Section 38(1)(a) of the Insolvency Act 1967 (“Act“) prohibits a bankrupt from pursuing legal action without prior sanction from the Director General of Insolvency. One of the reasons behind this law is to help ensure that a party who wishes to commence a legal action against another person would have the financial means to pay that other person costs if they end up losing the case. If not, the Defendant would be severely prejudiced in having to defend the claim and yet not being able to recover costs if they are ultimately vindicated by the courts.

However, does the same prohibition apply to claims for unfair dismissal?

Courts have previously held that the requirement of sanction prior to commencement of an action under Section 38(1)(a)  of the Act only applies to civil actions, and does not include legal actions of a different nature. Unlike an action in civil courts, a claim under the Industrial Court’s wings is pursuant to a statutory right under Section 20(3) of the Industrial Relations Act (“IRA”).

Some examples of cases which have dealt with this issue:

  • In Tanjong Puteri Golf Resort Bhd v John Supatever [2001] 3 ILR 176, the Industrial Court held that an objection towards a claim brought forth by an undischarged bankrupt had no merit as an action in an Industrial Court is not an action per se but it is a reference made by the Minister of Human Resources
  • In Cisco (M) Sdn Bhd v K Supramaniam [2002] 1 ILR 881, the Industrial Court permitted the claimant, an undischarged bankrupt, to proceed with his claim without the need to obtain prior sanction.
Recent Developments

The recent Federal Court case of Akira Sales & Services (M) sdn Bhd v Nadiah Zee Abdullah & Another Appeal [2018] 2 CLJ 513, further clarifies the position of the law by expressly stating that unfair dismissal claims do not require sanction, and further ruling that all subsequent proceedings originating from an industrial court matter such as judicial review (and appeals therefrom) do not require any sanction as well. The Federal Court went on to prospectively overrule all cases which may have held that sanction was required for an unfair dismissal claim under Section 20(3) of the IRA:

A proceeding under s 20(3) of the IRA, a personal claim (see Thein Tham Sang v. The United States Army Medical Research Unit & Anor [1983] 1 MELR 23[1983] 1 MLRA 222; [1983] 2 MLJ 49; [1983] CLJ 417), does not require the previous sanction of the DGI. We prospectively overrule all cases that held to the contrary and all cases that followed them. … A proceeding under s 20(3) of the IRA does not require sanction. Since judicial review of an award under s 20(3) of the IRA and consequential appeals are also in continuation of the challenge to the award, they should also not require the previous sanction of the DGI. The respondents were competent to lodge their appeals at the Court of Appeal.”

Although there exists a general bar towards claims brought by bankrupts in Court (without sanction), the law does allow a bankrupt to commence claims without sanction where the claims are “personal” in nature. The recent ruling in Akira Sales from the apex court now makes it certain beyond a shadow of a doubt that unfair dismissal claims fall within the statutory exception and undischarged bankrupts can commence these claims without need for sanction.


About the author: Amirul Izzat Hasri is an associate in the dispute resolution practice group at Donovan & Ho. He has experience in a diverse area of practice, including general civil and corporate litigation, judicial reviews, land related matters, defamation, debt recovery, and shareholder and boardroom disputes. He has also appeared in Industrial Court proceedings, having represented both employers and employees in unfair dismissal claims.

Donovan & Ho is a law firm in Kuala Lumpur, Malaysia. Our practice areas include employment law, dispute resolution (litigation and arbitration), corporate and tax advisory, family law and real estate/conveyancing. Have a query? Contact us.


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