Bankruptcy Law Changes 2017
The recent Bankruptcy (Amendment) Bill 2016 was first tabled in Parliament on 21st November 2016 and the Royal Assent was given on 10th May 2017. It has huge implication towards various stakeholders including financial institutions, corporations, guarantors, and individuals. This short article will highlight the biggest changes to the current Bankruptcy Act 1967.
The most obvious amendment is the increase in the minimum threshold to commence bankruptcy proceedings against an individual. Under the soon to be named Insolvency Act, a creditor is only entitled to file a Bankruptcy Notice against the debtor once the debt owed reaches RM50,000.00. The increase of minimum threshold is due to the overwhelming number of individuals being declared as bankrupt as per the statistics from Department of Insolvency whereby in the year 2016 itself, 82,383 individuals were declared bankrupt by the courts, of which 69.3% were male.
The amendments also introduces a voluntary arrangement which is defined under Section 2A as a composition in satisfaction of a debtor’s debt or a scheme of arrangement of a debtor’s affairs. This mechanism allows the debtor to negotiate on the settlement proposal with his creditors by appointing a nominee to supervise the implementation of the voluntary arrangement. Under this arrangement, the debtor has to make an application to court for an interim order and submit a copy of the application to the Director General of Insolvency.
The interim order will act as a stay of a bankruptcy proceedings against the debtor. Thus, within 90 days from date of the interim order (which cannot be extended), no bankruptcy petition may be made and no other proceedings, execution or legal process may be commenced against the debtor except with the leave of court. In the same period, the nominee will conduct a meeting with all the creditors to ensure their approval of the said arrangement. Once approved, it will bind every person who had notice and entitled to vote at the meeting.
The new Act is also debtor-friendly as it provides an automatic discharge of bankruptcy. Under the current Bankruptcy Act, the debtor may apply for discharge from his bankruptcy status after 5 years from the date he was made a bankrupt provided he has satisfied the requirements as stated in the said Bankruptcy Act. However, with the new Act, the debtor, after 3 years of submitting the statement of affairs under section 16(1) and subject to achieving the target contribution and has complied with the requirements to render an account of monies and properties to Director General of Insolvency, shall be discharged from bankruptcy automatically unless there are objections from the creditors (subject to limited grounds).
Another significant change is better protection for guarantors. Bankruptcy proceedings against a social guarantor is strictly prohibited. However, this does not mean that no legal action can be taken against a social guarantor. As for guarantors other than social guarantor, leave from the court is required to be obtained and the creditor must prove to the court that he has exhausted all modes of execution and enforcement to recover the debt owed to him from the principal debtor before proceeding with bankruptcy action.
Last but not least, it is compulsory to serve the bankruptcy notice personally. Substituted service is still possible but it requires the creditor to prove to court that the debtor has the intention to defeat, delay and to evade personal service by being out of Malaysia or being absent from his dwelling house or closes his place of business. In other words, the creditor has a higher burden of proof to satisfy.
How these amendments will influence the handling and conduct of bankruptcy proceedings in future remains to be seen but surely its effects will have a big influence on how financial institutions treat guarantors and its approval criteria in giving out loans in future.
Siti Nuradliah Mohd Radzi & Shireen Munira Saiful Madzi