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Test For “Ability To Pay Debts” In Bankruptcy

On 26.8.2019, the Federal Court heard, and allowed, the appeal of Affin Bank Berhad regarding when a bankruptcy order may be annulled. The issue of the ability of a debtor to pay his debts was considered as it was contended by the debtor that his ability to pay his debts had arisen subsequent to the bankruptcy order made, which led to the Courts below allowing the annulment of his bankruptcy.

In its decision, the Federal Court held that the ability of a debtor to pay his debts must relate to his ability to pay his debts as they became due, as at the date of the hearing of the creditor’s petition (commercial solvency). The fact that there may be circumstances subsequent to the bankruptcy order or that there are assets which may (but have not been) realised (balance sheet solvency) would not be sufficient to show ability to pay debts.

The Federal Court appeal was conducted by our Ms Yoong Sin Min and Ms Sharon Lim.

For further information, you may contact:

Yoong Sin Min

Partner

[email protected] 

Sharon Lim

Senior Associate

[email protected] 

English China