The New Bankruptcy Bill: The 10 Changes to Bankruptcy Law in Malaysia

[edit: As an update, the Bankruptcy (Amendment) Bill 2016 was passed by both houses of Parliament. It has now become an Act and has received Royal Assent on 10 May 2017. However, it will only come into force on a date to be fixed by the Minister.]

On 21 November 2016, the new Bankruptcy (Amendment) Bill 2016 was tabled in Parliament for its First Reading.

The new Bankruptcy Bill will bring about significant changes to Malaysia’s bankruptcy laws. This comes against a backdrop of rising bankruptcy cases, especially for individuals under the age of 35.

bankrupt

I set out below the 10 major changes to be ushered in under the Bankruptcy Bill. In summary, it can be seen that the new Bankruptcy Bill is more borrower-friendly and will make it more difficult for creditors to commence and maintain bankruptcy proceedings.

 (1) A Change of Name: Bankruptcy Act 1967 to the Insolvency Act 1967

The Bankruptcy Act 1967 will be renamed to the Insolvency Act 1967. Hence, when the new Act comes into force, any written law or document shall be construed as referring to the Insolvency Act 1967 instead.

The use of the term insolvency may cause some slight confusion in future. The Companies Act 2016 uses the term insolvency practitioner to describe a liquidator of a company while there will now be a reference to the Insolvency Act 1967 for the bankruptcy of individuals.

(2) Introduction of the Rescue Mechanism: Voluntary Arrangement

There is a new pre-bankruptcy rescue mechanism called the voluntary arrangement. The salient elements are:

  • The individual, ie. the debtor, will appoint a nominee. The nominee is meant to act as independent professional to oversee and supervise the voluntary arrangement.
  • The nominee can be a chartered accountant, an advocate and solicitor, or such other person to be determined by the Minister.
  • The debtor then files a court application for an interim order for voluntary arrangement. The interim order will only last for 90 days and cannot be extended.
  • The interim order will grant protection: no bankruptcy petition and no legal proceedings against the debtor except with permission from the court.

Within the 90-day interim order period, the nominee will hold a meeting of the creditors to try to secure their approval for the voluntary arrangement. The voluntary arrangement is essentially where the creditors agree to compromise or discount the debts owing to them.

The nominee needs to secure more than 50% in number and at least 75% in value of the creditors’ agreement. However, the secured creditors’ rights cannot be affected without their consent. If the approval is obtained, it will then be binding on all the creditors.

(3) Stricter Requirements for Service of Bankruptcy Papers

The bankruptcy notice must be personally served. Further, substituted service is possible but there are now stricter requirements. The creditor must prove to the satisfaction of the court that the debtor has:

    • The intention to defeat, delay or evade personal service; and
    • Leaves or stays away from Malaysia, or absents himself from his home or place of business.

(4) Higher Threshold for Bankruptcy: RM50,000.00 instead of RM30,000.00

The threshold for the debt for bankruptcy proceedings has now been increased to RM50,000.00 from the present RM30,000.00.

(5) Single Bankruptcy Order

The present law has a sometimes confusing reference to the adjudication order and the receiving order. This will now be simplified to a single unified order called the bankruptcy order.

(6) Social Guarantor: No Bankruptcy

A social guarantor is a person who does not profit and essentially provides a guarantee for an education loan, hire-purchase transaction for personal or non-business use, or a housing loan for personal dwelling.

The present Bankruptcy Act 1967 allows for bankruptcy proceedings against a social guarantor if the creditor had exhausted all avenues to recover from the debtor.

The law will change where there will now be an absolute prohibition in commencing any bankruptcy action against a social guarantor.

(7) Other Guarantors

There is also added protection for other types of guarantors. A creditor will need to obtain permission from the court before commencing bankruptcy proceedings against other guarantors. The creditor would have to demonstrate he has exhausted all modes of execution and enforcement to recover from the debtor first.

(8) New List of Bankrupts to be Allowed Discharge

The following list of individuals will also be afforded protection where creditors cannot object to the discharge of bankruptcy. The individuals are a social guarantor, a bankrupt with a disability under the Persons with Disabilities Act 2008, a deceased bankrupt, and a bankrupt suffering from a serious illness.

