Effective 06 October 2017, the Insolvency Act 1967 replaced the Bankruptcy Act 1967. In this article, I will discuss what the differences are.
According to Malaysia’s Department of Insolvency, there are 293,086 active bankruptcy cases nationwide as of February 2017. According to the statistics released by said Department, 54 bankruptcy cases are registered every day in the year 2016.
The Insolvency Act favours borrowers and therefore will make it harder for creditors to commence and maintain bankruptcy proceedings.
The Insolvency Act will not apply to individuals who are already made bankrupt and ongoing bankruptcy proceedings will proceed and conclude under the old Bankruptcy Act save for one exception which will be discussed below.
What are the changes?
1. Higher threshold for Bankruptcy.
Under the old Bankruptcy Act, a creditor may commence bankruptcy proceedings against you if you owe the creditor RM30,000.00.
Under this new Insolvency Act, the amount has been increased to RM50,000.00.
To be clear, you may be made a bankrupt if you owe one creditor RM50,000.00 – not RM50,000.00 as a total of your debt to various creditors.
2. Rescue Mechanism
Under the old Bankruptcy Act, you may propose a scheme to pay off your debt after you are made a bankrupt and your proposal will be subjected to a resolution to be passed by at least 3/4 in value of all approved creditors and to the approval of the Court.
Under this new Insolvency Act, you may propose a scheme to pay off your debt before you are made a bankrupt. This new pre-bankruptcy rescue mechanism is called Voluntary Arrangement.
To make use of this Voluntary Agreement, the individual will need to appoint a nominee such as a chartered accountant or a lawyer. The nominee needs 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. However, secured creditors’ rights cannot be affected without their consent. But once the arrangement is approved, it will bind all creditors.
3. More Protection for Guarantors
Under the old Bankruptcy Act, a creditor may commence bankruptcy proceedings against guarantors of a debt without much fuss.
Under this new Insolvency Act, guarantors are afforded more protection, making it harder for creditors to commence a suit against them.
For other guarantors on the other hand, a creditor will need to prove to the Court that he has done everything to recover debt from the debtor first and to obtain permission from the Court before commencing bankruptcy proceedings against the guarantors.
4. Discharge Me!
Under the old Bankruptcy Act, you may apply to the Court to be discharged as a bankrupt or you may apply to the Director General of Insolvency (DGI) to be discharged as a bankrupt after 5 years of being a bankrupt.
Under this new Insolvency Act, there are 2 additional ways to be discharged as a bankrupt:
a) If you’re a social guarantor, person with disability, a deceased bankrupt or a bankrupt suffering from a serious illness, you may apply to the DGI to be discharged and nobody can object to it.
b) You can be automatically discharged if:
- If you have been made a bankrupt for 3 years from submitting your statement of affairs;
- you’ve achieved the target contribution set by the DGI;
- have rendered an account of monies and property to the DGI.
The creditors can still object to the discharge here but they can only object based on very limited grounds provided for in this new Insolvency Act.
5. You’ve been served
Under the old Bankruptcy Act, you may be made a bankrupt without even knowing about it. This is because it is easy to get a substituted service order while you may not be in Malaysia when substituted service is effected.
Under this new Insolvency Act, the creditor will need to prove to the Court that you have the intention to defeat, delay, or evade personal service by:
a) departing out of Malaysia or remains out of Malaysia; or
b) departs from your house or secludes yourself from your house or closes your place of business.
So unless you are running away from being served, you will be served and you will have your day in Court.
How to manage my finances?
If you are having finance trouble, you can visit AKPK for help. Their services are free and they have a learning centre in their website.
If you’re unsure of whether you are made a bankrupt or not, you may download a free app launched by Malaysia’s Insolvency Department, MyDI.