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Voluntary Arrangement under the new Insolvency Act - The Process

The new amendment to the soon to be named Insolvency Act ("the Act") will introduce a new mechanism for a debtor to settle his/her debts with his/her creditors. Section 2A of the Act defines as it as a composition in satisfaction of a debtor’s debt or a scheme of arrangement of a debtor’s affairs.

This new mechanism enables the debtor to propose a settlement plan to all his creditors but he/she may only do so at any time before he/she isadjudged a bankrupt. A debtor who has the intention to propose a settlement plan must appoint a nominee for the purpose of supervising the implementation of this voluntary arrangement.

The nominee in this matter must be a registered chartered accountant, or an advocate and solicitor, or an officer of a corporate established under the Central Bank of Malaysia Act 2009. The nominee appointed must register with the DGI and must not be an undischarged bankrupt.

But before doing so the Debtor must obtain an interim order from the Court by way of an application. The interim order serves as a stay from all legal proceedings and execution process and no bankruptcy petition shall be filed against the debtor during such interim order period. The interim order operates for 90 days and it shall not be extended. In this regard, the court must satisfy itself that during the period of twelve months preceding the date of filing of such application that the debtor has not filed such similar application.

After obtaining the interim order from the Court, the nominee appointed by the debtor must notify all the Creditors within 7 days after the order was made.

The nominee shall then convene a meeting with the creditors to approve the debtor’s proposal for a voluntary arrangement. But the nominee must first obtain all the necessary documentation from the debtor such as a statement of his/her affairs which contains particulars of the debtor’s assets, creditors, debts and other liabilities.

During the meeting, the proposed voluntary arrangement must obtain approval by way of special resolution from all parties involved. However the proposal shall not affect the rights of a secured creditor to enforce his security, except with the concurrence of the secured creditor concerned.

Upon conclusion of the meeting, the nominee shall then report the decision of the meeting to the Court and shall serve the same to the debtor and all his creditors.

In the event the creditors declined to approve the debtor’s proposal, the Court may set aside any interim order which is in force in relation to the debtor.

Once the proposed voluntary arrangement has been approved by the creditors, it shall bind every person who had the notice of and was entitled to vote at the meeting. In this regard, the interim order shall become invalid thirty days from the date the report was sealed by the Court. And if any bankruptcy petition has been stayed by the interim order, shall be deemed to have been dismissed unless the court states otherwise.

In the circumstances, the creditor or the debtor believe that the decision of the meeting needs to be reviewed, they may do so by applying to court for a review of the decision of the meeting. And this application to review must be done within 30 days the decision was reported to the court.

After the application is heard, the court may revoke or suspend any approval given by the meeting and it may also direct any person to summon further meeting of the creditors to consider any revised proposal of the debtor or reconsider the original proposal of the debtor.

Once the voluntary arrangement has been approved, the nominee shall supervise the implementation of the voluntary arrangement but if the debtor or any of the creditors dissatisfied with the conduct of the nominee in his supervision, they may apply to court to review that act, omission or decision.

If the debtor fails to comply with any of his obligations under the voluntary arrangement; any creditor bound by the voluntary arrangement may file or proceed with a bankruptcy petition against the debtor. And before initiating any petition, the creditor in the matter must deduct any amount of debt that has been settled during the voluntary arrangement.

Apart from the above, the voluntary arrangement shall cease upon the death of the debtor.

Eswani Shahierah Wahab & Zafirah Zabidin

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