(9) Automatic Discharge

There is also a new provision allowing for an automatic discharge of the bankruptcy after three years from submitting his statement of affairs and subject to achieving the target contribution set by the Director General of Insolvency (DGI) and having rendered an account of monies and property to the DGI. The creditors can object to the automatic discharge but there are only limited specified grounds they can raise.

(10) A New Insolvency Assistance Fund

There will be the establishment of the Insolvency Assistance Fund. It will be administered and controlled by the DGI for the purposes of achieving the betterment of the administration and proceedings relating to bankruptcy.

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85 thoughts on “The New Bankruptcy Bill: The 10 Changes to Bankruptcy Law in Malaysia

  1. Sumathi Retnasamy 27 February 2017 / 12:44 pm

    When will this new law take effect?

    Like

  2. kenny chan 27 February 2017 / 4:38 pm

    my father was BC since 6 to 7 years ago and he have high blood pressure and being operation for coronary heard disease. can we apply to take him overseas for holiday and i know he didnt pay anything to BC office. plz advise.

    Like

  3. Emily 27 February 2017 / 9:39 pm

    My father was long retired, healthy, no income, no property and declared BC in 2015 at age 78. He sold his company in 1991 and the new owner did not remove his name as a Director. The company did not pay KWSP contribution since 1993 and closed down in 1994. In 2015, my father bank account was freeze and was informed by the bank about his BC status. The amount owe to KWSP is abt 400k incl interest. I have been helping my dad to pay minimal installment to insolvency for 1.5 yr. Officer advise to pay up to 5 yrs and appeal for discharge then.
    Any chances my father case can get auto discharge sooner?

    Like

  4. Jo-anne 28 February 2017 / 9:10 am

    I know a person who loan money from local bank and do business in oversea. After he got all his paper work done to get citizenship oversea, he just ignore his repayment here. He is now declared bankrupt but in Malaysia. Will he still have to repay the money here? Or what is the action taking on him?

    Like

  5. John Ng 28 February 2017 / 11:13 am

    How does a BC settle his debts if he has no fixed or consistent income since 2013? All his daily expenses are being taken care of by siblings and he can’t get a job that pays as promised. Did a few odd jobs but ended up being paid half or sometimes nothing and have no energy to argue.

    Like

  6. Raman 28 February 2017 / 11:28 am

    When will the 2nd and 3rd reading of the ammendments to the bankruptcy act take place and when will the law come into effect.

    Like

  7. segaran 1 March 2017 / 1:43 am

    i had been participate in akpk program for 10 years repayment since jan 2009 and due to my parent sickness i had withdraw from akpk program since august 2016 untill now not paying, and did receiving many call and lawyer letter for payment. in this case should i declare bankruptcy or wait for creditor come to me? if i declare bankruptcy, any document need to prepare?

    thank you.

    Like

  8. Zaidi 1 March 2017 / 9:41 am

    BC since 2014. I’am not a Sosial Guarantor but I only held 1% share in the company and was given RM400 a year as a Hari Raya bonus. After Auto Discharge I still have to pay to the creditor right?

    Like

  9. KY 10 March 2017 / 11:56 am

    whether the insolvency act has come into forced? when is the effective date?

    Like

    • Jry 20 March 2017 / 12:10 pm

      no confirmed date yet as it is still in the first reading. Might need to wait for another few years for the ACt to come into effect.

      Like

      • Raassoc 20 March 2017 / 9:06 pm

        The second reading is anyday during the current march session then if approved will go to dewan negara in april. Hopefully they will gazzette by mid year

        Like

  10. prabhakaran 24 March 2017 / 3:46 pm

    How to clear Bankruptcy?

    Like

  11. John Ong 1 April 2017 / 12:04 am

    I became a bankruptcy since 2004 amounting to Rm 2 million over, then i paid installation Rm 100.00 a month until 2014. Then economic starting going down ward so i didn’t pay the installment till now. Because i have 4 children to feed, How can i apply for discharge my bankruptcy ? Please advise. Thank you

    Like

    • Rani Nadesan 3 April 2017 / 4:17 pm

      We have to wait for the Amended Act to be gazetted. If it applies retrospective, you can apply to the DGI office. The Amended Act requires one to declare the Statement of Affairs and Accounts to the DGI, in order to qualify for the 3 year automatic release from being a Bankrupt.

