[edit: As an update, the Bankruptcy (Amendment) Bill 2016 was passed by both houses of Parliament. It has now become an Act and has received Royal Assent on 10 May 2017. However, it will only come into force on a date to be fixed by the Minister.]
On 21 November 2016, the new Bankruptcy (Amendment) Bill 2016 was tabled in Parliament for its First Reading.
The new Bankruptcy Bill will bring about significant changes to Malaysia’s bankruptcy laws. This comes against a backdrop of rising bankruptcy cases, especially for individuals under the age of 35.
Listed below the 10 major changes to be ushered in under the Bankruptcy Bill. In summary, it can be seen that the new Bankruptcy Bill is more borrower-friendly and will make it more difficult for creditors to commence and maintain bankruptcy proceedings.
(1) A Change of Name: Bankruptcy Act 1967 to the Insolvency Act 1967
The Bankruptcy Act 1967 will be renamed to the Insolvency Act 1967. Hence, when the new Act comes into force, any written law or document shall be construed as referring to the Insolvency Act 1967 instead.
The use of the term insolvency may cause some slight confusion in future. The Companies Act 2016 uses the term insolvency practitioner to describe a liquidator of a company while there will now be a reference to the Insolvency Act 1967 for the bankruptcy of individuals.
(2) Introduction of the Rescue Mechanism: Voluntary Arrangement
There is a new pre-bankruptcy rescue mechanism called the voluntary arrangement. The salient elements are:
- The individual, ie. the debtor, will appoint a nominee. The nominee is meant to act as independent professional to oversee and supervise the voluntary arrangement.
- The nominee can be a chartered accountant, an advocate and solicitor, or such other person to be determined by the Minister.
- The debtor then files a court application for an interim order for voluntary arrangement. The interim order will only last for 90 days and cannot be extended.
- The interim order will grant protection: no bankruptcy petition and no legal proceedings against the debtor except with permission from the court.
Within the 90-day interim order period, the nominee will hold a meeting of the creditors to try to secure their approval for the voluntary arrangement. The voluntary arrangement is essentially where the creditors agree to compromise or discount the debts owing to them.
The nominee needs to secure more than 50% in number and at least 75% in value of the creditors’ agreement. However, the secured creditors’ rights cannot be affected without their consent. If the approval is obtained, it will then be binding on all the creditors.
(3) Stricter Requirements for Service of Bankruptcy Papers
The bankruptcy notice must be personally served. Further, substituted service is possible but there are now stricter requirements. The creditor must prove to the satisfaction of the court that the debtor has:
(4) Higher Threshold for Bankruptcy: RM50,000.00 instead of RM30,000.00
The threshold for the debt for bankruptcy proceedings has now been increased to RM50,000.00 from the present RM30,000.00.
(5) Single Bankruptcy Order
The present law has a sometimes confusing reference to the adjudication order and the receiving order. This will now be simplified to a single unified order called the bankruptcy order.
(6) Social Guarantor: No Bankruptcy
A social guarantor is a person who does not profit and essentially provides a guarantee for an education loan, hire-purchase transaction for personal or non-business use, or a housing loan for personal dwelling.
The present Bankruptcy Act 1967 allows for bankruptcy proceedings against a social guarantor if the creditor had exhausted all avenues to recover from the debtor.
The law will change where there will now be an absolute prohibition in commencing any bankruptcy action against a social guarantor.
(7) Other Guarantors
There is also added protection for other types of guarantors. A creditor will need to obtain permission from the court before commencing bankruptcy proceedings against other guarantors. The creditor would have to demonstrate he has exhausted all modes of execution and enforcement to recover from the debtor first.
(8) New List of Bankrupts to be Allowed Discharge
The following list of individuals will also be afforded protection where creditors cannot object to the discharge of bankruptcy. The individuals are a social guarantor, a bankrupt with a disability under the Persons with Disabilities Act 2008, a deceased bankrupt, and a bankrupt suffering from a serious illness.
(9) Automatic Discharge
There is also a new provision allowing for an automatic discharge of the bankruptcy after three years from submitting his statement of affairs and subject to achieving the target contribution set by the Director General of Insolvency (DGI) and having rendered an account of monies and property to the DGI. The creditors can object to the automatic discharge but there are only limited specified grounds they can raise.
(10) A New Insolvency Assistance Fund
There will be the establishment of the Insolvency Assistance Fund. It will be administered and controlled by the DGI for the purposes of achieving the betterment of the administration and proceedings relating to bankruptcy.