The Court of Appeal ruled that any money left after paying off creditors will be held in trust. This means it will be managed on behalf of the bankrupt.
The court also ruled that even if the information on the bequeathed sum surfaces after the bankrupt has been discharged from his or her debts, the money will still go to the Official Assignee (OA), who will hold it in trust.
The court set these rulings in a judgment released last week in a case where a discharged bankrupt tried to keep $102,000 left to her by her late sister in CPF money and SingTel shares.
The woman involved in the test case, 52-year-old kitchen helper Madam Lim Lye Kiang, had been a bankrupt for 11 years with debts amounting to $1.18 million to 13 creditors when her sister Lye Keow died of cancer in March 2008.
When Madam Lim Lye Keow died, her bequest should have been transferred to the OA, as under the law, all assets belonging to a bankrupt are held by the OA for distribution to his creditors.
However, the OA was not aware of the inheritance. The paper reported that in October 2009, the OA asked the court to discharge Madam Lim as a bankrupt, as she had been one for more than ten years with no further realisable estate. She had also paid up to $150 for her monthly contributions to her bankruptcy estate.
She was then discharged in November of that year after each of her creditors received $11,664 in a final dividend declared by the OA.
However, two months later, she tried to claim her inheritance from the CPF. The CPF Board instead transferred the money to the OA, who applied to the court for an order to distribute the money among Madam Lim's creditors.
In October 2010, the High Court sided with the OA. Madam Lim had argued that since the CPF authorised the release of the money after she was discharged as a bankrupt, the money belonged to her. According to the paper, the court said that 'the protection extended to the money of CPF account holders did not extend to nominees like Madam Lim, and that the money could thus go to the OA to settle debts'.
When she appealed, the appeal court ruled that as she was a bankrupt at the time of her sister's death, the money had to go to the OA. It rejected the argument of her lawyer, Foo Soon Yien, who said that her discharge 'had the effect of revesting the entitlement to the money in her'.
The court, made up of Judges of Appeal Chao Hick Tin, Andrew Phang and V. K. Rajah, instead agreed with the OA's lawyer Lim Yew Jin, who argued that the discharge did not reinstate Madam Lim's right to the money.
Bankruptcy laws that rule the administration of a bankrupt's estate may continue after his discharge were upheld by the court. The court said that while a bankruptcy discharge releases him from debts, it does not affect the debts themselves.
Thus, any assets that surface after a final dividend is paid to creditors will be held in trust by the OA for the discharged bankrupt.
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