THERE are now almost 300,000 bankruptcy cases administered by the Malaysian Insolvency Department. That was the latest information from the Minister in the Prime Minister’s Department Datuk Seri Azalina Othman Said when she tabled the amendment to the Bankruptcy Act for the second reading at the Dewan Rakyat on March 29. Passed by the Dewan Rakyat that same day, it will now make its way to the Dewan Negara before it receives the royal assent and finally goes into force as a new law.
The number of bankrupts had increased by 13.9 per cent last year compared with 2015. What is frightening is that almost 60
per cent of those adjudicated bankrupts involve people in prime years of life (between age 25 and 44). The minister hopes that the revamped law will slash that figure down substantially.
As she tabled the bill in Parliament, Azalina spoke of the eight policy changes introduced by the new law, including the prevention of taking bankruptcy actions against “social guarantors” and raising the minimum threshold for bankruptcy from the present RM30,000 to RM50,000. The new law, however, does not protect social guarantors who had already been adjudicated bankrupt.
Azalina also said under the new law, a bankrupt could be discharged earlier after three years from the filing of the statement of affairs, while the rules relating to the delivery of the notice of bankruptcy had been tightened. The new law also creates a rescue mechanism, introduces a single bankruptcy order to replace the receiving order and adjudication order, and establishes an insolvency assistance fund.
Apart from social guarantors, others who are shielded from the shame of bankruptcy include people who are deceased, people with disabilities and certified as such by the Welfare Department and people with chronic diseases certified by medical officers. These new humanising elements are now contained in the new subsection (2A) of Section 33B of the amended law.
Modernising and humanising our 50-year-old bankruptcy law has taken a long time. It was first mooted in the early 1980s soon after I left the Attorney-General’s Chambers, but it did not gain much government support at that point in time. Reformists want the law to be changed in line with the development of the law in other jurisdictions, which permit automatic discharge of bankrupts after a certain period of time. Our act is based on the English Bankruptcy Act of 1914.
I have just read the 37-page bill recently after it was posted online in several portals and noted the important passage stating: “All references to the Bankruptcy Act 1967 in any written law or document shall, when this act comes into operation, be construed as references to the Insolvency Act 1967.”
A new provision, Section 33C, has been inserted into the law, providing for “automatic discharge” of bankrupts. It states that “a bankrupt shall be discharged from bankruptcy under this section on the expiration of three years” of his bankruptcy on two conditions — one, he has achieved the “amount of target contribution of his provable debt” and two, he has complied with the requirement to render “an account of moneys and property” to the director-general of insolvency (DGI).
This new section requires the DGI to serve “a notice of the discharge” to each of the bankrupt’s creditors and the latter have 21 days to object to the discharge under this section by making an application to court on certain grounds as stated in that section. A creditor who fails to file such an application is deemed to have no objection to the discharge. If the application is made, the court will then hear the DGI and the bankrupt before making its decision. At the conclusion of the hearing, the court can dismiss the application and approve the discharge, or suspend the discharge for two years, during which time the bankrupt has to fulfil his duties and obligations under the act, and at the end of the years, he will be discharged automatically.
If the court dismisses the creditors’ application and approve the discharge under this section, the DGI (upon payment of the prescribed fee) will issue a certificate of automatic discharge to the applicant.
The new amendment also introduces a new rescue mechanism called “Voluntary Arrangement” at the option of the insolvent debtor before a bankruptcy order is made by the court against him. This is done by the insertion of new Sections 2A until 2Q, offering the debtor (who has not yet been declared a bankrupt) an opportunity to negotiate a settlement proposal at a discount and/or a longer settlement term with his creditors.
The mechanism envisages the following steps to be carried out — the appointment of a nominee, the application for an interim order, meeting with creditors, approval by creditors and reaching a voluntary arrangement with the creditors. When an interim order is issued, no bankruptcy petition can be taken against the debtor, except with the permission of the court. Approval by creditors means that more than 50 per cent in number holding at least 75 per cent in value must agree. However, secured creditors (banks holding land charges or debentures) are not affected without their consent. Once the voluntary arrangement has been approved, it is binding on the creditors.
This new mechanism reflects the standard practice in many developed countries, such as the United Kingdom and Singapore, where their bankruptcy laws have since long ago contain similar provisions.
Section 5 of the principal act has been amended, increasing the existing debt threshold
of RM30,000 to RM50,000 before bankruptcy proceedings
can be taken against a debtor.
A substituted subsection (3) is also put in place, effectively shielding a social guarantor from any bankruptcy action and also stipulating that no action can be taken against a guarantor other than a social guarantor “unless the petitioning creditor has obtained leave from the court”.
A new subsection (4) has also been inserted in Section 5 of the principal act, which states that before the court allows an action to be taken against a guarantor (other than a social guarantor), the court must satisfy itself that the petitioning creditor “has exhausted all modes of execution and enforcement to recover debts owed to him by the debtor”.
In the past, creditors have taken the easier (and quicker) route of going after the guarantors without taking any serious effort of going after the principal debtors or taking foreclosure proceedings or land and properties charged to them. Such a quick-fix remedy is no longer available after the amendment comes into force.
Humanising elements are now embedded in the new law. Let us see how the law will be enforced.
The writer formerly served the Attorney-General’s Chambers before he left for practice, the corporate sector and, then, academia