INTRODUCTION TO THE BANKRUPTCY (AMENDMENT) ACT 2017- What’s New?

After much talk about making amendments to the Bankruptcy Act 1967 (“the Act”), the Bankruptcy (Amendment) Bill 2016 (“the Bill”) has been tabled for its first reading in the Parliament of Malaysia on 21 November 2016 and the relevant Bankruptcy (Amendment) Act 2017 (“the Amending Act”) received its royal assent on 10 May 2017 and is coming into force w.e.f 6 October 2017.

There are some substantial amendments to the current Act, which has remained as unamended since year 2003. Essentially, there are 11 salient changes which are being introduced by the Bill.

#1       The Act would have a new name, to be called as the “Insolvency Act” and the long title is more specific in pointing out that this Act would be in relation to the insolvency and bankruptcy of an individual and a firm.

#2       The court would no longer grant any “receiving order” or “adjudication order”, but just one single order for bankruptcy, i.e. the “bankruptcy order”.

#3       The introduction of the Voluntary Arrangement scheme for debtors. Before a debtor is adjudicated as bankrupt, he/she has a choice to propose for a voluntary arrangement with the creditors.

  • Once an application for voluntary arrangement has been made to the court, the court will grant an interim order which have a validity period of 90 days and it serves as an order to stay bankruptcy proceedings and to prevent any bankruptcy petition being filed.
  • Such interim order will also stay any other ongoing legal proceedings (including execution) against the debtor and to prevent any other legal proceedings be commenced against the debtor, unless leave of court is granted.
  • The voluntary arrangement scheme has to be passed within a creditors’ meeting by way of a special resolution, i.e. majority in number and at least ¾ in value of the creditors present personally in the meeting or by proxy or in writing.
  • Once the scheme is approved, it will bind every creditors which is entitled to vote.
  • During the effective period of a voluntary arrangement, the debtor shall not enter into a credit facility unless with creditors’ approval and with a notice to the party providing the credit.
  • In effect, with of the introduction of this scheme, deed of arrangement with creditor is no longer an act of bankruptcy under Section 3(1) of the Act.

#4       Bankruptcy notice and creditor petition must be served by way of personal service. Substituted service will no longer be allowed as easy as it is now and the court would be more rigid in allowing the application, which must be supported by an affidavit showing the intent of the debtor to defeat, delay or evade personal service by either departing from Malaysia, his house or place of business.

#5       The threshold for a bankruptcy petition to be filed would be revised to RM50,000-00 from the existing RM30,000-00.

#6       Bankruptcy proceedings could no longer be commenced against a social guarantor, which include a guarantor for loan and scholarship for educational or research purposes, loan for hire purchase of vehicle for personal or non business use and loan transaction solely for personal dwelling.

#7       For other guarantor than a social guarantor, the creditor would need to obtain leave from the court to petition for bankruptcy. To apply for leave, the creditor must has exhausted all modes of execution and enforcement to recover debts owed to him by the borrower, including seizure and sale, judgment debtor summons, garnishment and bankruptcy or winding up against the borrower.

#8       The creditors are not allowed to object to any discharge of bankruptcy as determined by the Director General of Insolvency (DGI) after 5 years from the date of the order, if such bankrupt

  • was adjudicated due to being a social guarantor;
  • is a disabled person under the Persons with Disabilities Act 2008;
  • is a deceased bankrupt; or
  • is a bankrupt suffering from a serious illness certified by a Government Medical Officer.

 This amendment will also apply to any person adjudicated as bankrupt before the enforcement of the Bill.

#9       The Bill also provided for an automatic discharge of bankruptcy.

  • On the expiration of three years from the date of the submission of the statement of affairs, if the bankrupt has achieved amount of target contribution of his provable debt and complied with the requirement to render an account of moneys and property to the DGI under paragraph 38(1)(b), the bankrupt would be discharged.
  • As to whether the Bankrupt has achieved its target contribution, it will be decided by the DGI, taking into account factors like the earning power of the bankrupt and economic conditions and etc.
  • The DGI will issue a notice to creditors during the last 6 months of the 3 years period for such discharge.
  • Objection from creditor must be made by way of court application within 21 days from date of service of notice on a few limited grounds only, i.e. committed offence under the penal code for fraudulent deeds and dispositions of property, the administration of the bankrupt’s estate would be prejudiced and bankrupt has failed to co-operate in the administration of estate.
    1. If the objection is sustained, the discharge would be suspended for another 2 years only.

    #10    The introduction of the Insolvency Assistance Fund (“the Fund”) to achieve the betterment of the administration and proceedings relating to bankruptcy. The Fund would be utilised by DGI to help payment of all costs on behalf of a bankrupt’s estate or to recover assets of the estate, as well as costs in the administration of a bankrupt’s estate and payment of any expenses to provide an efficient and effective administration. This will allow the DGI to utilise profit and dividend from the investment of surplus fund and all costs, fees, charges and moneys recovered by the DGI in any proceedings taken under this Act in which monies from the Fund were applied.

    #11    The secured creditors will have 12 months (instead of the existing 6 months) to realise any security for the purpose of recovering the  principal sum with all the interest due. If the  creditors  failed to realise the security within the prescribed timeline, the creditors would not be able to claim for interest beyond the date of the bankruptcy order.

    It is to be noted that some of the amendments are more for improvement of mechanism and procedure of our bankruptcy proceedings while other amendments are aimed to reduce the number of bankrupts in Malaysia and to offer statutory alternative for a debtor before being adjudicated as a bankrupt. Given the amendments, creditors may need to start thinking about revising their conditions for credit approval and updating their operating procedure for debt recovery.  The above positions are subject to change following the final amendments as passed by the Parliament in the future.

Full text of the Amending Act is accessible from this link: http://www.federalgazette.agc.gov.my/outputaktap/20170518_A1534_BI_Act%20A1534.pdf

Kindly contact us for more details and information on this topic.