan

LEX: In 1961 in the case of LOW GEK KIM v SEOW LEK KEE the plaintiff and defendant, who had been living together as man and wife for over 20 years, hired a safe deposit box No. 140 from the Oversea-Chinese Bank in their joint names in which they stored various items of jewellery.
The box was operated by the plaintiff who used to take jewellery out from time to time, some of which she replaced and some of which she did not.The question for decision now is who is entitled to whatever jewellery remains in this box.
It is common ground that, from the time that the box was first hired until early 1963, when the plaintiff and defendant parted company, the object behind the storage of jewellery in this box was to provide for their old age and to enable the survivor to utilise the contents of the box for the purpose of providing a good funeral for the other and to keep whatever balance remained for his or her own sole use.
The law relating to the ownership of jewellery stored in a box in the joint names of two persons such as the plaintiff and the defendant in these circumstances is similar to the law relating to a banking account held in the joint names of two such persons.
In In re Harrison a husband had in 1908 transferred the money standing to a current account at his bank in his own name into the joint names of himself and his wife. He did not inform his wife of the joint account, and always drew cheques on the account himself. He died in November, 1919. The wife never drew any cheque on the account until shortly before his death, when he was in failing health and unable to attend to business. The bank manager then informed her of the joint account, and advised her to draw a cheque, which she did. The husband had also from time to time made deposits in the joint names of himself and his wife, and in August, 1919, consolidated them into one deposit in the joint names. The wife never knew of this deposit until after her husband’s death. It was held that the moneys standing to the credit of the bank belonged to the wife as survivor.

In this case the court held that the present contents of the jewellery box are the joint property of the plaintiff and the defendant during their lives which will become the absolute property of the survivor on the death of the other. The plaintiff and the defendant were entitled to the contents of the box now in equal shares. Order accordingly.