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Bankruptcy (Amendment) Bill, 2016

“Everything appears to promise that it will last; but in this world nothing can be said to be certain, except death and taxes.”

----- Benjamin Franklin

In Malaysia, the Bankruptcy Act 1967 has been long overdue for a proper overhaul in order to turn it into a fair and more humane piece of legislation. The new amendments will bring the present law consistent with the interpretation of other legislations and in line with the prevailing international standard by taking into account the interests of everybody, not just skews towards that of creditors and financial institutions, but also debtors and guarantors.

The new Bankruptcy (Amendment) Bill 2016 will be debtor-centric i.e. relieving the predicaments of the bankrupts by giving them a second chance to begin a new lease of life. The Bill was tabled in the Parliament on 21 November 2016 for its First Reading. It has yet to be gazetted, but it is anticipated that the new amendments are likely to be in force at end of the year.

The salient features of the new amendments are as follows:

 

(i) Change of Name

The name of the Bankruptcy Act 1967 will be changed to the Insolvency Act 1967. The use of the term insolvency will be consistent with the interpretation of provision of the Companies Act 2016 which uses the term “Insolvency practitioner” to describe a liquidator of a company while there will be an identical mode of reference to the Insolvency Act 1967 for the bankruptcy of individuals.

 

(ii) Introduction of A New Rescue Mechanism

Similar to the current practice in the United Kingdom and Singapore, there will be a new pre-bankruptcy rescue mechanism known as the “Voluntary Arrangement” wherein a debtor can negotiate for a debt compromise or settlement proposal at a discount and/or a longer settlement term with its creditors to avoid the effects of bankruptcy. The mechanism will  entail the following steps:

  • Appointment of a nominee - The debtor will appoint a nominee to oversee and supervise the implementation of the voluntary arrangement. The nominee must be either : a chartered accountant, an advocate and solicitor, or such other person as prescribed by the Director General of Insolvency.

  • Application for an interim order - The debtor will then apply to the court for an interim order for voluntary arrangement, which will be for a period of 90 days that cannot be extended.

  • Protection from legal actions - Within the period of the interim order, no bankruptcy petition and legal proceedings can be commenced against the debtor except with permission from the court.

  • Meeting with creditors - During the period of the interim order, the nominee will hold a meeting will all of the debtor's creditors to secure their approval for the voluntary arrangement.

  • Approval by special resolution - The nominee will need to secure more than 50% in number and at least 75% in value of the creditors present personally or by proxy and voting on the resolution.

  • Secured creditors' rights - The rights of the secured creditors cannot be affected, however, without their consent.

  • Effect - The voluntary arrangement will then be binding on all creditors once approval is obtained.

 

(iii) Stricter Requirements for Service of Bankruptcy Papers

The bankruptcy notice must be served to the debtor personally. Substituted service is only allowed provided the creditor can factually prove to the satisfaction of the Court that the debtor:

  • has an intention to defeat, delay or evade such personal service; and

  • leaves or stays away from Malaysia, or absents himself from his home or place of business.

 

(iv) Higher Debt Threshold

The threshold of the debt amount for bankruptcy proceeding will be increased from the present RM30,000 to RM50,000 (about USD12,000).

 

(v) Exemption for Social Guarantors

A social guarantor is a guarantor who does not benefit but provides a guarantee for an educational loan, scholarship, or grant for educational or research purposes, hire-purchase transaction for non-business use, or a housing loan for personal dwelling.

 

The new amendment will prohibit any bankruptcy proceedings against a social guarantor, even though the creditor may have exhausted all avenues and yet failed to recover such debt from the debtor.

 

(vi) More Protection for Other Types of Guarantors

There will be a new shield of protection for other types of guarantors. A creditor will have to obtain leave from the Court before commencing any bankruptcy proceedings against other types of guarantors. To obtain leave, the creditor will have to demonstrate that he has exhausted all modes of execution and enforcement but still failed to recover such debt from the debtor.

 

(vii) Certain Lists of Bankrupts Allowed Discharge by Denying Creditors’ Objections

Certain lists of bankrupt individuals will be afforded protection where the objection from the creditors is no longer allowed. The lists of bankrupt individuals include a social guarantor, a bankrupt with a disability under the Persons with Disabilities Act 2008, a deceased bankrupt, and a bankrupt suffering from serious illness.

 

(viii) Shortening of Automatic Discharge Period

The new amendment will shorten the automatic discharge period from the present five (5) years  to three (3) years after the bankrupt has submitted his statement of affairs and provided that the bankrupt has rendered his account of monies and properties to the Director General of Insolvency (DGI) and achieved the target contribution set by the DGI.

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