      Like

      • John Ong 4 April 2017 / 9:09 pm

        Regardless of how much the amount of debt?

        Like

    • Martha 29 May 2017 / 2:05 pm

      hi, both my sister and brother are bankruptcy since 2007 amounting to 100k, they paid min amount of RM50 for less than a year as he’s the sole provider for his huge family of 5 children all below the age of 9. its been 10 years and their names are still in the system. How can they appeal for Bankruptcy discharge? Anyone with experience and advice on how to go about with this.

      Like

  12. Hurley 12 April 2017 / 6:43 pm

    I have a friend who is been declared BC. Can he open a bank account using his name. He is operating a small business using his brother name. Can he open a nusiness ysing his name and opening bamk account under his name. For infor his outstanding BC amount RM80k.

    Like

  13. Rikko Swee 29 April 2017 / 1:55 am

    I am 60 years old man, still struggling for surviving in foreign land. When my passport was about to expire on April 2015, I went to the Embassy to renew. I was informed by the embassy staff; the bank has declared me on the Bankruptcy List.

    In year 1998, we had 3 partnerships business. I was acting as a sleeping partner and the 2 was active running the business. Somehow these 2 active partners had theirs own disputed and left, one after the other. I had no choice but to step in to run the business. When I realized both partnerships had fully utilized the bank loan and account running low. I poured in more personal fund to the keep the business running. Hopefully I can be able to turn over, and to recover for the loan. Unfortunately it was a depression years for country and suffered greatly lost. Eventually I had to close it down; trying in vain to contact both partnerships to requested them to pay back the bank loan, failed. After using my personal loan to support the business, I turn into broke as well; I had to find an alternative to survive myself. I have to leave the country for surviving; if I stay back I will be in bad shape being Bankruptcy candidate can’t move on my life. I will become homeless and begging on the street.

    Recently I was being updated the recent Bankruptcy Act were give us a forgiveness. Please advice, how can I be able to pursuant? I am still living and earning on the foreign land. Should I have to engage a lawyer to file my petition?

    Like

  14. nevin low 2 May 2017 / 10:35 pm

    Under the new Insolvency Act 1967, I am a social guarantor for a Hire Purchase car loan to someone not related to me. And the amount was RM100k. I was made a bankrupt in 2013 without an official notice served on me. Nevertheless, I was made a bankrupt. Am I eligible for a discharge? under the new Insolvency Act 1967- Social Guarantor.

    Like

  15. Pooh Key Mark 19 May 2017 / 11:18 pm

    Lucid article, thanks.

    Will you be authoring a book on Insolvency laws in malaysia in light of the amendments any time soon?

    Cheers.

    Like

  16. Yap Peng Thien 25 May 2017 / 3:15 pm

    Being a bankrupt is like staying behind bars. I was declared a bankrupt in 1995 which restricted / limited any chances of personal growth or career advancement. Automated discharge is a misconception that has landed myself in grievance pastures for 20 years. I was finally discharged last November 2016. But that is not freedom totally as records are somewhat unable to erase from your record. As such, many information you have acquired about being a bankrupt free you from financial responsibility is a misconception. You will lead a miserable life or better phase has no life. So be prudent with your finances and manage them with extreme care

    Like

  17. Maggie 31 May 2017 / 11:49 pm

    I owed credit cards RM50k after my hubby left the family. I have closed my company and for past 6 montgs has got a job. How do I make arrangement to pay my debts? What choices do I have? Will I still be allowed to travel if I am on ccris or ctos? I wish to also wind up my company which is not operational now but have not enough money to even pay for the accounting fees… pls advise

    Like

  18. Khor 14 June 2017 / 11:39 pm

    Hi
    I would like to ask
    If the house under two owner, but the one of owner dun want make a house loan payment, how the others owner suit do to safe himself from bankruptcy?
    Because is unfair for the one who keep paying the loan but the end get effect for bankruptcy

    Like

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