KUALA LUMPUR (July 23): The High Court (Insolvency Division) has fixed Sept 8 to hear former prime minister Datuk Seri Najib Razak and his son Datuk Nazifuddin Najib’s appeal for a stay of bankruptcy proceedings over unpaid taxes amounting to RM1.695 billion and RM37.64 million, respectively.
Judicial Commissioner S Suhendran @ Saheran Abdullah set the date after requesting updated written submissions from their lawyer Muhammad Farhan Shafee to better organise his arguments and support them with proper documentation.
The proceedings were held via Zoom here on Wednesday. Suhendran reminded Farhan, who appeared alongside Wee Yeong Kang, that Najib and Nazifuddin must show “sufficient reasons” for the court to grant a stay of bankruptcy proceedings.
Farhan acknowledged that sufficient reasons are a lower legal threshold than proving "special circumstances". It requires showing reasonable grounds to oppose the bankruptcy petition or that there’s a credible challenge to its basis.
The hearing was briefly adjourned because both the court and the Malaysian government’s senior revenue counsel Norhisham Ahmad struggled to follow Farhan’s oral submissions, which were not reflected in his written submissions.
Suhendran had to repeatedly ask Farhan to identify where certain arguments appeared in his affidavits or written submissions. As a result, the judge directed Farhan to update and refile his submissions by Aug 6, with Norhisham to respond by Aug 20. The judge emphasised that the appeal must be resolved quickly.
The appeal stems from an earlier decision by High Court (Insolvency) Deputy Registrar Kamarul Aris Kamalluddin, who on July 29 last year dismissed Najib and Nazifuddin’s application to stay the bankruptcy proceedings.
Farhan had argued that since criminal proceedings involving Najib in the 1Malaysia Development Bhd case are ongoing, there is a legal question as to whether alleged proceeds of crime can be taxed as additional income — a matter he claimed had never been decided in Malaysia. However, Norhisham maintained that the current appeal should focus solely on the stay application, not the merits of the tax assessments, which had already been decided.
Najib and Nazifuddin are seeking a stay on grounds that the tax assessment’s merits are still under review before the Special Commissioners of Income Tax (SCIT). They contend the SCIT process should conclude before any bankruptcy ruling is made.
Background on tax dispute
In October 2023, a five-member Federal Court dismissed the duo’s appeals against summary judgements requiring them to pay RM1.69 billion (Najib) and RM37.64 million (Nazifuddin) in back taxes to the Inland Revenue Board of Malaysia (IRB). Federal Court judge Tan Sri Nallini Pathmanathan upheld the "pay first, dispute later" principle, commonly practised in jurisdictions such as South Africa, Australia, Hong Kong, and Ghana.
The father and son were appealing against the two High Court summary judgements entered against them in July 2020 to recover tax arrears from them, for the period between 2011 and 2017.
The judgement was awarded to the IRB on the grounds that the defendants had no triable issues with regard to their defence, and if the matter were to proceed to a full trial, it would have the effect of delaying a judgement entered on the defendants.
The Court of Appeal affirmed the decision in October 2021.